IMPORTANT: This material has been prepared for informational purposes only, and is not intended to provide tax, legal or accounting advice.  Each community will need to assess for themselves the benefits and risks of setting up a 501c7.

What is a 501c7?

Section 501(c)(7) of the Internal Revenue Code grants tax-exempt status to “informal organizations.” These informal organizations are not incorporate entities, but rather clubs or groups that operate not for a profit but for the enjoyment or recreation of their members. These can include fraternities and sororities, country clubs, dinner clubs, sport teams/clubs, homeowners associations, and hobby clubs. More detailed information can be found here. Of note, this is different than a 501(c)(3), which is the status given to more traditional forms of non-profits. 

Why Set Up a 501c7 for Your Community?

A coliving home is a group of residents sharing a household together. As such, it’s a perfect use of the 501c7 designation, as communities typically collect fees for shared expenses such as food and house supplies. The primary benefit of setting up a 501c7 is to be able to open a bank account in the community’s name, rather than just one individual’s name. 

How to Create a 501c7:

The process for creating a 501c7 is relatively straightforward and not super onerous. Please follow the below steps:

1. To start, the community will need to designate a Responsible Party to apply for an EIN. This person will need to use their name and social security number on the application. While a 501c7 is an informal organization, the IRS requires there to be one individual within the organization who is listed as the point of contact. This most likely will be the Community Finance Manager.

2. Fill out your Social Club Charter

3. Apply for an Employer Identification Number (EIN) online here. 

   1. In this case, the reason for obtaining an EIN is strictly for banking purposes. The application will direct you to only complete lines 1–5b, 7a–b, 8a, 8b–c (if applicable), 9a, 9b (if applicable), 10, and 18

   2. For the legal name, use your community’s name (“The Village”, for example) 

   3. There is no need to incorporate so enter “no” for 8a

   4. Select “Other nonprofit organization” for 9a and specify 501c7 social club

   5. Select “Banking purpose” for 10 and specify 501c7 social club

4. Open a bank account using EIN

   1. Unfortunately Chime Banking does not have shared accounts for organizations so you will need to open a bank account at a bank

   2. Bank of the West is the preferred bank for this purpose. Other Communities have had success setting up their account here. You can try any bank you want, but some are less familiar with this type of organization

      1. Other banks can be used, but you may be  required to provide more information for your organization. Examples of questions you may encounter:

         1. Business-related questions – who are the officers, meeting minutes, etc. You can use your house meetings and Social Club Charter for these.

         2. Use examples of informal organizations (little league teams, homeowner’s organizations, dinner clubs etc.). Informal Organization is an IRS Category! 

5. Share your account and routing number with OpenDoor so we can set up ACH transfers for your house fund.

6. Select a system to use to manage your organization’s finances. This is important for annual reporting requirements to the IRS (see section below for more details). Some options are Quickbooks, Mint, Xero, etc. 

Required Filings

Although 501c7s are exempt from income taxation, social clubs are generally required to file annual returns of their income and expenses with the Internal Revenue Service. In addition to filing an annual exempt organization return. Some clubs may be able to file certain returns electronically.