It’s such a tragedy that Recreation Centers of Sun City West officials are so clueless about 501(c)(7) law.
Contrary to the Independent’s report (“Chartered clubs must monitor financials,” Sun City West Independent, May 19, 2021), income from bona fide guests of a social club is tax exempt and is not to be included in the 15/35 buckets that could trigger an audit (as long as the income is from the traditional exempt activity of the club).
The IRS clarifies the “nonmember” terminology in their document eotopic96-1 as follows: “Income generated from their use by nonmembers other than guests would be subject to tax on unrelated business income and the 15 percent limitation.”
It is the IRS’s own distinction between nonmembers who are guests and nonmembers who are not guests that creates the confusion. The IRS defines the latter as “general public.”
It is because our c7 clubs are not open to the general public that all of their nonmember income is explicitly tax-exempted and is not subject to the 15/35 IRS guidelines.
Unfortunately, RCSCW staff lumps both into the same bucket and bludgeons the clubs into fearing an IRS threat that does not exist.
If our governing board really wanted to serve the people who elected them, they would command staff to invite the IRS in for an audit — the only way to officially clarify right from wrong. Without an official ruling, we will suffer from staff’s misconceptions until the day we die.