Chapter 6 - Taxes

Question 1

what are the two major tax classifications of member owned social clubs?

Answer 1

section 501(c)(7) - tax exempt, section 277 - subject to tax

Question 2

what is tax avoidance and tax evasion?

Answer 2

tax avoidance is entirely legal and should be aggressively pursued. tax evasion is the fraudulent denial or concealment of a current or future tax liability

Question 3

what are the 5 criteria that 501(c)(7) must meet?

Answer 3

1. the organization must be club
2. the club must be organized for pleasure, recreation, or other nonprofitable purposes
3. substantially all club activities must be for pleasure, recreational, pr non-profitable purposes
4. no part of the net earning of a club may inure to the benefit of any private shareholder
5. at no time during the tax year can the charter, bylaws, or other governing instrument of the club contain a provision that discriminates against any person on the basis of race, color, or religion

Question 4

what is exempt function income?

Answer 4

club’s gross income from dues, fees, charges, or similar amounts paid by members as consideration for providing goods, facilities, or services to the members, their dependents, or guests in the course of serving the exempt purpose of the club

Question 5

what is average tax rate?

Answer 5

the average rate in a graduated tax rate system that is paid by the tax payer

Question 6

what is marginal tax rate?

Answer 6

the tax rate applicable to the next dollar of taxable income

Question 7

what is nonmember income?

Answer 7

club income from persons other than members

Question 8

what is unrelated business income?

Answer 8

income not related to the stated purpose of the club and subject to federal income tax