An issue confronts our new club for which I must turn to the giant throbbing brain that is the Slowtwitch readership: non-profit status of our triathlon club.
Our new club has incorporated and has now raised some seed money from our initial members. As I see it there are two routes to tax exempt status: either under sec 501(c)3 of the IRC as a charitable organization or under 501(c)7 as a recreational association. For a small org like ours, the compliance requirements seem the same at first blush. Charitable status would allow persons to deduct contributions to our club (above and beyond normal dues) while they could not do that to a rec association. I think a defensible argument could be made to our activities to fit under the charity rules, and a quick search of Guidestar shows numerous tri clubs have already been down this road.
What say you, ST brain? Has anyone been down the road of getting a determination letter from the IRS for their tri club and learned a thing or two they would be willing to share? What about in out years, with tax returns and other compliance issues? I actually have the chance to do this right the first time, and I would love whatever insight you could offer.
We have been a 501(c) 7 for about 15 years and never had any IRS problems. Just remember your club can not operate to make a “profit” and you can not have any paid employees. You can carry an operating budget from year to year. We typically carry over about 4 thousand. The best advise we received was never to file a return if your club makes less than $10,000. Once you file a return, you will have to do so regardless of how much the club makes or until you dissolve the business.
Qualification for c(3), which as you state would be beneficial because, as opposed to c(7), donors would be eligible, subject to all the other IRS limitations, to deduct donations include “the exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.”
It doesn’t seem so clear to me that a tri club would qualify. I hasten that I don’t have any personal experience with attempting to do so, but it seems to me that the primary reason for forming a tri club is to benefit its members, rather than do something charitable, and I think you will have difficulty convincing the IRS otherwise.
Qualification for c(3), which as you state would be beneficial because, as opposed to c(7), donors would be eligible, subject to all the other IRS limitations, to deduct donations include “the exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.”
It doesn’t seem so clear to me that a tri club would qualify. I hasten that I don’t have any personal experience with attempting to do so, but it seems to me that the primary reason for forming a tri club is to benefit its members, rather than do something charitable, and I think you will have difficulty convincing the IRS otherwise.
This is the primary issue I am wrestling with: we are forming this club to bring new people into the sport, as well as to provide resources for people to train together (group rides, masters swim) and promote health and physical education. We hang our hats on the hooks of “charitable” or “educational.” Many charitable enterprises exist to do this sort of thing. Recognize also that regardless of our non-profit form members cannot deduct dues; this is only an enticement to persons who wish to make donations above/beyond what they receive in services. In our members’ experience businesses are more willing to give donations or in-kind support to 501c3 orgs rather than just a generic non-profit.
Also, numerous triathlon/multisport clubs have received determination letters from the IRS, at least according to the GuideStar database, so someone out there is doing this right now.
go to a pro. every penny of the fees will be well spent.
at the start of my short stint leading the local club i went to a seasoned attorney who specializes in non profit organizations to get ours into compliance with the rest of the world. the club Constitution Mission Statement includes the following:
“The Club will not engage in any activity contrary to its non-profit status or which would be contrary to Section 501 (c) (3) or Section 501 (c) (4) of the IRS code.”