Tax Information for US based Clubs & SIGs - FAQ
Below are answers to questions about the most common tax topics encountered by U.S. Harvard Clubs and SIGs: the Employer Identification Number (EIN), tax-exempt status (both state and federal), and the Annual Information Return.
1) What is an Employer Identification Number (EIN)?
An Employer Identification Number (EIN) is a 9-digit number (like a Social Security number) only it belongs to an organization, not a person.
2) Why does our Club or SIG need an EIN?
A Club or SIG must obtain an EIN to open a bank account and to apply for federal tax-exempt status. Note: If a Club or SIG has a bank account but not an EIN, the bank account may have been opened with the Treasurer’s Social Security number. This should be changed as soon as possible as it may affect the Treasurer’s personal tax status.
3) What does it mean to be a nonprofit? What is the benefit for our Club or SIG?
In the U.S., nonprofit organizations are formed by incorporating in the state in which they do business. U.S. Clubs and SIGs with nonprofit status are eligible for sales, property, and income tax exemptions in the state in which they are incorporated. The HAA encourages all U.S. Clubs and SIGs to become legal entities by incorporating in their home state, though recognizes that this may not be feasible for some smaller Clubs and SIGs.
4) Are nonprofit status and tax-exempt status the same?
No. Nonprofit status is secured by incorporating at the state level, while tax-exempt status is granted by the federal government. The major benefit of securing federal 501(c)(3) tax-exempt status is that your Club or SIG has the ability to solicit tax-deductible gifts from members.
5) How does federal 501(c)(3) status differ from 501(c)(7)?
501(c)(3) status is designated for all charitable organizations, including educational groups such as alumni associations, Clubs, and SIGs. Clubs and SIGs should clearly list the educational activities they will be engaging in when they apply for 501(c)(3) status. 501(c)(7) status is designated for social Clubs, which are organized for “pleasure, recreation, and other similar nonprofitable purposes.” A Club or SIG with 501(c)(3) status is exempt from federal tax, and donations to the Club or SIG are tax-deductible. (This includes membership dues.) While a Club or SIG with 501(c)(7) status is exempt from federal tax, donations to the Club or SIG are not tax-deductible.
6) Does my Club or SIG need to file an Annual Return with the IRS?
If your Club or SIG has obtained an EIN or has secured 501(c)(3) or 501(c)(7) tax-exempt status, you are required to file an Annual Return. Note: In order to retain your 501(c)(3) status, your Club or SIG will need to demonstrate on your Annual Return that the charitable and educational aspects of its operations are ongoing and predominate over the purely social dimensions.