Delaire Tax Exempt Status Under Scrutiny
Reported to the Internal Revenue Service
The highlighted language below comes from the IRS link provided. Given the huge disparity in fees and dues between Resident classes and Non-Resident classes, this could cause a loss of tax-exempt status.
The fact that a social club may have an associate (nonvoting) class of membership won't be, in and of itself, a cause for nonrecognition of exemption. However, if one membership class pays substantially lower dues and fees than another membership class, although both classes enjoy the same rights and privileges in using the club facilities, there may be an inurement of income to the benefited class, resulting in a denial of the club's exemption.
Click here to see how other clubs provide voting privileges based on category of membership that reflect the dues and fees paid relative to those categories. Also, you need to seriously question why Non Resident members, Equity and Non-Equity do not pay the $410 a month assessment for the Clubhouse. Most of the non-residents use the clubhouse facilities much more than Residents.
A Delaire Non-Resident Equity Member pays no initiation fee and doesn't pay the $410 monthly clubhouse assessment. They get one vote, the same as a Mandatory Resident Member who must pay a $60,000 non-refundable initiation fee. Talk about disproportionate. They have no skin in the game, but receive the same benefit as people who paid tens of thousands of dollars. Every Delaire election in which these people vote may be called into question and challenged in a court of law. This defies all logic and is fundamentally unfair.
No initiation fee = NO VOTE
Below are two letters to Membership Chair and 1st VP Art Newman advising him that Delaire’s tax exempt status is under review. Perhaps the Non-Resident members will have to pay a substantial amount more to belong, if the club hopes to maintain its current status. Another option would be for the club to eliminate Non-Resident membership.
It was my understanding that we have 56 Non - Resident non- equity members as of this writing, which is the extent of the allowable amount of members. If that be so then how can we take in any more members in that category. I am requesting a count as to the amount of members we have in that category with a full explanation.
It must be noted that I am questioning if the club can even can continue its non-taxable status with selling that type of membership. Having a 50% reduction on dues with not having to contribute to Capital assessments and no initiation fees, and get a free golf cart for themselves and their family (not available to the mandatory members). Also, the NRM are allowed free golf cart storage if they have a cart and golf club storage( not available to the mandatory members).
Under IRS 184.108.40.206 Overview IRC 501(c)(7). 220.127.116.11.1.(02-23-1999 it states:
"if a second class of member has the right to use a club facility on the payment of nominal yearly dues etc., then the club may not be exempt because the club will be engaged in the business of selling services for profit to an unlimited number of individuals". Rul.58-588,1958-2 C.B. 265
We are examining that portion of the IRS rulings and more with our legal advisors to assure myself as a Mandatory Member that the club is not out of conformity with the laws. The board seems to be under the understanding that they are the law and can do as they please, we will be bringing this false attitude to a complete halt. I am giving you the opportunity to check on this information in advance of the research being done before it becomes too late. As always the ball is in your corner to follow the right path.
Absent any response from Art Newman, Brecker writes again below:
I never received a reply to my message to you as the Membership Chairman regarding the taking in of Non-Resident members above the allowable number. My warning that selling such memberships with the special 50% reduction of their dues structure with no initiation fees, as compared to the dues structure of the mandatory members and required initiation fees, can injure our tax exempt standing as noted under IRC 501 (c) (7).18.104.22.168.1(02-23-1999.
I have conferred with my counsel and was told that the issue is quite clear that the club is in violation of the IRS ruling pertaining to such a special membership. Selling memberships at special pricing and enticing prospective's with free use of golf carts and club storage for the for the entire family,as well as the special bargain dues, not applicable to all members, represents selling memberships for profit as a business. To further make the point my counsel found the following issue even more not compliant:
"Generally, a social club that engages in recurring, non-incidental, profit-driven activities that result in the inurement of a private benefit to its members is engaged in nonexempt activities. Therefore, social clubs engaged in such activities are not exempt under 501 (c) (7). Common types of inurement analyzed by the Service include: compensation, distributions to members, income from non-members sources used to benefit members, and disproportionate payment by different classes of members."
I have gone on record several times that I am not against taking in Non-Resident members. I am against taking in members that do not pay their fair share. I cannot blame those members for taking advantage of the deal of the century. It is the fault of our management that has sponsored such a failed program. It is now evident and that mandatory members are being forced to subsidize such memberships. Our present operating deficit which is ballooning each month has reached unsustainable heights. We have reached the point of no return forcing a need for a capital assessment. Is this not ample proof that the Non- Resident membership is not contributing to the bottom line.
That said, it is time for a change. It takes drastic action to force changes on management that has no understanding on how to run a business. We have witnessed the failure of the Golf Enhancement Program. The $4.4 million dollar Golf Enhancement program not to exceed has matured into overspending for what it is "hyped" as a "Beautification Program". The so called "Beautification Program" must be called by its real name, "A RESCUE PROGRAM FROM DISASTER". It cost us millions more. The November 12th membership meeting is called to tell us that we must rescue the club from the damage done. What will not be discussed is who is taking the responsibility for such a three prong DISASTER. We must force that discussion.
Since business will continue as usual unless some one steps up to demand a change, I have taken that step. This time I have gone beyond just bringing the information to everyone's attention. I have become proactive and reported the club to the IRS for its infractions of the IRC 501 rules as mentioned in the above.
At first this may not seem a popular amend, but in time it will force the club into better and more professional management. My being proactive will rid us of the board that operates under the arrogant impression "That we can do anything we want, we are the board".
It will also serve as a "presage" to respond to a member's questions that have substance. Ignoring a member when there is a fiduciary responsibility toward that member has come to a halt. Punishing members without reasons has come to a halt. Abusing members and trashing by-laws whenever it pleases the board has come to a halt. There are new standards that must be observed which is why we need a change of management.
Hoping that you will accept my remarks within the spirit they have been written.
With warmest regards,