The Nonprofit FAQ

Can we convert our swim club to 501(c)(3) status?
On 07/19/2004 a reader wrote to Nonprofit (see http://www.rain.org/mailman/listinfo/nonprofit) with this question:


I am President of a small community Swim Club that was incorporated 40 years ago as a Private Social Club. We are pursuing a change in status to a 501(c)(3) in order to better serve our purpose particularly in the way of fund raising and offering tax exempt donations. I am trying to gather any and all information I can on this matter.

A few of the Q's I have are;
  1. Can our existing status be changed or do we need to close one and start the other?
  2. What about the transfer of assets from one to the other?
  3. Are there DISadvantages to this change in status that we are not aware of?


Michael L. Wyland of Sumption & Wyland in Sioux Falls, SD replied

501(c)(3)s are organized for public benefit, as opposed to a 501(c)(7) private club which is nonprofit but designed to serve the interests of a defined group of members.

Changing your club's filing status is a small matter in comparison to the re-drafting of your mission statement, activities, governance structure, etc., that such a change entails. If your motivation is to secure tax deductibility for gifts and donations, don't bother.

NOTE: corporate/business gifts are typically made in the form of sponsorships, and may be deducted by the business as a business expense. You don't need to be a 501(c)3 to offer deductible sponsorships to businesses. The gifts just can't be deducted as charitable gifts -- basically, they're advertising expense to the business.

Sandy Deja, author of "Prepare Your Own 501(c)(3) Application",
an ebook for lay people (see http://www.501c3book.com/) added from
Fairbanks, Alaska:

You should not need to close down the existing organization. However, in my experience, the IRS tends to be reluctant to make this kind of change, possibly because of the significant improvement in tax benefits for the group involved. Be sure you give the IRS very detailed information about how the organization has changed its operations since the original IRS ruling, particularly how it serves the public, rather than just dues-paying members.

If you are not already aware of it, you should review IRS Revenue Ruling 67-325, in which the IRS recognized 501(c)(3) status for a community swimming pool. [You can view this on the Internet: http://www.taxlinks.com/rulings/findinglist/revrulmaster.htm
The first two digits indicate the year the Revenue Ruling was published. Click on the year at the top of the finding list page.]



Posted 7/23/04 -- PB