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Tax Implications

501(c)(7) Tax Considerations for Donations, Volunteer Time, and Legal Compliance

Draft
Document Information

Last Updated

July 2025

IRS Section

501(c)(7)

Requirement

Tax Compliance Required

Version

1.0 Draft

Status

Under Review
Donation Types & Tax Implications

Pinball Machine Donations

Donation of pinball machines to the club

Tax Implications:

  • Donor can claim fair market value as charitable deduction
  • Club must provide written acknowledgment for donations over $250
  • Appraisal required for donations over $5,000
  • Club cannot provide goods/services in return for donation

Requirements:

  • Machine must be in working condition
  • Fair market value must be documented
  • Transfer of ownership must be completed
  • Club must use machine for exempt purposes

Cash Donations

Monetary contributions to the club

Tax Implications:

  • Donor can deduct up to 60% of adjusted gross income
  • Club must provide written acknowledgment for donations over $250
  • No goods/services can be provided in return
  • Donations must be voluntary and not required for membership

Requirements:

  • Must be truly voluntary
  • Cannot be required for membership benefits
  • Club must maintain proper records
  • Donations must support exempt purposes

Equipment & Supplies

Donation of equipment, parts, or supplies

Tax Implications:

  • Donor can claim fair market value
  • Club must provide written acknowledgment
  • Value must be reasonable and documented
  • Items must be used for exempt purposes

Requirements:

  • Items must be in good condition
  • Fair market value must be established
  • Club must use items for exempt activities
  • Proper inventory records must be maintained
Volunteer Time & Services

Volunteer Time Deductions

Tax treatment of volunteer time and services

Rules:

  • Volunteers CANNOT deduct the value of their time
  • Volunteers CAN deduct out-of-pocket expenses
  • Travel expenses to/from club activities are deductible
  • Uniform costs and supplies are deductible

Examples:

  • Gas mileage to attend club events
  • Cost of tools used for machine repair
  • Supplies purchased for club activities
  • Meals while traveling for club business

Professional Services

Donation of professional services

Rules:

  • Professional services are generally not deductible
  • Exception: Services that create or enhance property
  • Materials and supplies used are deductible
  • Travel expenses related to services are deductible

Examples:

  • Legal services (not deductible)
  • Accounting services (not deductible)
  • Building repairs (materials deductible)
  • Machine restoration (parts deductible)
Legal Considerations
Private Benefit Prohibition

No private individuals can benefit from club activities

  • Donors cannot receive personal benefits
  • Board members cannot receive excessive compensation
  • Members cannot receive private financial benefit
  • All activities must benefit the membership as a whole
Unrelated Business Income

Income from activities not related to exempt purpose

  • Income from non-member activities may be taxable
  • Must maintain 65% member income rule
  • Excessive non-member income can jeopardize status
  • Proper record-keeping is essential
Political Activity Restrictions

Limitations on political involvement

  • Cannot endorse political candidates
  • Cannot make political contributions
  • Cannot engage in lobbying activities
  • Cannot participate in political campaigns
Annual Filing Requirements

Ongoing compliance obligations

  • Form 990-N (e-postcard) for small organizations
  • Form 990-EZ for medium organizations
  • Form 990 for larger organizations
  • State filing requirements may apply
Record Keeping Requirements

Donation Records

Documentation required for all donations

  • Written acknowledgment for donations over $250
  • Appraisal for donations over $5,000
  • Detailed description of donated items
  • Fair market value documentation

Financial Records

Maintenance of financial documentation

  • Separate tracking of member vs non-member income
  • Detailed expense records
  • Bank statements and reconciliation
  • Annual financial statements

Activity Records

Documentation of club activities

  • Meeting minutes and attendance
  • Event records and participation
  • Member benefit documentation
  • Compliance monitoring records
Compliance Tips
Consult with a tax professional familiar with 501(c)(7) organizations
Maintain detailed records of all donations and activities
Ensure all activities support the exempt purpose
Monitor member vs non-member income ratios
Provide proper acknowledgments for all donations
File annual returns on time
Avoid any private benefit to individuals
Keep political activities separate from club activities
Important Legal Notice

This document provides general information about 501(c)(7) tax implications. Tax laws are complex and subject to change. The club should consult with qualified tax professionals, attorneys, and accountants for specific advice related to donations, volunteer activities, and compliance requirements.

Disclaimer: This information is for educational purposes only and does not constitute legal or tax advice.

Recommendation: Establish relationships with qualified professionals before accepting significant donations.