Should Your Nonprofit Social Club File for Tax-Exempt Status or Just Self-Declare?
Much like Michael Scott declaring bankruptcy by just shouting it out loud (spoiler: that’s not how it works), your social club can declare its federal tax-exempt status just like that (kind of). This is not legal advice, so please don’t just yell “I declare tax exemption!” in your board meeting.
Much like Michael Scott declaring bankruptcy by just shouting it out loud (spoiler: that’s not how it works), your social club can declare its federal tax-exempt status just like that (kind of). This is not legal advice, so please don’t just yell “I declare tax exemption!” in your board meeting.
Social clubs, formed for social and recreational purposes, such as pickleball leagues, golf clubs, fan clubs, garden clubs, and similar membership organizations, enjoy tax-exempt status under Section 501(c)(7) of the Internal Revenue Code. For more details on how 501(c)(7) clubs operate and maintain their status, check out this prior blog post.
Unlike many 501(c)(3) organizations (which, except for churches and a couple other minor exceptions, always need to apply for exempt status), most other kinds of tax-exempt organizations, including 501(c)(7)’s, can self-declare their tax-exempt status without formally filing Form 1024 with the IRS. (For 501(c)(4)’s, it’s actually Form 1024-A and there is an extra step of filing Form 8976 – critical to not miss that if you’re a 501(c)(4), but we’re just talking about 501(c)(7)s today).
According to IRS guidance (notably footnoted in Publication 557, updated January 2025), social clubs meeting the requirements of section 501(c)(7) are not required to submit Form 1024 to establish exemption, though they may choose to do so if they want a formal IRS determination letter. Instead, a 501(c)(7) club generally self-declares its exempt status by filing its first annual Form 990 (or 990-N/990-EZ, depending on gross receipts), which serves to notify the IRS of its ongoing exempt operation. Maintaining compliance means continuing to file the appropriate Form 990 annually. This post explains when self-declaration is sufficient and when filing for a determination letter may be advisable.
When Is It Appropriate to Self-Declare?
Many small to medium-sized social clubs successfully operate without filing Form 1024 for formal IRS recognition. Self-declaration is often sufficient when:
· The club does not need a formal IRS determination letter (e.g. a neighborhood bocce league that plays in public parks and doesn’t maintain a bank account, or a gardening club that never applies for outside funding and only hosts member socials).
· The club’s financial operations are straightforward (e.g. dues, limited member events, no nonmember income, no physical assets).
· The club has no external parties requiring formal recognition (e.g. banks or state regulators).
By self-declaring, the club avoids paying the IRS user fee and can begin operating as a tax-exempt 501(c)(7) immediately, without waiting for IRS review or approval via Form 1024.
When Should a Club File Form 1024?
A social club may choose to file Form 1024 if the club needs official IRS recognition to:
· Open bank accounts or obtain credit lines.
· Rent or lease facilities requiring proof of tax-exempt status.
· Apply for sponsorships or funding that specifically request IRS documentation. Note that donations to 501(c)(7) social clubs are not tax-deductible for donors, regardless of whether the club has filed Form 1024 or not.
· The club anticipates growth or plans increased interaction with external partners such as vendors, landlords, or funding agencies.
· Engage in activities where the club wants formal IRS confirmation that its operations qualify as tax-exempt under section 501(c)(7). For example, if the club runs frequent public tournaments, hosts fundraising events open to nonmembers, or sells merchandise. These gray areas may raise questions about whether the club’s purpose and activities remain primarily social or recreational.
Why You Might Decide to Not Self-Declare and Just Apply Anyway
While filing Form 1024 is not required, it can provide added security. A club that self-declares assumes the risk of having to prove its exempt status in the event of an IRS audit. Obtaining a determination letter may be prudent for clubs operating in a legal gray area or seeking long-term certainty. Just note: Form 1024 must be filed within 27 months of your club’s formation if you want the recognition to apply retroactively.
Filing a Form 1024, even when you don’t have to, can also be helpful in a state like California. There is no ‘self-declaring’ for state income tax exempt status in California, so everyone is going to have to file either a Form 3500 (long form) OR a Form 3500A (a very short form that you can file IF you have a federal determination letter). Since filing a full Form 1024 and a 3500A is not that much more work than filing just a Form 3500, and it gives you two determination letters to show proof of exempt status (federal and California) instead of just one for California and people having to take your word for it on the federal level, we often advise California organizations to apply federally.
Best Practices Regardless of Filing Choice
To maintain your club’s tax-exempt status, it’s essential to:
Keep clear, up-to-date bylaws and maintain an elected board of directors to ensure strong governance.
Maintain accurate financial and membership records to support transparency and compliance.
File the appropriate annual Form 990.
Carefully monitor income from nonmembers to avoid triggering unrelated business income tax.
Ensure that club activities remain focused on the social and recreational purposes that qualify for exemption under section 501(c)(7).
Following these practices will help keep your club in good standing with the IRS and preserve its tax-exempt status.
Conclusion
Simply self-declaring tax-exempt status by filing Form 990 is enough for many social clubs. However, filing Form 1024 to obtain formal IRS recognition provides official confirmation and added credibility, which can be valuable as your club grows or works with outside partners. This critical decision requires a thoughtful approach based on your club’s unique needs and goals. While this isn’t legal advice, I hope this guidance helps you navigate the process more confidently and clearly.