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Can family association convert to charity?

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Can family association convert to charity?

Our 501(c)(7) family association has held annual reunions for more than 100 years on land we own, improved with a pavilion and outbuildings, overlooking our Swiss ancestor’s original homestead. We are exploring amending our 1910 charter and bylaws to obtain IRS reclassification as a 501(c)(3) charity to qualify for tax deductible donations to help underwrite property, reunion, and website expenses. Presently, only descendants of our original ancestor can be members.  Does this restriction constitute an automatic IRS disqualification?  Might we qualify if we broaden our mission to educating the public about the Swiss influence on our county’s history? What do you think we might do?

The IRS is properly skeptical of 501(c)(7) social clubs seeking to change to 501(c)(3) charitable status in order to obtain tax-deductible gifts. This would be particularly true for gifts to underwrite your family (social) reunions. A social club provides pleasure and recreational activities for a limited group of individuals who are selected by some process that denies access to their activities to most of the rest of the world. A charity provides educational and charitable services for the benefit of the general public. A charity may be selective in the individuals who can actually utilize their specific services (think Harvard University), but the selection process is open to all who meet the general qualifications and is not based on personal relationships.

A lot of social clubs have old buildings that they call historic. To try to qualify for charitable status, they consider opening the membership to all and turning their buildings into museums open to the public.  There are not many things that are absolute with the IRS, but having a selective membership such as yours is probably as close to an automatic disqualification for a charity as there is. It is hard to change the character of a functioning social club to let the rabble in and I don’t think many of them actually attempt to make the change.

You may be in a slightly different situation if the historic homestead could be subdivided and given to a newly created 501(c)(3) historical museum corporation (perhaps even one controlled by the club). If the association retains the pavilion and outbuildings, it may be able to continue to hold its annual reunions and social activities for family members on the other part of the property. The museum could seek deductible contributions and maybe foundation or governmental grants to preserve and protect the homestead building and to develop a significant educational program for the community, including an educational website. This type of relationship could relieve the club of probably significant expenses and allow you to tell the world about the significant contributions to the community made by your fellow countrymen.  If the club actually uses the homestead for its proceedings, it probably could not do so on better terms than anyone else who wants an event venue. 

But it would be worth considering this type of arrangement to see if it is physically and economically feasible (it is easy to overestimate how much grant money would actually be raised by the museum) and whether you could retain the essential elements of the family association. It may be simpler to raise your membership dues and ask your wealthier members to make non-deductible contributions to provide for your needs.

Tuesday, September 21, 2021

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