Rev. Proc. 64-36

SECTION 1. SCOPE AND PURPOSE

The purpose of this Revenue Procedure is to set forth guidelines as to the effect gross receipts from outside use of a club's facilities have on exemption from Federal income tax under section 501(c)(7) of the Internal Revenue Code of 1954. These guidelines provide a test to be used in connection with examinations of annual information returns filed on Form 990, Return of Organization Exempt from Income Tax, by exempt social clubs. They are directed only to cases where a club is permitting the general public to use its facilities and are intended to provide a minimum standard as to such nonmember use of these facilities. The Internal Revenue Service will follow these guidelines in determining the extent to which gross receipts from the general public will be taken into account as a factor reflecting the existence of a non-exempt purpose. The guidelines do not deal with other factors bearing on the exempt status of social clubs. Thus, these guidelines only come into play in the absence of other activities which might jeopardize exemption under section 501(c)(7) of the Code, such as advertising or other solicitation for business.

SEC. 2. BACKGROUND

.01 In the examination of Forms 990 filed by social clubs, the problem frequently is to determine under what circumstances and to what extent the fact that a social club makes its facilities available to the general public is to be relied upon by the Service as indicating the existence of a non-exempt purpose.

.02 Where the activities of a social club in making its facilities available to the general public are of such magnitude and recurrence as to constitute engaging in business, the club will be deemed not to be operated exclusively for pleasure, recreation, or other nonprofitable purposes. See section 1.501(c)(7)-1(b) of the Income Tax Regulations. See also Rev. Rul. 60-324, C.B. 1960-2, 173.

.03 This does not mean that all dealings with the general public are necessarily precluded. The general public may, on occasion, be permitted to participate in a club affair, provided such participation is incidental to and relevant to the club's purpose, and there is no purpose of profit or economic benefit to the members manifested in the character or manner of conduct of the affair. Rev. Rul. 58-589, C.B. 1958-2, 266.

SEC. 3. GUIDELINES

.01 GENERAL STANDARD. -- In determining whether the activities of a social club in making its facilities available to the general public are of such magnitude as to constitute engaging in business, a principal factor reflecting the existence of a non-exempt purpose is the amount of gross receipts derived from the use by the general public of a club's facilities.

.02 MINIMUM GROSS RECEIPTS STANDARDS. -- As an audit technique, this factor alone will not be relied upon by the Service when annual gross receipts from the general public are $2,500 or less, or if more than $2,500, where the percentage of gross receipts from the general public is five percent or less of total gross receipts of the organization. This minimum gross receipts standard reflects the audit experience of the Service that gross receipts at or below this level do not, standing alone, usually demonstrate a deliberate purpose to engage in business.

.03 MEANING OF THE TERM "GENERAL PUBLIC". -- The term "general public" means persons other than members of the club and their bona fide guests. The term also includes outside organizations or groups which are allowed to use the facilities of a club either directly or indirectly through a member-sponsorship arrangement of the type described in the following section. Visiting members of exempt clubs of like nature, such as country clubs or yacht clubs, who use club facilities under reciprocal arrangements will be considered bona fide guests.

.04 MEANING AND SIGNIFICANCE OF A MEMBER-SPONSORSHIP ARRANGEMENT. -- Member-sponsored arrangements are those where club facilities are made available to outside groups by or through the use of the name of a member. These arrangements take a variety of forms. For example, a club member may sponsor the use of the club by an outside group or organization with which he is associated. The sponsorship may be accomplished by a member making the necessary arrangements for use of the club facilities for a social affair of a personal or business acquaintance. The member may be billed directly by the club and, in turn, be reimbursed, or the club may collect directly from the group having the particular affair. The persons comprising such outside groups and organizations cannot be considered the bona fide guests of the sponsoring member. By this arrangements, a club is, in effect, permitting the general public to use its facilities.

The fact that the arrangement for use by outside groups was for the convenience of members and actually resulted in no net profit to the club is not sufficient reason to disregard the gross receipts derived from such activity in applying the guideline. Similarly, the fact that the club made its facilities available only upon the request of the outside groups and did not itself advertise or otherwise solicit such patronage such patronage or that the only outside groups which were permitted to use the club's facilities were nonprofit organizations are not sufficient reasons to disregard the gross receipts derived therefrom.

It is often the case that the outside group will include, to a varying degree, persons who also happen to be members of the club. If it is shown that the outside group is made up of persons who are also members of the club and these club members represent 75 percent or more of the total number of persons in the outside group, the group will be considered a member group and not an outside group.

If the group is considered an outside group because it is not composed of 75 percent or more of club members, all of the receipts from the group will be considered as nonmember receipts unless the club can show from its records the amount of the receipts from members of the club.

.05 GROSS RECEIPTS DEFINED. -- Gross receipts for the purpose of this Revenue Procedure is defined as those from normal and usual activities of the club including membership fees, dues and assessments, but excluding initiation fees. Also excluded for this purpose are unusual or nonrecurring amounts of income such as income derived from the sale of club assets.

SEC. 4. RECORDKEEPING

Any organization exempt under section 501(c)(7) of the Code which derives revenue from the use of its facilities by the general public must maintain books and records clearly showing the frequency of such use, and the gross receipts received therefrom. See section 6001 of the Code. Failure to maintain such records and make them available for audit will preclude reliance by the organization on the minimum standard set forth under this Revenue Procedure.