Nonprofit Law/501(c)(7) requirements on voting
I belong to a 501(c)(7). The Board is wanting to do away with the requirement that members vote for Board members. That would make the Board self perpetuating.
My understanding of Chapter 7. Exempt Organizations Determinations Manual from the IRS, specifically 22.214.171.124.1.1.2, where it states:
126.96.36.199.1.1.2 (02-23-1999) Rights and Privileges
1. Memberís rights and privileges are as follows:
A. A regular member has the right to vote and determine the management, operation and control of the club. He/she will generally share in the assets of the club in the event of dissolution.
B. An associate member has no right to vote and will not generally share in the assets in the event of dissolution. In some cases, both regular and associate members may be entitled to the use and enjoyment of all club facilities, or may be limited to the use of a part of the facilities (i.e., golf only, tennis only, clubhouse only, etc.).
Many years ago the Board changed the Bylaws, reducing the number of Board members to 7 members, with 5 appointed by the Board and 2 elected by the members.
Now the Board is planning change the Bylaws again. Eliminating the ability for members to vote for any Board members. I sincerely believe this change will result in the club losing its nonprofit status.
The Board will not listen to membership. The believe they have the right to do this under the Colorado Nonprofit Corporations Act. We are not disputing their right to change the Bylaws, we are worried about the issue of losing the tax exempt status we currently have.
When we questioned the Board about the tax exempt status all they keep repeating is the Colorado Nonprofit Corporations Act allows them to make the change.
Thank you for your time, it is greatly appreciated.
I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. The IRS allows 501(c)(3) organizations to have self-perpetuating boards. Your question is about IRS regulations for 501(c)(7) organization. Even though this forum is not for such matters I will try to give you some lead. I will not, however, be looking into Colorado state law.
It appears you are referring to a social club and social clubs do not qualify for 501(c)(3) organization status. IRC 501(c)(7) exempts from federal income tax, clubs "organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder."
In the section right above the section that you cited to we see:
--- Start of excerpt ---
Classes of Membership
Clubs may have more than one class of membership, such as:
If a club has more than one class of membership, each membership class should have eligibility requirements and a formal admittance procedure, even for a nonvoting class.
--- End of excerpt ---
I do not see in that IRS summary that there is a requirement that there be a voting class.
You may not know, but states do not allow boards to change voting classes voting rights, without the approval of that voting class.
If you want to me to spend more time on your issues send me an email directly to my email address below and I will quote you my fees.
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. For me to consider your individual situation and how the law applies, I would need to gather more information.