Tax Exempt Status

[Patrick Michael]

A friend who is the treasurer of a social organization (retired law enforcement personnel) asked me about getting tax exempt status. I have never dealt with this I am wondering if they need it.  They are a not for profit corporation in NY and their income consists of about $20k a year in membership dues and about $25 a year in interest on a savings account.  They host 4 lunches a year and most of the dues go towards the lunches and placing memorial plaques for fallen officers.  From my research it looks like they would qualify as a 501c-7 organization and would have to file a form 1024 to get TE status.  The board is balking at the $850 fee for the initial determination letter and was wondering what would the consequences be if they did not file for tax exempt status.  Would they have to file an 1120 every year if they did not get TE status and (since I do not do 1120's) would there be any tax due if there net income for the year was under $2,000?

Thanks in advance for any input.

[Max W]

The question is whether or not the members, or contributors, are looking to get a charitable deduction on their personal taxes. If so, it would have to be a non-profit.  However, if that is not the case consider a not-for-profit corp, much like a mutual society.   Then an 1120 would be filed and any excess membership would be refunded to show a zero gain/loss.  The cost of preparing the 1120, even for one year, could exceed the cost of the determination letter.

[Patrick Michael]

They would be a 501(c)(7) so there would be no deduction for dues paid.  I'm trying to convince them they should pony up the money to get the determination letter but they are a bunch of tightwads and can't see the benefit.  Maybe when I tell them it will $1,000 every year to file to an 1120 as opposed to nothing to file the 990N they will come around.

Thanks Max.