Club glossary
What Is Unrelated Business Income for a Club?
For a 501(c)(7) social club, income from sources other than members — nonmember sales, investment income — that is taxable and reported on Form 990-T.
Unrelated business income (UBI) is income that a tax-exempt organization earns from activities outside its exempt purpose. For a private club exempt under section 501(c)(7) of the Internal Revenue Code as a social club, the rule is broader than for most exempt organizations: essentially all income from sources other than members — food and beverage sales to the public, outside weddings, non-member golf, and investment income — is taxable as unrelated business taxable income, and the club reports it on Form 990-T.
This page is general information, not tax advice. Clubs should work with a tax adviser familiar with social clubs.
How it works for a social club
- Exempt function income — dues, fees and charges paid by members and their dependents and guests for the club's facilities and services — is not taxed.
- Non-member income — sales to the general public, outside events and non-member play — is taxed, less directly connected expenses.
- Investment income — interest, dividends and gains — is also taxed for a social club, unlike most other exempt organizations.
- Filing — a club with $1,000 or more of gross unrelated business income files Form 990-T.
The non-member income limits
Beyond the tax on the income itself, the amount of outside income affects whether the club keeps its exemption. Under the IRS guidelines for social clubs, a 501(c)(7) club may receive up to 35% of its gross receipts, including investment income, from sources outside its membership, and within that no more than 15% of gross receipts from the general public's use of its facilities or services. A club that exceeds the limits risks its exempt status.
Example
A club's gross receipts are $8 million. Members' dues and spending make up $6.9 million. It earns $600,000 from outside weddings and golf outings and $500,000 in investment income. Its outside receipts are $1.1 million, or 13.75% of gross receipts; the public-use portion is $600,000, or 7.5%. Both are within the guidelines, and the net income from those sources is reported on Form 990-T.
Why it matters at a private club
The tests depend on knowing, for every sale, whether the payer was a member, a member's guest or a non-member. That distinction has to be captured at the point of sale and at event booking — reconstructing it at year-end from receipts is slow and unreliable. Clubs also need records supporting guest income, since the IRS has published record-keeping guidelines for when guests are treated as members' guests.
Related terms
For the full picture, see non-member income and 501(c)(7) clubs.
In Bubs: each check records who paid — member, dependent, member's guest, reciprocal visitor or non-member — and a revenue-by-payer report shows the split by outlet, with anything unclassified shown on its own line rather than guessed. See club accounting.