IRS Targets Nontraditional Activities

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12_16_14_175In recent months, the Internal Revenue Service (IRS) has begun focusing on nontraditional income for 501 (c)(7) tax-exempt clubs in examinations and Private Letter rulings. In a PLR released on Friday, December 12, the IRS revoked the tax-exempt status of a social club who had incurred significant nontraditional income, apart from its core mission as a social club.   

Mitch Stump, CPA, and author of the Club Tax Book, shares "The issue of non-traditional income has come up recently and repeatedly on IRS examinations. Now, with this recent PLR which uses a 'Modified gross receipts per. Rev. Proc. 71-17' methodology, all 501(c)(7) tax-exempt clubs should be on notice that their non-traditional activities could cost them their tax exempt status."

So what are nontraditional activities? In short, they are any activity that does not meet the club's central purpose which should be organized "exclusively for pleasure, recreation and other nonprofitable purposes." Think to-go food and wine sales, where the consumption by the member is off-site.

Read more on this topic in McGladrey’s eClub New's article “Non-traditional activity in private clubs.

Posted by Karen Woodie at 12/17/2014 04:59:15 PM | 


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