Some members of our 501(c)(3)women's service club have decided to drop out and form a social club among themselves. They say they do not intend to file with the IRS to become tax-exempt. However, they intend to raise funds and donate to local charities. What rules govern and/or limit them?
It isn't a very wise idea to establish an organization that is eligible for tax exempt status without applying and obtaining recognition of that exempt status. Without it, the organization may have to pay either federal or state income taxes or both. In addition, without the recognition of charitable status, their donors will not be able to claim charitable contribution deductions for the gifts they receive. Whether or not they are exempt, they may nevertheless have to register under the charitable solicitation law of each state in which they solicit. I suggest that they consult a lawyer who understands exempt organizations before they get into trouble.