Country Clubs and Homeless Shelters: A Nonprofit Is a Nonprofit?

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Laura Gangi Pond /

February 5, 2013; Source: WRAL-TV

Mention the word “nonprofit” and most people outside of our sector think things like “homeless shelter,” “Girl Scouts” or maybe “Red Cross.” But the public is understandably confused about why their local country club or the National Football League are tax-exempt entities.

The ABC affiliate in Raleigh, N.C., WRAL, recently covered a story about a local country club that generate more than $13 million from dues but is not liable for corporate income taxes. The WRAL newscaster begins the story by introducing “another surprising layer of the nonprofit tax debate.” Marty Martin, a N.C. attorney who teaches in the Duke University nonprofit management program, informs WRAL that country clubs don’t receive the same breaks as 501(c)(3) charities, nor are they required to have a charitable purpose, pointing to one of the many distinctions between the more than 20 different tax-exempt categorizations in the Internal Revenue Service tax code.

In the past, country club members could even deduct their dues, but this was disallowed in the 1990s. But country clubs can still avoid paying income tax if they are structured as nonprofit social clubs. The IRS states, “Nonprofit organizations that receive tax-exempt status are expected to use this status to assist in carrying out their charitable activities, which in turn benefit individuals, households, and communities.” In the case of a country club, Martin asks, “Is there a public good that’s being served here that justifies a tax subsidy? Are these organizations demonstrating positive impact, and how can they demonstrate that to the community at large?” Good question. –Jeanne Allen

  • Michael Wyland

    The quoted statement from the IRS in the last paragraph is inaccurate, in that almost all classes of nonprofit organizations are not designed to be charitable. Rather than “charitable activities,” the IRS should more properly say “[tax-]exempt activities”.

    There is a strong case that the 57,793 501(c)7 recreational clubs recognized under the Internal Revenue Code (see 2011 IRS Data Book) do provide substantial benefit to their members and, by extension, to society as a whole. Of course, part of the societal good is identified by the existence of such clubs rather than their specific pursuits. The act of voluntary association without expectation of individual profit is, in itself, considered a societal good.