How to Form a Social Club as a 501(c)(7): Bylaws, Form 1024, and Taxes

To form a 501(c)(7) social club, you incorporate as a nonprofit under your state’s laws, adopt bylaws that meet IRS requirements, obtain an Employer Identification Number, and file Form 1024 with the IRS to be recognized as tax-exempt under Section 501(c)(7) of the Internal Revenue Code. The exemption is available to clubs organized for pleasure, recreation, and similar nonprofitable purposes, provided substantially all activities serve those goals and no part of net earnings benefits any member personally.1Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. The paperwork is manageable if you take it in order.

Confirm the Club Qualifies Before You Start

Section 501(c)(7) covers hobby clubs, country clubs, dinner clubs, amateur sports leagues, garden societies, and similar groups where members gather around a shared interest rather than a business objective.2eCFR. 26 CFR 1.501(c)(7)-1 – Social Clubs The IRS expects genuine personal contact, commingling, and face-to-face fellowship among members. A group that exists mostly on paper, or that operates like a mail-order discount club, will not qualify. For organizations with local chapters, the fellowship requirement is satisfied if it exists within each local group.3Internal Revenue Service. Social Clubs – Requirements for Exemption – Personal Contact Required

The club must also be supported primarily by membership fees, dues, and assessments rather than by selling goods or services to outsiders.2eCFR. 26 CFR 1.501(c)(7)-1 – Social Clubs A club that opens its restaurant or golf course to the general public as a regular business is not operating exclusively for recreational purposes and will not qualify.

Step 1: Incorporate the Club in Your State

The club needs to exist as a legal entity under state law before you apply for federal exemption. Most social clubs file articles of incorporation (sometimes called articles of organization) as a nonprofit corporation with the Secretary of State’s office. You will need:

  • A club name distinguishable from any entity already on file. Every state offers an online business name search.
  • A registered agent with a physical street address in the state to accept legal documents and government notices.
  • The names and addresses of the incorporators and initial directors.
  • A statement of purpose describing the club’s nonprofit, recreational focus, worded consistently with what you will later tell the IRS.

Filing fees vary by state. Many states charge between $25 and $75, though some charge more. Most Secretary of State offices accept online filings; a few still take only paper. Once approved, you receive a certificate of incorporation confirming the club’s legal existence. That certificate and your bylaws get uploaded with your IRS application.

Step 2: Draft Bylaws That Meet IRS Expectations

Federal tax law does not prescribe specific bylaw language, but state nonprofit statutes generally require bylaws, and the IRS will want to see them with your application.4Internal Revenue Service. Exempt Organization – Bylaws At a minimum, cover:

  • A purpose statement describing the club’s recreational focus. This anchors everything the IRS evaluates.
  • Membership eligibility, dues, and grounds for revocation. Membership must be limited in some way consistent with the club’s character.
  • Officers, elections, term lengths, and how vacancies are filled.
  • Meeting frequency, quorum, and voting procedures.
  • What happens to the club’s assets if it dissolves. Form 1024 asks about this directly, so building it into the bylaws from the start avoids a revision later.5Internal Revenue Service. Instructions for Form 1024 (Rev. January 2022)

Include a Nondiscrimination Clause

Under Section 501(i) of the Internal Revenue Code, a social club loses its exemption for any year in which its charter, bylaws, or any written policy statement contains a provision discriminating against anyone on the basis of race, color, or religion.1Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc. The safest approach is to write an explicit nondiscrimination statement into the bylaws. A narrow exception exists for clubs that limit membership to a particular religion in good faith to further that religion’s teachings, provided the restriction is not a proxy for racial exclusion.

Avoid Private Inurement

Bylaws and operations must not funnel the club’s net earnings to any member with a personal financial interest in the club’s activities. The IRS reads this broadly. Even keeping dues artificially low by subsidizing them with outside revenue can count as inurement, because members are getting services for less than they would otherwise pay.6Internal Revenue Service. Social Clubs – Requirements for Exemption – Inurement Prohibited Cash prizes in club tournaments are fine, and paying a reasonable fee to members who recruit new members is acceptable because that is compensation for administrative work rather than a share of earnings.

Step 3: Get an Employer Identification Number

Every exempt organization needs an EIN, even if it never has employees. Apply only after state incorporation is complete, because the IRS expects the organization to be legally formed first.7Internal Revenue Service. Employer Identification Number The online application on irs.gov takes about ten minutes and issues the number immediately.

Step 4: File Form 1024 With the IRS

Social clubs apply for recognition of tax-exempt status using IRS Form 1024, filed electronically through Pay.gov.8Pay.gov. Application for Recognition for Exemption Under Section 501(a) or Section 521 The form asks for:

  • Your entity type, articles of incorporation, and bylaws.
  • A detailed narrative of your past, present, and planned recreational activities. The exemption decision turns largely on this narrative, so write it carefully.5Internal Revenue Service. Instructions for Form 1024 (Rev. January 2022)
  • Schedule D, which asks whether personal contact and fellowship exist among members, whether facilities are open to nonmembers, and whether any management contracts cover operations like a restaurant or pro shop.
  • Financial projections showing expected revenue sources and expenses, including dues and any anticipated non-member income.
  • A dissolution plan naming who receives the club’s assets if it ceases operations.

The application requires a user fee of $600 as of the most recent IRS guidance. Pay.gov will show the current amount when you file.9Internal Revenue Service. Exemption Application – User Fee The IRS issues roughly 80 percent of Form 1024 determinations within 210 days, though timing depends on backlog and whether the IRS asks for more information.10Internal Revenue Service. Where’s My Application for Tax-Exempt Status? When processing finishes, the club receives a determination letter confirming its 501(c)(7) status.

Stay Within the Non-Member Income Limits

Once the club is exempt, two hard limits from Revenue Procedure 71-17 govern how much outside revenue it can take in:

Gross receipts for these tests include membership fees, dues, assessments, charges, admissions, and investment income. They do not include initiation fees, capital contributions, or unusual one-time receipts like the proceeds from selling a clubhouse.13Internal Revenue Service. Publication 557 – Tax-Exempt Status for Your Organization Exceeding a limit does not trigger automatic revocation. The IRS looks at all the facts and circumstances, treating a one-time spike differently than a pattern of outside revenue. Still, consistently brushing up against these thresholds is the fastest route to losing exemption.12Internal Revenue Service. Social Clubs

Expect to Pay Tax on Outside and Investment Income

Tax-exempt status does not mean the club pays zero federal tax. Unlike 501(c)(3) charities, social clubs owe tax on non-member income and investment income, because the exemption covers mutual, member-funded recreation and nothing beyond it.

Clubs with $1,000 or more in gross income from an unrelated trade or business must file Form 990-T. For social clubs, unrelated business taxable income includes all gross income from nonmembers, with certain modifications. Restaurant and bar receipts from nonmembers, guest green fees, and similar charges all count. Investment income like dividends, interest, and rents is reported separately on Schedule A of Form 990-T and is generally taxable unless the club sets it aside for qualifying purposes.14Internal Revenue Service. 2025 Instructions for Form 990-T Bookkeeping that separates member transactions from nonmember transactions from day one makes tax time much easier.

File the Annual Return Every Year

The IRS requires an annual information return once the club is recognized. Which form depends on size:

  • Form 990-N (the electronic postcard) for clubs with gross receipts normally $50,000 or less.
  • Form 990-EZ for clubs with gross receipts under $200,000 and total assets under $500,000.
  • Form 990 for clubs with gross receipts of $200,000 or more, or total assets of $500,000 or more.15Internal Revenue Service. 2025 Instructions for Form 990-EZ

Missing these filings is the single most common way small clubs lose exemption. If a club fails to file its required annual return for three consecutive years, the IRS automatically revokes tax-exempt status under Section 6033(j). There is no discretion and no warning letter.16Internal Revenue Service. Automatic Revocation of Exemption for Non-Filing – Frequently Asked Questions Reinstatement means filing a new Form 1024 and paying the user fee again, so filing on time is far cheaper. For small clubs, the 990-N takes only a few minutes online.

Handle State Tax and Reporting Separately

Federal 501(c)(7) recognition does not automatically exempt the club from state income or franchise taxes. Some states honor the federal exemption once you incorporate as a nonprofit. Others require a separate state application, and a few want a copy of your federal determination letter before granting state-level exemption. Check with your state’s department of revenue after receiving the IRS determination letter.

Most states also require nonprofit corporations to file periodic reports, often annual or biennial, with the Secretary of State. These are separate from IRS filings and carry their own fees and deadlines. Missing a state report can lead to administrative dissolution of the corporation even if your federal tax-exempt status remains intact, so put those deadlines on the treasurer’s calendar alongside the federal ones.