In this Article, Mr. Banspach focuses on the requirements for deductibility of allowable social club expenses and whether a social club may net excess expenses attributable to an income generating activity against income from passive investment. The author notes that social clubs which qualify for tax exempt treatment under the Internal Revenue Code section 501(c)(7) for a form a significant percentage of all tax exempt organizations in the U.S. After reviewing recent action by the federal courts, the author argues that the case law is inadequate to protect against tax avoidance by social clubs. Specifically, the approaches set forth by the Sixth Circuit and the Ninth Circuit work against the policy goals of preventing social clubs from restructuring nonexempt activities to generate excess deductions and from using nontaxed investment income to subsidize nonmember services. The author invites Congress to act to limit the amount of excess deductions a social club can use or clarify the profit motive standard set for in the Internal Revenue Code.
Social Clubs and the Profit Motive Test: Allowability of Excess Deductions against Investment Income,
San Diego L. Rev.
Available at: https://digital.sandiego.edu/sdlr/vol27/iss1/4