501(c)(7)
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A 501(c)(7) organization is a social or recreational club that is organized for pleasure, recreation, and other nonprofitable purposes.[98] Members must share interests and have a common goal directed toward pleasure and recreation, and the organization must provide opportunities for personal contact among members.[99][100] The organization's facilities and services must be open to its members and their guests only.[101] The organization must be a club of individuals, and no individual may derive profit from the organization's net earnings.[102] Examples include college alumni associations; college fraternities or college sororities operating chapter houses for students; country clubs; amateur sport clubs; supper clubs that provide a meeting place, library, and dining room for members; hobby clubs; and garden clubs.[103]

Activities
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A substantial amount of the 501(c)(7) organization's activities must be related to social and recreational activities for its members.[104] No more than 35 percent of its gross receipts may derive from non-members, and no more than 15 percent of its gross receipts is permitted to come from use of its facilities or services by the general public.[98] An organization that exceeds these limits may lose its 501(c)(7) status.[105]

When a group of eight or fewer individuals, at least one of whom is a member, uses the organization's facilities and the member pays for the other individuals, the Internal Revenue Service will assume the nonmembers are the guests of the member, and the revenue is deemed to be derived from the member.[102] Similarly, if at least 75 percent of a group using club facilities are members of the organization, the Internal Revenue Service will assume the nonmembers are the guests of the member, and the revenue is deemed to be derived from the member.[102] It is the responsibility of the organization to maintain these records.[105] If the organization does not keep sufficient records to link revenue to a member, the Internal Revenue Service assumes the revenue came from a nonmember.[106]

The organization is subject to unrelated business income tax for the revenue derived from nonmember use of its facilities and services, less allowable deductions.[105] If the organization sells assets that were previously used for recreational or social purposes, the proceeds are considered related business income as long as the proceeds are reinvested in the organization.[107] Public use of the organization's facilities must be minimal, generally either less than $2,500 per year or less than five percent of its total gross receipts from normal and usual activities of the club.[105]

A 501(c)(7) organization cannot have a written policy of discriminating on the basis of race, color, or religion.[102][108] Nevertheless, a 501(c)(7) organization is permitted to limit its members to a particular religion in order to further the teachings of that religion.[102] An auxiliary of a 501(c)(8) fraternal benefit society that limits membership to members of a particular religion is allowed to do so as well.[102] Having written policies that limit its membership by ethnic origin and gender would not jeopardize the organization's tax-exempt status.[102][105]

History
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The predecessor of Internal Revenue Code Section 501(c)(7) was part of the Revenue Act of 1913, which provides a tax-exemption to "fraternal beneficiary societies, orders, or associations operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system".[89] Congress justified the tax-exemption with the reasoning that the members join to provide themselves with recreational or social organization without further tax consequences, similar as if they had paid for the benefits directly.[98] Tax-exemption was available for organizations operated exclusively for pleasure, recreation, and other nonprofitable purposes.[98]

In 1969, Congress passed a law stating that social and recreational clubs were permitted to engage in some unrelated business income, subject to income tax.[98]