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🌻U Kbot Notes 501c7-Notes

501(c)7 - Social Clubs

The IRS has a non-profit designation for organizations that are primarily social, fraternal, or hobby-based. Cyberia already meets the IRS requirements for 501(c)7 status, it's just a matter of filing to make it official. We are a primarily social organization, with funding almost entirely from members.

Why not 501(c)3?

501(c)3 is what most people think of when they think 'non-profit', but they are in-fact a specific type of non-profit known as a charity.

As a charity, 501(c)3's must primarily benefit the public and NOT membership.
It would be exceptionally difficult for Cyberia itself to gain 501(c)3 status.
It would be onerous to file taxes annually.
The only real upside is donations become tax-deductible, which only affects people who itemize their personal returns, instead of the standard deduction, which I don't think many/any of us do.
If we really want tax-deductible donations, we could setup a separate 'Foundation' organization, which is just a fancy phrasing of "501(c)3 organization adjacent to some other organization". It legally must be distinct from Cyberia, and can't co-mingle funds. The foundation funds could NOT be used for LZ rent, though it COULD be used to fund things like QueerCoded's Queermunity rental fee. Anycase, we need to get Cyberia's filing sorted out before we even consider starting a foundation (not that we even should IMO. It's a lot of work.).

Why 501(c)7?

We already meet all the requirements. It is a natural fit for how the organization is already structured. Though we may want to review and revise Articles of Incorporation and Bylaws before re-filing.
It is easy. 501(c)7's are very low-maintenance as far as annual filing is concerned. If we have under $50k in revenue (which is true as of 2025-05-02), we just file a simple electronic post-card annually. This is the IRS Form 990-N, which just has a couple simple questions like "Did you have less than $50k in revenue" and "Are you still in business?". We don't even need to submit financial records. It's mostly an honor system, with a chance of being audited if you lie. Form 990-N Instructions
If the IRS were to audit Cyberia, for whatever reason, they would probably reach the conclusion that we are a social club, fitting the description of 501(c)7. The IRS has a 501(c)7 Audit Guide PDF which describes how to check if an organization meets all the requirements for a 501(c)7.

Summary Requirements

65% funded from dues and donations from members. In other words, only 35% of funding can come from outside sources or fundraisers.
Non-public membership. As in, there’s a process defined in bylaws to become a member. In other words, no one can ‘claim’ to be a member without the say of the organization, as defined in their bylaws. Guests are allowed but must be invited by a member.
Facilities are for member and guest use primarily. May host events for non-members, provided there is no profit derived (though guest organizations may pay for costs incurred from their use. ex paying the club for pizza they order for guests). Open-house style events are allowed, but regular-business hours open to the public are not.
Exists to facilitate socialization and hobbies primarily. In other words, it can’t just rent out equipment to individuals primarily, there needs to be a social component.
Politically, may only lobby towards the interests of the social or hobby purpose of the club and not general political lobbying. Most expenses need to be for member benefit and not political activity.

IRS Official 501(c)7 Description

IRC Section 501(c)(7) describes social and recreational clubs exempt from federal income tax
under IRC Section 501(a). Generally, social clubs consist of membership organizations
supported by dues, fees, charges or other funds paid by their members. Typical organizations
that may qualify for exemption under IRC Section 501(c)(7) are:

College fraternities and sororities

Country clubs

Amateur hunting, fishing, tennis, swimming and other sport clubs

Hobby clubs

Ethnic clubs

Yacht clubs

Community Associations

Organization Requirements

The following are direct quotes from the IRS Social Clubs Page

The club must be organized for exempt purposes.

The club must provide an opportunity for personal contact among members and membership must be limited.

The club must be supported by membership fees, dues, and assessments.

The organization’s net earnings may not inure to the benefit of any person having a personal and private interest in its activities.

If the club exceeds safe harbor guidelines for nonmember and investment income, the facts and circumstances must show that it is > * organized substantially for exempt purposes. See “Effect of Nonmember Income on Exempt Status" below for more information.

The club may receive de minimis income from nontraditional sources.

The club's governing instrument may not contain a provision that provides for discrimination against any person on the basis of race, color, or religion.

Financial Requirements

The IRS requires 501(c)7 organizations to be funded according to the IRS Social Clubs Page

A social club may receive up to 35 percent of its gross receipts from nonmember sources PDF, including investment income. Within the 35 percent amount, no more than 15 percent of gross receipts may be derived from nonmember use of club facilities and services. Where the permitted levels of nonmember income are exceeded, all facts and circumstances will be considered in determining whether the club continues to qualify for exemption.

Steps Needed to gain 501(c)7 status

Revise and re-file Articles of Incorporation with the MN Secretary of State ($25 cost)
Revise By-laws, if needed
Complete IRS Form 1024 ($600 IRS filing fee)
Re-activate our IRS Employer Identification Number (EIN)

Footnotes

Instructions for IRS Form 1024 can be found here. IRS Form 1024 is an online web-form only. Though you may find an example IRS 1024 PDF from 2018, to get an idea of questions it asks.