Tau Beta Pi - 501(c)(7) Organization
Most Tau Beta Pi Chapters are tax-exempt 501(c)(7) organizations not eligible to receive deductible gifts from donors, and the Association is a tax-exempt 501(c)(3) organization eligible to receive deductible gifts from donors. For the purposes of this letter, consider the term chapter synonymous with the IRS definition of a club.
Internal Revenue Code 501(c)(7) grants exempt status to "clubs organized for pleasure, recreation, and other non-profitable purposes." All chapter activities must substantially serve these exempt purposes, and no part of the net earnings of a chapter may benefit any individual member. To qualify as a "club," the organization must meet IRS requirements of personal contacts and fellowship. A key element of a chapter is "commingling" of members who demonstrate a shared purpose or objective.
A chapter will lose its exemption if the bylaws, governing instruments, or any written policy statement contain a provision that discriminates against any person on the basis of race, color, or religion.
The primary source of income for a chapter must be from its members (usually fees or dues). A chapter may receive small amounts of outside income without losing its exempt status; however, this type of income may be taxable as unrelated business income. Review the following guidelines to measure the permissible extent of non-member income:
- A chapter may receive up to 35 percent of its gross receipts from non-member sources.
- In applying the 35 percent test, no more than 15 percent of total gross receipts may be derived from the use of the chapter's facilities or services by the general public.
- If a chapter has outside income that exceeds the 35 percent or 15 percent limits, its qualification for exemption under 501(c)(7) may be in jeopardy.
The Association must report any chapter with gross receipts exceeding 35 percent from non-member sources to the IRS. In addition, satisfying the guidelines for non-member income does not automatically protect a chapter from loss of exemption. A chapter may be disqualified if its members do not "commingle" sufficiently or if the chapter engages in excessive activities that do not serve its exempt purposes. Discuss any questions or concerns about your chapter's 501 (c)(7) status with a tax advisor. Additional information about 501(c)(7) organizations can be found on the IRS website.
Chapters must file the IRS Form 990-N by the 15th day of the fifth month after the end of its fiscal year. You must forward a copy of your confirmation email from the IRS to by August 1. This is a required report to receive a Secretary's Commendation. More information is posted on the officers' web pages. This is another good reason for an advisor to serve as Treasurer or to complete the report as "principal officer."