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TexLaw, Attorney
Category: Legal
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Experience:  Lead trial/International commercial attorney licensed 11 yrs
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We are a small Reef hobbiest club and want to get our club

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We are a small Reef hobbiest club and want to get our club recognized legally. I believe we should pursue a 501c7 status, but have a few questions. We solicit donations from companies for our club to give away, we want to begin donating time and resources to the zoo to recognize reefs, we have sponsors to support our members, we want to make t-shirts, calendars and sell them to promote our hobby, and we would like to have a fund raiser for the coral reefs donating income to a foundation. My question relates to the taxation. Do we pay taxes on all the income of the donations, advertising on t-shirts/calendars, sponsor support? I want to make sure we are doing this correctly.

Can we even do this publically with a 501c7 status?

Thank you for your question. I need a bit more information.

Is the club incorporated? If not, then who do people make checks to when they give donations?

I look forward to hearing back from you.

Customer: replied 4 years ago.

No. The club prior to me felt there was no need to do any tax regulations at all. They were a self-proclaimed 501c7 although never registered in OH. They pay through paypal and cash. We do have an EIN number for a bank account. I am trying to get the club on track and do not have all the specifics.


Mostly donations are items for reef hobbiests to use. Dry goods or coral/fish. Money is given to Cincinnati Reefkeepers Society (I believe this is the name the club has for the bank account).


I am worried because we want to take the club in new directions. We want to get money for activities through sale of shirts, calendars, events and also raise money for zoo projects and coral foundations. I need to know if this falls outside the realm of the 501c7 and goes into the realm of 501c3. It just seems that 501c3 would not apply because of our majority focus on members and education to hobbiests.


First let me start out by stating that you cannot "self-proclaim" 501c7 status. It is a result of an application process. If you have filed taxes before as a 501c7 entity, then you may simply be unaware of a previous application. However, if no application has been made, then this needs to be done asap if you are representing to the public that you have this status.

In regards XXXXX XXXXX donations and whether or not you should pay taxes on them, this depends on two things. An approved 501c7 organization is tax exempt and may receive outside donations from non-member sources to the extent that it does not exceed 35% of the gross income to the organization.

The only way you can insure that you do not have to pay taxes on donations is to obtain 501c3 status. But be warned, this is a very detailed and rigorous application process and should be done with either the help of an attorney or an accountant.

So in short, if the organization truly has 501c7 status and you are receiving donations from non-members in an amount more than 35% of the gross income, you must pay taxes on the amount in excess or you must apply for 501c3 status. Since you provide education to hobbiests, then 501c3 status might be worth a shot, as this is a qualifying category.

Please let me know if you need further information.
Customer: replied 4 years ago.

I understand and this is why it is important for me to get this club in the right standing. It has been run and stated as a non-profit social club, but nothing has ever been applied for in the past.


Can we even be a 501c7 with the goals I stated above? Asking for donations for the club and for the advertising on shirts/calendars? Giving money to other non-profits?


I just worried because the 501c3 seemed to disallow the benefit to members that we so use in the club (pool spending money to get deals from sponsors on coral, goods, fish, etc).



Based on what you are telling me, your club at this time seems to be a 501c7 club. You should definitely apply for this status to ensure that the club is getting the correct tax treatment.

On the donations issue, I would suggest forming a separate entity owned by the club which applies for 501c3 status. This is what is commonly known as a "foundation" (i.e., the Reef Hobbiest Foundation). This would allow the club to continue with collecting the donations and get the proper tax treatment for those donations, and also allow the club to maintain its member focused status under the main entity.

Please let me know if you have further questions.

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