Member vs. Nonmember Income

All private clubs whether they are taxable (Sec. 277) or exempt organizations (Sec. 501(C)7) should properly classify and document all nonmember revenues in connection with the preparation and filing of their annual tax returns.  Monitoring member and nonmember income provides a club with the records it needs to help protect its tax status during an audit.  There are several basic rules to remember when classifying revenues.

  1. If the revenue is generated from a member for his/her direct personal, business or social benefit and the member is paying personally and won’t be reimbursed, the revenue is considered member business, no matter what the nature of the function is.
  2. If the member is to be reimbursed, management needs to inquire if the member is being reimbursed by an employer.  If so, and the party totals eight or less, reimbursement by the employer will be assumed to serve a direct business interest of the employee-member and therefore that function would also be deemed to be member business.
  3. If the member is merely acting as a host by sponsoring an event for a nonmember and the nonmember either pays the club directly or reimburses the member, it is nonmember business and the net profit so derived will be taxable to the club.

Of course all revenue that is clearly from nonmember sources is subject to unrelated business income tax.  There are simple forms that can be obtained  that can assist you in determining the appropriate classification of nonmember income.

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