The TAMR is recognized as a 501c7 non-profit, tax-exempt organization.  As such, TAMR income is not subject to federal income tax.  The TAMR is NOT, however, a charitable organization, and any donations to the TAMR are NOT tax deductible. 

Why is the TAMR Involved?
  First, as a nationwide organization, the TAMR should have been reporting revenue to the IRS annually, just like any other individual or organization.  To the best of our knowledge, the TAMR had never had any relations with the IRS and was therefore operating outside of the law.  The officers felt it best to resolve this issue by applying for tax-exempt status, thereby eliminating the need to file tax returns annually.

Next, the TAMR had been looking into securing substantially lower postage rates from the United States Postal Service for the mailing of the Hotbox.  At the time, postage was the greatest expense the TAMR was incurring, and the officers felt it important to take a first step by applying for tax-exempt status.  This would enable the organization to secure non-profit postage rates should future membership levels and circumstances permit.

Following years of decline in both TAMR membership and morale (early 1990s), the officers were looking for a way to re-legitimize the organization in the eyes of current, former, and potential members.  The officers felt having an official recognition by the United States Government would help boost the status and legitimacy in the eyes of members and/or member's parents (who often foot the membership fee).

Next, the officers were looking at ways to attract greater financial resources.  Corporations and individuals are much more likely to contribute resources to an organization that they are sure is a legitimate non-profit group than a simple "club."  Although with 501c7 status contributions are not tax-deductible, it does provide another level of legitimacy to the group. 

And finally, the officers saw the non-profit, tax-exempt status as a continuation of the core purposes of the TAMR.  The TAMR is not in existence to make money, pay officers, or misuse financial resources.  The TAMR is in existence for hte purposes outlined in the Constitution: "to promote, stimulate, foster, and encourage among youth of all ages, by all manner and means, the art and craft of model railroading, the activity of railfanning, and the preservation of the history, science, and technology thereof" (TAMR Constitution Article 1 Section 2).


The 501c7 and TAMR Responsibilities
  1.  (Excerpted from the IRS):  "A social club is organized for pleasure, recreation, and other similar nonprofitable purposes and substantially all of its activities are for these purposes"

The purpose of the group must be non-profit.  This statement is why the word "non-profit" was inserted into Article 1 Section 2 of the TAMR Constitution.

2. "The organization will not be recognized as tax exempt if its charter, bylaws, or other governing instrument, or any written policy statement contains a provision that provides for discrimination against any person on the basis of race, color, or religion."

The organization cannot discriminate.  Article 12 of the TAMR Constitution satisfied this requirement and illustrates its' commitment to an open organization.

3. "To be exempt, personal contact, commingling, and fellowship must exist among members.  Members must be bound together by a common objective directed toward pleasure, recreation, and other nonprofitable purposes.  Fellowship need not be present between each member and every other member of a club if it constitutes a material part in the life of the organization.  A statewide or nationwide organization that is made up of individual members, but is divided into local groups, satisfies this requirement if fellowship constitutes a material part of the life of each local group.

A primary feature of membership must be fellowship between members.  The TAMR International Convention, regional conventions, and activities of the Regional Business Units (RBUs) as well as Divisions constitute the TAMR's commitment to this requirement.

4. The membership in a social club must be limited.  A social club that issues corporate membership is dealing with the general public in the form of the corporation's employees.  Corporate members of a club are not the kind of members contemplated by this statute.  Evidence that your club's facilities will be open to the general public (persons other than members or their dependants or guests( may cause denial of exemption.  This does not mean, however, than any dealing with outsiders will automatically deprive a club of exemption.

TAMR services/events cannot be open to the public; they are for members, families, and guests.  Business entities (corporations, LLCs, sole proprieterships, partnerships, etc.) may not be members in themselves, as they are artificial entities.  A member must be a living, breathing being.  An individual may, however, be sponsored by a business entity.  Thus Railroad Manufacturers, Inc. cannot be a member, but Billy Bob Davis, President of Railroad Manufacturers, Inc., for whom Railroad Manufacturers Inc is paying, can be a member.

5.  In general, a club should be supported solely by membership fees, dues, and assessments.  A 501c7 organization is permitted to receive up to 35% of its gross receipts, including investment income, from sources outside of its membership without losing its tax-exempt status.  Of the 35%, not more than 15% of the gross receipts may be derived from use of the club's facilities or services by the general public or from other activities not furthering social or recreational purposes for members.  If an organization has outside income that exceeds these limits, all facts and circumstances will be taken into account in determining whether the organization qualifies for tax exempt status.

Up to 35% of the total annual TAMR income can come from sources outside of the membership.  This includes donations from non-members and interest earned on our bank accounts.  However, per IRS Tax Ruling, "the organization may maintain its exempt status if it can show through facts and circumstances that 'substantially all' of its activities are for 'pleasure, recreation, and other nonprofitable purposes.'"  Thus, even if the limits are exceeded, the TAMR must only show that all of its activities were undertaken for its non-profit purpose.  It is therefore EXTREMELY IMPORTANT that every single cent the TAMR spends is accounted for--this means receipts.

6. No part of the organization's net earnings may inure to the benefit of any person having a personal and private interest in the activities of the organization.  For purposes of this requirement, it is not necessary that net earnings be actually distributed, since even undistributed earnings benefit members, if reflected by a decrease in membership dues or an increase in the services the club makes available to its members without a corresponding increase in dues or other fees paid for club support.  However, fixed fee payments to members who bring new members into the club are not an inurement of the club's net earnings, if the payments are reasonable compensation for performance of a necessary administrative service.

All funds are to benefit the membership as a whole, not a single member or group of members disproportionately  No member may be paid for services, either by a direct payment or an indirect payment, such as a reduction in membership fees or convention fees. 

7.  Tax-exempt organizations must make their last three annual information returns and their approved application for recognition of exemption with all supporting documents available for public inspection.  Pursuant to the Taxpayer Bill of Rights 2, the organization is required to provide copies of these documents upon request without charge (other than a reasonable fee for reproduction and copying costs).  Penalties are provided for failure to comply with these requirements.

The TAMR must make information relating to our 501c7 status and our annual accounting information available for public inspection.

8. Generally, tax-exempt organizations must file an annual information return.  Tax-exempt organizations that have annual gross receipts not normally in excess of $25,000 are not required to file the annual information return.

The TAMR is not required to file IRS Form 990 unless annual gross income is more than $25,000.

9.  Pursuant to the Omnibus Budget Reconciliation Act of 1987, a notice must be published with any solicitation for contributions that are not tax deductible.

The TAMR MIUST publish the following sentence as a separate paragraph, in the same typeface, on any solicitation for donations or contributions.  The sentence must either be the first sentence in a paragraph or a separate paragraph in itself.  See the link below for complete details, as well as requirements for telephone solicitations.

"Contributions or gifts to the Teen Association of Model Railroaders are not deductible as charitable contributions for Federal income tax purposes."


For additional information on 501c7...
  Social Clubs Tax Exempt Main Page at the IRS

Solicitation for Contributions Notice Requirement

Detailed, Technical Information from the IRS (Internal Revenue Manual)

Tax-Exempt Organization Overview (pdf file)


Copyright 2002, Brad M. Beaubien