Forming a 501(c)(7) Social Club

Forming a 501(c)(7) Social Club

What in the world is a 501(c)(7) social club?

A social club is an organization formed for pleasure, recreation, and other nonprofitable purposes under Internal Revenue Service tax code section 501(c)(7). It is somewhat easier to form and maintain than an organization type you are probably more familiar with: a 501(c)(3) charitable nonprofit. What’s the difference? Donations to a 501(c)(3) are tax-deductible whereas donations to a 501(c)(7) are not.

Why form a 501(c)(7)?

We can protect ourselves, and our classmates, by forming this kind of entity. We could take in and expend funds through a personal bank account, but then that individual’s financial transactions may become more public if audited. Worse, the reunion funds flowing through that account could be considered personal income and thus be found taxable to the individual.

It is hard to keep personal funds and business funds separate in a personal account. A business account makes this easier: easier to manage and easier to audit. But to get a business account, we would need to create a business.

However, perhaps the most important reason to form a 501(c)(7) is to provide continuity over time. Creating a reunion from scratch each time we hold it is a big lift for the individuals who volunteer for this work. So far, we’ve spent much of our time finding people who wish to help. By creating an entity that will meet regularly, we stand a much better chance of retaining the experience and knowledge of a group of classmates. Forming an entity like this also provides a way for classmates to express their wishes in a democratic way.

We also believe that by providing a formalized structure that persists from year to year, we can build more confidence in the ability of the group to effectively communicate between reunions.

Incorporate in Washington State

We believe the best course of action is to incorporate as a nonprofit entity in the State of Washington. That will require that we create articles of incorporation and bylaws that comply with RCW 24.03A, the Washington Nonprofit Corporation Act. This is a rather long bundling of many requirements. We have written the first drafts of the articles and bylaws but the newly formed 501(c)(7) Committee will be making thoughtful edits to it in the next few weeks.

EIN number

Once we file our formation documents with the Washington Secretary of State, we can obtain an Employer Identification Number (EIN) from the IRS. We need the EIN to file an annual Form 990 report with the IRS. Given the small amount of money that will flow through the organization, it seems likely we can file the 990-N, the shortest and easiest report.

What we need to do

First, we need to review and revise the draft articles of incorporation and bylaws. We need to make certain they comply with RCW 24.03A. And we’ll need a name! Most of the resources we’ve found suggest keeping the name short but descriptive; we may settle on something like “MRHS Class of 1974.”

Second, we need to select the initial officers. I am certain we will have staggered terms so that we don’t face a complete change in the board in a single election. Maintaining continuity from year to year is an important reason to form a 501(c)(7).

Third, we can then file our formation documents with the State of Washington and obtain a Universal Business Identifier (UBI) from the State. Yes, this means we also have to file an annual report with the State!

Fourth, after the State approves our new nonprofit corporation, we will be able to open a business account. That account would be used to hold donations, registration fees, and all other funds related to the organization.

Annual meeting

I expect the board will want to hold an annual meeting just before, or at, the 50th Reunion event. We may have an election of officers at that time. To be as inclusive as possible for classmates to participate, we are specifying in the bylaws that all members may participate by telephone or video conference.

Additional references

Two good references about 501(c)(7) social clubs are listed below:

• https://southernmarylandchronicle.com/2021/06/25/benefits-of-501c7-social-clubs-nonprofits-guide/
• https://www.vanpeltlegal.com/news/2019/4/9/starting-a-social-club-aka-a-501c7

We may need some legal assistance

Is this a done deal? Not yet. The reunion planning group has agreed to form a committee (done!) and task that committee with bringing back improved articles and bylaws (in progress). If you have a relationship with an attorney who has worked with nonprofits and who may want to provide some pro bono (free) help, please do ask!