Private Club Accounting & Consulting

A member-owned club private club is one where the members collectively own the club and are responsible for its management. These clubs serve a variety of interests and purposes, ranging from athletic to country clubs. As nonprofit organizations, member-owned clubs operate differently than traditional businesses, relying on member dues and additional fees for funding. For this reason, member-owned private club accounting has a unique structure with specific requirements. PKF O’Connor Davies professionals provide specialized tax services that can help ensure you are complying with regulations.

A 501(c)(7) club and a 277 club can be treated differently for income tax purposes in private club accounting on matters related to member and non-member activities, capital assessments, initiation fees and overall tax returns. Revenue restrictions are also different, with 501(c)(7) clubs being required to maintain specific non-member revenue percentages and 277 clubs having no percentage limitation. This is just a small sampling of the differences – a PKF O’Connor Davies professional can help guide you through the complexities.

There are many areas that private club board members should focus on during board meetings:

Timeliness of Meeting Material – Encourage committee chairs to share information before the meeting, ensuring that board members have ample time to review and form questions. This leads to more efficient, focused and productive discussions as well as informed decision-making.

Executive Session – Private club boards should go into executive session at each meeting, even if there is no immediate need. When executive sessions are routine – instead of being called only when a serious issue arises – it can help create an atmosphere of trust and remove speculation when private discussions are required. They also provide ample opportunity and space to consider member or management issues.

Meeting Takeaways – All meetings should end with action items so that members know what they are responsible for. Accountability is essential for keeping timelines on track and moving forward.

Focus on Long-Term Capital Goals Versus Getting into the Operational Weeds – The board should make the plan and the management team should implement it. If that isn’t happening, it is a clear sign that you must reevaluate who is serving in those positions. Responsibilities and expectations should be clear. Additionally, specialized tax services play a key role in aligning your financial decisions align with your club’s long-term goals, tax regulations and industry best practices. They provide valuable guidance on compliance and strategic planning.

Revenue Procedure 71-17 is an IRS ruling that should be understood by both taxable and tax-exempt private clubs. This ruling provides directives on the recordkeeping requirements for private club accounting. It is assumed that taxable clubs subject to section 277 of the Internal Revenue Code can also use this ruling to identify member versus non-member income for their private club accounting purposes.

Some potential financing options available to private clubs include:

Bank Funding – Traditional bank financing is the most common source of funding for private clubs. This includes term loans for specific capital projects, bridge loans for short-term needs and lines of credit to maintain financial flexibility.

Capital Assessments – These can be controversial due to their financial impact on members and issues of timing and fairness. For example, current members may feel that it is unfair to have to pay for improvements that will benefit future members. Additionally, challenging economic times and outside financial obligations can make implementing capital assessments one of the most sensitive issues a private club board must address.

Member Bonds – Considered “friendly debt,” member bonds provide more flexibility, lower interest rates and fewer compliance requirements. Terms can often be customized and payment schedules can be more pliable than a traditional bank loan might allow for. They can also conveniently be aligned with the club’s cash flows.

Reserves/Initiation Fees – These consist of savings set aside and designated for capital purchases, with initiation fees serving as the main funding source for the capital reserve account. Typically governed by policies that have been established by the private club board, these reserves help maintain long-term financial stability. Proper private club accounting requires a clear separation and tracking of these reserves.

Angel Funds – Donations and pledges from members, also known as angel funds, do not have to be repaid and have no interest rates. These funds tend to cause less controversy within private clubs since they are voluntary and allow members to give within their means.

Yes, private clubs can take advantage of two specific tax credits:

Federal Insurance Contributions Act (FICA) Tax Tip Credit – This credit is available for both taxable and exempt private clubs with employees who receive tips for food and beverage service. It helps private clubs recoup a portion of the Social Security and Medicare (FICA) taxes – specifically those that exceed federal minimum wage – that they have paid on their employees’ tip-generated income. The overall result: a club’s federal tax bill is lowered by potentially thousands of dollars annually. Our private club accounting and tax services can help ensure correct filing and maximize benefits.

Fuel Tax Credit – This tax credit allows private clubs to recoup federal excise taxes paid on non-taxable uses of certain types of fuel – gasoline, aviation gasoline, undyed diesel and undyed kerosene. Instances where this is permissible within private club accounting include the purchase of gasoline or diesel for grounds upkeep (i.e., for lawn mowers, generators, etc.) and some other practices that do not utilize public roads and highways. Proper documentation and guidance can help clubs take full advantage of this credit.

Private clubs often classify fitness instructors or caddies as independent contractors instead of employees. It is important to classify your workforce correctly, and there are specific tests that the IRS looks at for this. Misclassifying workers in private club accounting can result in serious financial and legal consequences, from IRS audits to back taxes and fines paid by the private club. Other issues can include worker lawsuits for lost wages and benefits, highlighting the importance of accurate tax services to ensure compliance and avoid costly mistakes.  

A capital assessment is charged to members for a specific significant capital need, such as an irrigation system replacement or major clubhouse renovation. Capital dues are charged to members monthly, similar to membership dues, and are used to fund capital needs approved in the capital budget for the year. Implementing capital dues at your club may reduce the need for an unexpected capital assessment if a capital improvement/repair arises that was not included in the budget.