IRC Sec. 501(c)(7) provides an exemption from federal income tax for clubs organized substantially for pleasure, recreation, and other nonprofitable purposes if no part of the net earnings inure to the benefit of any private shareholder. The IRS privately ruled that a virtual sorority, organized for students of an online for-profit university for the primary purpose of encouraging academic and professional success, didn’t qualify as an exempt social club under IRC Sec. 501(c)(7) . In reaching this conclusion, the IRS relied on certain 1950’s and 1970’s revenue rulings, which determined that a club contemplates the commingling of individuals, personal contacts, and fellowship. Furthermore, the previous rulings determined the commingling of members must play a material part in the organization’s life. The IRS concluded that the online sorority failed to meet the definition of a clubbecause it didn’t engage in face-to-face meetings and gatherings as a primary activity.
Ltr. Rul. 201434022