Taxes, Shmaxes, I just want to swim!
by Cheryl Wagner

You formed a club, recruited members, and found a place to swim. Now the last thing you want to do is worry about taxes! But it’s important and not as hard to do, as you think. Here are some basics to setting up your club as a non-profit organization, gaining tax-exempt status, and staying out of trouble.

Nonprofits were authorized by Congress which determined that certain types of organizations should be free from the burden of taxation. To qualify for nonprofit status, an organization must apply for recognition from the IRS. The organization is then monitored and must report annually if its gross annual receipts exceed $25,000.

There are various subsections of the Internal Revenue Code under which an organization can apply for tax-exempt status. The most common is 501(c)3 although many organizations qualify under 501(c)(4) – Organizations which promote community welfare, and 501(c)(7) – Social and Recreation Clubs. There are pros and cons to each classification although 501(c)3 is the only one which grants tax-deductible status to donor contributions.

Certain types of organizations are automatically considered tax exempt under section 501(c)(3) without filing Form 1023, including: churches, temples, and mosques; and any organization that has yearly gross receipts under $5,000 and an organizing document that states its charitable purpose. However, these organizations cannot grant tax-deductible status to donor contributions unless they apply to the IRS and receive an official determination letter recognizing their 501(c)(3) status. If the organization’s gross annual receipts exceed $5,000 it must apply for tax-exempt status (within 90 days) in order to avoid paying taxes. Also note, that registering your club with USMS does not grant tax-exempt status to the club. USMS only extends tax-exempt status to it’s Local Masters Swim Committees, and not individual clubs under those LMSCs.

In order to qualify under Section 501(c)(3), an organization must be organized and operated exclusively for exempt purposes. The organizing document must permanently dedicate its assets to that end.

Certain activities are prohibited or restricted for 501(c)(3) organizations including participating in certain political campaigns, using funds to enrich its board members or key employees, conducting a trade or business that is unrelated, participating in illegal activities, and influencing legislation.

Every organization that qualifies as a 501(c)(3) organization, is further classified as either a public charity or a private foundation. A foundation receives its support from a small number of donors, while a charity has a broader base of support. Different tax rules apply to each, for example deductibility of contributions to a foundation is more limited than contributions to a public charity.