analysis of obtaining tax exempt status of a presently unrecognized camping association
TRANSCRIPT
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
1/24
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
2/24
INTRODUCTION
I am currently a member of a medium sized, yet close-knit association
of friends that engages in camping activities, (hereinafter referred to as the
camping group). Previously, members of the camping group have operated
as individuals during our camping activities; members bore most costs of the
camp separately and provided equipment for the camp in a piecemeal ad
hoc fashion. In addition, some members had little interaction with the rest of
the group with the exception of one annual camping event. However,
approximately a year ago, due to problems registering a land reservation for
a large group as individuals, as well as natural affinity between group
members and a desire to socialize more often, the camping group decided to
formally organize.
Currently, the camping group has formalized its membership,
instituted a controlling board of directors, and holds quarterly meetings of all
members. During one of these quarterly meetings, a discussion was brought
up regarding the extent of the formality of our organization. From that
conversation, a decision was made to create an organizational bank account.
That decision created uncertainty as to our ability to obtain a bank account
in the name of the organization without any formal recognition from a
governmental body. Although our research revealed that we would be able
to obtain an account even though the group is unrecognized by a
governmental body, some members of the group expressed an interest
2
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
3/24
about the benefits and possibility of becoming a recognized organization.
This paper analyses the options that the camping group has in becoming a
recognized organization.
A TAX EXEMPT NONPROFIT ORGANIZATION
When thinking of organizing an a group of people and creating an
business-type entity, a first inclination might be to mirror some of the
prevalent forms of businesses that exist, such as various types of
partnerships, corporations, or even the newer forms of unincorporated
associations.1,2 These are all valid modes of organization. However,
organizing through one of those types of organizations only assigns liability
and leadership. Since the camping group will not be operating to generate
revenue for its constituent members, an organization with different tax
structuring is being considered. The camping group is considering seeking
recognition as a type of nonprofit organization.
Nonprofit organizations are a subset of all business organizations that
do not distribute any net earnings to owners or shareholders, and instead
use revenue to further the goals of the organization.3,4,5 Furthermore, there
is an even more narrowly defined type of nonprofit organization known as a
tax exempt nonprofit organization. This classification is highly desirable
because of the financial benefits that can it can bestow. Such benefits can
include exemption from federal, state, and local taxes, special grants,
3
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
4/24
government funding, special postage rates, and tax deductions for
contributing donors.6 In order to receive these financial benefits, an
organization must meet certain strict qualifications. However, there are
numerous ways that an organization can meet these qualifications. These
qualifications vary and are specified within the definitions of the many types
of nonprofit organizations listed within the Internal Revenue Code at sections
501, 521, and 526-530.7,8
The most prevalent type of tax exempt organization is the section 501(c)(3)
organization.9,10
As such, it will be the initial focus of the camping groups
desire to organize.
THE RATIONALE BEHIND TAX EXEMPTION
There is no one main rationale behind exempting nonprofit
organizations from taxation. The first rationale is that there is a tradition of
extending such benefits. Organizations have been receiving tax benefits
even before the 18th century. Those organizations in the distant past that
first received preferential tax treatment were usually churches or some type
of religious organization. Besides the historical tradition of granting tax
benefits, there is a morality issue of unjustly performing double taxation.
This is the case in organizations that are not very financially distinct from its
individual members. There are more rationales that explain why tax
exemption exists, though not discussed here. Additionally, there are even
4
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
5/24
more philosophical theories underneath the rationales of tax exemption, the
most popular or which are discussed infra.
The most popular theory behind tax exemption is the subsidy theory.
The subsidy theory states that tax exemption is justified on the basis of the
public benefits conferred by the organizations, which relieve burdens on the
government by providing goods and services that society or government is
unable or unwilling to provide. Therefore, the government provides financial
support as a legislative grace.11 There is some criticism of this theory,
though. Critics of the subsidy theory claim that such tax benefits are the
equivalent of tax expenditures, and subsequently believe that direct
subsidies would be more efficient.12
There are four main alternatives to the traditional subsidy theory; they
are the income measurement theory, the capital formation theory, the
altruism theory, and the donative theory. The income measurement theory
asserts that nonprofit organizations are exempt from taxation because
there is no practical and traditional tax accounting method to measure the
net income of the entity.13 The capital formation theory suggests that
nonprofit organizations deserve exemption to balance out their inadequate
access to the traditional form of capital-equity investment.14 Under the
altruism theory, nonprofit organizations are also deemed as appropriate for
tax subsidies because the founders of nonprofits chose to forgo profits in the
name of public benefits.15 The final theory to be discussed, the donative
5
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
6/24
theory, states that nonprofits that are capable of attracting substantial
donations from the public should receive corresponding tax benefits.16
There are more theories and principles of tax exemption that have
been omitted. While these are unimportant for the analysis of the camping
group, it must also be noted that the regulations of tax exemption of
nonprofit organizations are not immune to politics, and some regulations
have originated simply as the result of self-interested lobbying performed by
special interest groups.
THE 26 U.S.C. 501(c)(3) ORGANIZATION
Section 501(c)(3) provides exemption for:
Corporations, and any community chest, fund, or foundation,organized and operated exclusively for religious, charitable,scientific, testing for public safety, literary, or educational
purposes, or to foster national or international amateur sportscompetition (but only if no part of its activities involve theprovision of athletic facilities or equipment), or for the preventionof cruelty to children or animals, no part of the net earnings ofwhich inures to the benefit of any private shareholder orindividual, no substantial part of the activities of which iscarrying on propaganda, or otherwise attempting, to influencelegislation (except as otherwise provided in subsection (h)), andwhich does not participate in, or intervene in (including thepublishing or distributing of statements), any political campaignon behalf of (or in opposition to) any candidate for public
office.17,18
Section 501(c)(3) organizations must be organized and operated
exclusively for one of the aforementioned purposes, may not inure any
earnings to a private shareholder or individual, may not attempt to
6
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
7/24
substantially influence legislation, and may not participate in any political
campaigning activities.19
The benefits of having tax exempt 501(c)(3) status include exemption
from federal income tax and eligibility to receive tax-deductible charitable
contributions.20 In addition, most states also offer additional tax exemptions
for organizations that qualify as 501(c)(3) organizations. There is a limitation
on these benefits, however. For contributions to be tax deductible, the
contribution must be a gift of money or property without receipt or
expectation of receipt of adequate consideration, made with charitable
intent.21
There are also some responsibilities that come with recognition as a
501(c)(3) organization. Section 501(c)(3) organizations must fulfill the
following responsibilities: keeping adequate records, filing required returns,
providing donor substantiation, obeying disclosure laws, generating public
support, avoiding excess benefits for insiders, shunning political activity,
limiting legislative activity, and limiting unrelated business activity.22
Despite the possible burdens that will be incurred if the camping group
is recognized as a 501(c)(3) organization, this is still the most beneficial way
to organize the camping group as a nonprofit organization. The benefits of
the 501(c)(3) vastly outweigh the costs of recognition as well as compliance
once initial recognition has occurred. There are initial barriers to recognition
as a 501(c)(3) organization, though. There are four basic tests conducted by
the Internal Revenue Service that can be applied to determine tax exempt
7
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
8/24
status, (the organizational test, the operational test, the private inurement
test, and the political activities test), as well as two court created tests, (the
commerciality doctrine and the public policy doctrine).23,24
Each of the aforementioned tests will be examined with respect to the
camping group. While failure of any of these tests could result in the denial
of 501(c)(3) status, they will be examined in a loosely based order of
increasing significance.
COURT IMPOSED LIMITATIONS ON TAX EXEMPTION
The Public Policy Doctrine
The U.S. Supreme Court ruled that tax exemption as a charitableorganization is available only where the organization is operatingin conformity with federal public policy.25 This rule of law, a
judicially imposed overlay of the statutory law, is known as thepublic policy doctrine.26
The public policy doctrine originated with the 1958 case ofTank Truck
Rentals, Inc. v. Commr.27 Tank Truck Rentals held that fines assessed in
violation of Pennsylvania state law were not ordinary and necessary
deductible business expenses because they violated the declared policies of
the state.28 Later, in Bob Jones Univ. v. U.S., the Court adopted the view that
the purpose of a charitable entity may not be illegal or violate established
public policy.29,30,31
8
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
9/24
The camping group will not fail if examined under the public policy
doctrine. The camping group abides by all federal laws as well as any local,
nongovernmental regulations enforced at any camping locations we use.
The camping group, in its preliminary by-laws, also specifically prohibits drug
usage and underage drinking.
The Commerciality Doctrine
The commerciality doctrine originated out of the concept that nonprofit
organizations, with the benefits bestowed upon it by the government, should
not compete with commercial organizations in the business sector.32 The
basic premise of the commerciality doctrine is that:
A tax-exempt organization is engaged in a nonexempt activitywhen that activity is engaged in in [sic] a manner that is
commercial in nature. An activity is a commercial one if it has adirect counterpart in, or is conducted in the same manner as isthe case in the realm of for-profit organizations.33
The commerciality doctrine also appears to hold that once a tax exempt
organization acquires a substantial commercial purpose, it no longer
qualifies as tax exempt.34 This is very similar to phrasing in the operational
test, discussed infra. In fact, this court created doctrine is so closely related
to the operational test that some scholars believe that the commerciality
doctrine is a superfluous restating of an already codified regulation. This
9
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
10/24
doctrine poses problems for organizations that have some type of
commercial activity which mimics other normal for-profit activity.
The camping group will probably not have a problem meeting the
requirements of the commerciality doctrine. Most of our activities involve
camping, which, other than paying for land rental and purchasing supplies, is
a noneconomic activity. The only possibly violation of the commerciality
doctrine that could occur would be by holding social functions with members
outside of the camping group. Although our camping group has not done
this before, we have been guests of other camping groups social functions,
some of which charged an admission fee to cover the costs of food and
drinks. While the camping group would eventually like to hold social events
with nonmembers, as it stands currently, the camping group has not
previously engaged in that activity and has no immediate plans to do so.
INTERNAL REVENUE SERVICE TESTS FOR TAX EXEMPTION
The Political Activities Test
(3) Action organizations.(i) An organization is not operated exclusively for one or
more exempt purposes if it is an action organization as defined insubdivisions (ii), (iii), or (iv) of this subparagraph.
(ii) An organization is an action organization if a substantialpart of its activities is attempting to influence legislation bypropaganda or otherwise. For this purpose, an organization willbe regarded as attempting to influence legislation if theorganization:
10
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
11/24
(a) Contacts, or urges the public to contact, membersof a legislative body for the purpose of proposing,supporting, or opposing legislation; or
(b) Advocates the adoption or rejection oflegislation...
(iii) An organization is an action organization if itparticipates or intervenes, directly or indirectly, in any politicalcampaign on behalf of or in opposition to any candidate forpublic office
(iv) An organization is an action organization if it has thefollowing two characteristics:
(a) Its main or primary objective or objectives (asdistinguished from its incidental or secondary objectives)may be attained only by legislation or a defeat of proposedlegislation; and
(b) it advocates, or campaigns for, the attainment of
such main or primary objective or objectives asdistinguished from engaging in nonpartisan analysis, study,or research and making the results thereof available to thepublic35,36
The political activities test is the first of the tests used by the Internal
Revenue Service to be discussed. Like all of the tests used by the Internal
Revenue Service, the political activities test is codified in the Code of Federal
Regulations. The political activities test has two elements; electioneering
activities and lobbying activities.
Electioneering activities, as described by the Internal Revenue Service,
are: directly or indirectly participating in, or intervening in, any political
campaign on behalf of (or in opposition to) any candidate for elective public
office, contributing to political campaign funds or public statements of
position (verbal or written) made on behalf of the organization in favor of or
in opposition to any candidate for public office, and voter education or
registration activities with evidence of bias that (a) would favor one
11
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
12/24
candidate over another; (b) oppose a candidate in some manner; or (c) have
the effect of favoring a candidate or group of candidates.37 Certain activities
are not prohibited; exceptions exist for activities that simply encourage
people to participate in the electoral process in a non-partisan manner.38
The Internal Revenue Service defines lobbying as:
contacting, or urging the public to contact, members oremployees of a legislative body for the purpose of proposing,supporting, or opposing legislation, or advocating the adoption orrejection of legislation.39
The Internal Revenue Service does allow some lobbying by 501(c)(3)
organizations. However, an organization does not qualify for, or will lose, tax
exempt status if lobbying is a substantial part of its activities.
This test has no application to the camping group. The camping group
is an apolitical group; the camping group has not, and will not engage in any
political activity.
The Private Inurement Test
(2) Distribution of earnings. An organization is not operatedexclusively for one or more exempt purposes if its net earningsinure in whole or in part to the benefit of private shareholders orindividuals...40,41
The private inurement test is one of the fundamental ideas behind the
creation of nonprofit organizationsthat, generally, these organizations exist
to carry out a specific goal, not to benefit private ownership.
12
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
13/24
Courts will look to multiple factors in determining whether there has
been private inurement. Two main situations that could indicate private
inurement are excessive compensation and non-arms length transactions.42
In considering those situations, courts will look to the reasonableness of the
amount paid, the reason why it was paid, the type of agreement which
confers the benefit, the persons involved in forming the agreement[,] and
the persons who have control of the payments.43
Problems can arise when there is an overlap of control of an
organization and the benefits that it grants. While an overlap of benefit and
control does not always preclude exemption, the potential for abuse is great.
An example of this type of abuse is highlighted in Church of Modern
Enlightenment v. Commr.44,45 In Church of Modern Enlightenment, the
church paid for parsonage expenses that were, in reality, the president
of the churchs day to day living expenses, such as rent, utilities, clothing,
and food.46
The camping group can possibly pass the private inurement test. No
one of the board of directors of the camping group receives any type of
compensation. All of the expenses that are incurred by the camping group
are for communal use. Nothing purchased is ever owned or used by specific
people. The only issue the camping group would have with the private
inurement test is whether the camping group as a whole is large enough to
be considered a public rather than a private benefit. This could be a
13
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
14/24
significant problem; however, I believe that the nature of the group and the
way benefits are disbursed could possibly overcome this test.
The Operational Test
The final two Internal Revenue Service tests are very similar. Both tests
relate to 501(c)(3) exempt purposes. The operational test focuses on the
organizations activities, whereas the organizational test focuses on the
organizations articles of organization or comparable governing document.47
The text of the operational test in the Code of Federal Regulations is as
follows:
(c) Operational test--(1) Primary activities. An organization willbe regarded as operated exclusively for one or more exemptpurposes only if it engages primarily in activities whichaccomplish one or more of such exempt purposes specified in
section 501(c)(3). An organization will not be so regarded ifmore than an insubstantial part of its activities is not infurtherance of an exempt purpose.48,49
Section 501(c)(3) provides that to be tax exempt[,] an organization
must be organized and operated exclusively for an exempt purpose.50
However, this section of the code has been interpreted as to mean that the
operations of the organization must primarily be in furtherance of an
exempt purpose, not that the entirety of all activity be in furtherance of an
exempt purpose.51 Once again, the possibility of recognition of tax
14
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
15/24
exemption hinges on a quasi-arbitrary term, such as primarily or
substantially.
In using the operational test, a broad facts-and-circumstances
inquiry is used, by considering the existence or nonexistence of an espoused
primary purpose, and then examining the size and extent of the activities
which are in furtherance of one or more exempt purposes.52 The
operational test poses a significant problem for the camping group. While
the camping group does not currently engage in any profit making activities
outside of collecting dues and fees from members, its main purpose may not
qualify under section 501(c)(3).
As stated before, 501(c)(3) organizations encompass organizations
operated exclusively for religious, charitable, scientific, testing for public
safety, literary, or educational purposes, to foster national or international
amateur sports competition, to promote the arts, or for the prevention of
cruelty to children or animals. The only avenues that the camping group
could pursue are advocating that it: 1) provides enough affiliated physical
activities, (such as hiking/climbing/etc.), to qualify under an amateur athletic
association, or 2) provides an educational service by teaching camping and
wilderness skills. Either argument is on quite shaky ground; unfortunately,
the camping group will probably fail the operational test.
The Organizational Test
15
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
16/24
(b) Organizational test--(1) In general.(i) An organization is organized exclusively for one or more
exempt purposes only if its articles of organization:(a) Limit the purposes of such organization to one or
more exempt purposes; and
(b) Do not expressly empower the organization toengage, otherwise than as an insubstantial part of itsactivities, in activities which in themselves are not infurtherance of one or more exempt purposes.(ii) In meeting the organizational test, the organization's
purposes, as stated in its articles, may be as broad as, or morespecific than, the purposes stated in section 501(c)(3)...
(iii) An organization is not organized exclusively for one ormore exempt purposes if its articles expressly empower it tocarry on, otherwise than as an insubstantial part of its activities,activities which are not in furtherance of one or more exempt
purposes, even though such organization is, by the terms of sucharticles, created for a purpose that is no broader than thepurposes specified in section 501(c)(3)...
(iv) In no case shall an organization be considered to beorganized exclusively for one or more exempt purposes, if, bythe terms of its articles, the purposes for which such organizationis created are broader than the purposes specified in section501(c)(3)...
(v) An organization must, in order to establish itsexemption, submit a detailed statement of its proposed activitieswith and as a part of its application for exemption53,54
The organizational test is very similar to the operational test. Whereas
the operational test checks for what activities the organization actually
performs, the organizational test checks for how an entity is formally
organized. The organizational test requires that the articles of organization
described in IRC 501(c)(3) contain an explicit statement that its purposes
are 501(c)(3) exempt purposes.55 (The document to be reviewed need not
be articles of organization; other pertinent documents include articles of
incorporation, articles of association, trust indenture, or a constitution).56
16
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
17/24
An organization is deemed to be organized as an validly exempt
organization if the creating document: 1) limits the purposes of the
organization to only exempt purposes, 2) does not empower the organization
to engage in any substantial activity that is not in furtherance of exempt
purposes, and 3) permanently dedicates the organizations assets to 501(c)
(3) purposes on dissolution.57 The organizational test also incorporates an
idea similar to the four corners rule in contract law:
The requirement that [an] organization's purposes and powersmust be limited by the articles of organization is not satisfied if
the limit is contained only in the bylaws or other rules orregulations. Moreover, the organizational test is not satisfied bystatements of [an] organization's officers that [they] intend tooperate only for exempt purposes. Also, the test is not satisfiedby the fact that [the organizations] actual operations are forexempt purposes.58
The camping group has yet to formalize any type of articles of
organization or articles of incorporation. However, if the camping group does
still choose to be formally recognized, it will use sample language promoted
by the Internal Revenue Service to ensure compliance.59,60 The camping
group will make sure that all three of the previously mentioned criteria are
met. However, the camping group has the same problem with the
organizational test that it did with the operational test. It is very likely that
the groups main purpose of benefiting those that engage in camping will be
held to be an exempt activity. No matter how the articles of organization are
worded, an organization predicated upon an exempt purpose will not be
granted tax exempt status.
17
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
18/24
THE 26 U.S.C. 501(c)(7) ORGANIZATION
While, unfortunately, recognition as a tax exempt 501(c)(3)
organization will probably not be possible for the camping group, there is an
alternative mode of organizing. Section 501(c)(7) organizations are similar
to Section 501(c)(3) organizations only in two ways; they must be organized
and operated exclusively for one of exempt purposes listed in the Internal
Revenue Code and they may not inure any earnings to a private shareholder
or individual.61 However, there is a different scope to the definition of
exempt purposes when dealing with section 501(c)(7) groups. Section
501(c)(7) of the Internal Revenue Code provides for exemption of:
Clubs organized for pleasure, recreation, and other nonprofitablepurposes, substantially all of the activities of which are for suchpurposes and no part of the net earnings of which inures to the
benefit of any private shareholder.62
As the code states, section 501(c)(7) organizations must be organized for
pleasure, recreation, or other similar purposes.63 This definition is much
broader and less stringent than the requirement that 501(c)(3) be in the
public interest.64
While the Internal Revenue Code allows the purposes of 501(c)(7)
organizations to vary in much more diverse ways than 501(c)(3)
organizations, there are other limits placed on 501(c)(7) organizations
beyond 501(c)(3) organizations. Section 501(c)(7) organizations must: meet
strict guidelines as to how it obtains income from nonmember and
18
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
19/24
investment sources, provide an opportunity for personal contact among
members, have limited membership, be supported by membership fees,
duties, and assessments, and not have a governing instrument that contains
a provision that provides for discrimination against any person based on
race, color, or religion.65,66
The benefits resulting from organizing as a 501(c)(7) are much more
limited than a 501(c)(3). A special point must be made that section 501(c)
(7) organizations are the least favored of the tax exempt organizations under
501(c).67
Section 512 limits the exemption of income from the federal
income tax to only dues and fees collected by the organization.68,69 All other
income received by the organization is subject to taxation as unrelated
business income.70
TESTS FOR TAX EXEMPTION UNDER 501(c)(7)
The tests for tax exemption under 501(c)(7) are less numerous and
less specific than those under 501(c)(3). A significant bright line rule for
testing occurs in Revenue Ruling 58-589. In Revenue Ruling 58-589, the
Internal Revenue Service was specifically asked what the criteria or tests
were to be met in determining whether an organization can qualify for tax
exemption benefits under 501(c)(7).71,72
The Internal Revenue Service listed only two criteria; it stated that:
an organization must establish: 1) that it is a club bothorganized and operated exclusively for pleasure, recreation[,]
19
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
20/24
and other nonprofitable purposes and 2) that no part of its netearnings inures to the benefit of any private shareholder orindividual.73,74
Another significant and straightforward listing of the criteria required to gain
exemption occurs in Revenue Ruling 74-30. Revenue Ruling 74-30 states
that in addition to the other requirements listed supra, there must be an
established membership of individuals, personal contacts, and fellowship
among the members, as well as a comingling of those members must play a
material part in the activities of the organization.75
There is are potential pitfalls and opportunities for abuse with 501(c)(7)
organizations. One such problem occurs when there is a group of loosely
associated or unassociated people that desire to use a nonprofit structure to
perform services that are generally available on a commercial basis.76 These
types of groups do not qualify as tax exempt organizations under 501(c)(7).
Evidence that an organization may be operating on a commercial basis
exists if membership requirements are broad or vaguely stated, initiation
charges/dues are so low that use of organizational facilities by the general
public is encouraged, management is strenuously engaged in expanding club
membership, or management can perpetuate itself through physical and
financial ties to club activities, facilities, or other means.77
There is also an issue of using organizational property to generate
revenue from the general nonmember public.78,79 Section 501(c)(7)
organizations can conduct economic interactions with nonmembers, but
those types of exchanges cannot be used to generate a profit.80 Revenue
20
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
21/24
neutral transactions are allowable, as long as such interactions are incidental
to and in furtherance of the primary purposes of the organization.81
The camping group will easily pass the tests for exemption under
section 501(c)(7). The camping group is organized around camping, which is
an exempt activity, as it is for pleasure and recreation. The camping group
currently does not engage in any other type of nonexempt activity, and
earns no other profits outside of collecting dues and fees as they are needed.
Therefore, there are no earnings to inure any private individuals. The
camping group started as a group of close knit friends with a desire to camp
and include more friends and associates in the activity. Personal contact and
fellowship is one of the main ideas behind the creation of the camping group.
Also, increasing the opportunities of a comingling of the members was the
purpose behind adopting quarterly meetings.
CONCLUSION
After reviewing the two major options that the camping group has in
organizing as a tax exempt organization, it is pretty clear that it can only
qualify as a 501(c)(7). The camping group will most probably fail the
operational and organizational tests required for recognition as a 501(c)(3)
organization. Although camping is a great activity, the rewards of providing
a means to assist a limited group of others and lower barriers to engaging in
the activity for that same group simply to not rise to the level of public
21
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
22/24
benefit. Neither are the physical activities engaged in by the camping group
appropriate for classification as amateur athletics.
While there are still benefits that can be garnered organizing as a
501(c)(7) organization, it is questionable at this point whether it would be
beneficial for the camping group. Granted, all of the income that the group
currently uses would be exempt as a 501(c)(7) organization, as it is from
dues and fees. However, one of the reasons the camping group was
considering recognition as a tax exempt organization was the possibility of
fundraising without the burden of taxation. Any income generated by the
camping group in that fashion would be deemed nonexempt unrelated
business income.
At this point, based on the size, attitude, and financial means of the
camping group, I will be recommending that the organization remain an
unrecognized, unincorporated association. While the burden of
organizational filings, filing fees, the hassle of annual tax returns, and
possibly filing 990-T forms would be justified if the camping group was able
to obtain 501(c)(3) recognition and its benefits, I cannot say the same for
501(c)(7) recognition.
22
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
23/24
-
8/7/2019 Analysis of Obtaining Tax Exempt Status of a Presently Unrecognized Camping Association
24/24