Family reunions and 501(c)(7)

Summer is here, which means that many of us will soon get together with relatives (perhaps wearing goofy T-shirts) for family reunions. If en route to such a gathering you ever thought, “is there a tax-efficient way to do this?” you wouldn’t be the only one. 

In a recent ruling, the IRS denied 501(c)(7) (“social club”) status to an organization incorporated to facilitate family reunions.

Section 501(c)(7) exempts from federal income tax “clubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder.” 

To qualify for (c)(7) treatment, “regular fellowship must constitute a material part of the organization’s activities.” The organization in question seems to have met only every few years.

Additionally (and perhaps more damning) the organization provided death benefits to surviving family members, which the IRS held was in impermissible form of private inurement for family members.

In short, if you want to conduct family reunions through a tax-exempt organization, you’ll (at the very least) need to see Uncle Billy more regularly.

Manoj