Golf Course Loses Exempt Status

Person to Contact/ID Number: * * *

In a determination letter dated September 19xx, you were held to be exempt from Federal income tax under section 501(c)(7) of the Internal Revenue Code

Based on recent information received, we have determined you have not operated in accordance with the provisions of section 501(c)(7) of the Code. Accordingly, your exemption from Federal income tax is revoked effective January 1, 20xx. This is a final adverse determination letter with regard to your status under section 501(c)(7) of the Code.

We previously provided you a report of examination explaining why we believe revocation of your exempt status is necessary. At that time, we informed you of your right to contact the Taxpayer Advocate, as well as your appeal rights. You signed Form 6018-A, Consent to Proposed Action, agreeing to the revocation of your exempt status under section 501(c)(7) of the Code.

You are required to file Federal income tax returns for the tax period(s) shown above. If you have not yet filed these returns, please file them with the Ogden Service Center within 60 days from the date of this letter, unless a request for an extension of time is granted, or unless an examiner's report for income tax liability was issued to you with other instructions. File returns for later tax years with the appropriate service center indicated in the instructions for those returns.

You have the right to contact the Office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, such as the formal Appeals process. The Taxpayer Advocate cannot reverse a legally correct tax determination, or extend the time fixed by law that you have to file a petition in a United States court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. You may call toll-free, 1-877-777-4778, and ask for Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer Advocate at:

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Per the interview, the Treasurer stated that during the past few years, membership has been dwindling and the organization has had to use its savings to help defray the cost of operating the golf course. Examination of the books and records for the tax year 20xx determined that a percent of ORG's gross receipts were received from nonmember sources. The 20xx Form 990 indicated that nonmember income accounted for a percent of the organization's gross receipts.

Treas. Reg. Section 1.501(c)(7)-1(a) essentially repeats the language of section 501(c)(7) of the Code but also states that, in general, this exemption extends to social and recreation clubs which are supported solely by membership fees, dues, and assessments. However, a club otherwise entitled to exemption will not be disqualified because it raises revenue from members through the use of club facilities or in connection with club activities.

Public Law 94-568 (1976) amended section 501(c)(7) of the Code to allow social clubs to receive some outside income without jeopardizing their exempt status. Specifically, the Senate Finance Committee Report states a social club is permitted to receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its exempt status. However, within this 35% limit, not more than 15% of gross receipts should be derived from the use of a social club's facilities or services by the general public.

Revenue Ruling 60-324 states in part that a social club exempt from Federal income tax under IRC 501(c)(7) may lose its exemption if it makes its club facilities available to the general public on a regular, recurring basis since it may then no longer be considered to be organized and operated exclusively for its exempt purpose.

Revenue Ruling 68-638 states in part that a club formed to maintain a country club for the promotion and enjoyment of golf for its members, receives, as host of an annual golf tournament substantial income from the public, and uses the income for club operating expenses and improvements is not exempt under IRC section 501(c)(7).

Revenue Ruling 69-219 states in part that a social club that regularly holds it golf course open to the general public, charging established green fees that are used for maintenance and improvements of club facilities is not exempt under IRC section 501(c)(7).