Nonprofit Law/501c7 Inurement


QUESTION: Is allowing an employee to teach swim lessons  on a tax exempt faction to the general public and keep all of the profits an example of prohibited inurement to a private individual?

ANSWER: I don't know what you mean by "faction", but, if you are referring to "on property of a 501(c)(7) organization, that is either prohibited private inurement or excess private benefit.

The term "private shareholder or individual" as to the issue of "inurement" is defined in
regulations 26 C.F.R. 1.501(a)-1(c) "The words `private shareholder or individual' in section 501 refer to persons having a personal and private interest in the activities of the organization." on the right column of page 2

The IRS has written that one who controls is also an insider. "The first key is that inurement applies to those who are 'inside,' or in control, of the organization..." is the part of the Internal Revenue Manual relating to "Social and Recreational Clubs - IRC 501(c)(7)" and specifically we see "A social club can not have any part of its net earnings inuring to a shareholder or member."

But, even if there is not inurement, if the organization allows for-profit activities, such as letting an employee gain income from teaching on the facilities of the nonprofit organization there is a deviation of the purposes allowed, "The activities are in furtherance of pleasure, recreation or other similar nonprofit purposes."

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    

---------- FOLLOW-UP ----------

QUESTION: Auto correct changed the word facility to faction and I missed it.

Am I correct in stating that the above circumstance would be an example of prohibited private inurement or excess benefit. Only the swim instructor is financially benefiting from the club activity.

But, the club could conceivably argue that the for profit activity of the club offering swim lessons is different.  The income would be related to the club purpose and thus allowable within the parameters of a closed membership if lessons are offered to members and their guests and not the general public? We would be under the restriction of 15% of our gross income coming from non-members.

First you have to decide whether the swim instructor is an insider. I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. You are getting specific and you are asking about a c7 organization. Your issues are beyond the work I do without a fee and I would need to spend a substantial amount of time.  If you want to hire me, send me an email directly to my email address below and I will quote you my fees.

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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