Tax Exemption of Amateur Athletics Organizations

Tax Exemption of Amateur Athletics Organizations

Amateur athletics organizations can qualify for exemption under section 501(c)(3) of the Internal Revenue Code in three ways: (1) by qualifying as a charitable organization, (2) by qualifying as an educational organization, or (3) by qualifying as an organization that fosters national and international amateur sports competitions. Exemption under 501(c)(3) for a sports organization provides the benefit of tax exemption as well as deductibility of charitable donations and eligibility for certain government and foundation grants.

Charitable Sports Organizations

The most common charitable sports organization is one that promotes competition in sports among children and youth. The Internal Revenue Service has traditionally recognized sports organizations as charitable if they combat juvenile delinquency or lessen the burdens of government, both 501(c)(3) purposes. For example, in Revenue Ruling 80-215, the Service held that an organization formed to develop, promote, and regulate a sport for players under the age of eighteen and that engaged in organizing local and statewide competitions, promulgating rules, organizing officials, and presenting seminars, functioned to combat juvenile delinquency and qualified under section 501(c)(3).

Even broader, the Tax Court has found that “the furtherance of recreational and amateur sports” in general falls within the rubric of “charitable”. Hutchinson Baseball Enterprises, Inc. v. Comm’r, 73 T.C. 144 (1979). In that case, upheld by the Tenth Circuit on appeal, the organization operated a baseball team, leased and maintained a playing field for use by the team, operated a baseball camp, and provided coaching and instruction for the camp and for local LIttle League teams. However, the Service has disagreed with the Tax Court’s broad definition of charitable to include all recreational and amateur sports organizations and would likely be reluctant to grant 501(c)(3) recognition on that basis alone.

In fact, in a separate case, the Tax Court held that where a substantial purpose of the sports organization is the social and recreational interest of its members, it will not qualify for exemption. The Media Sports League, Inc. v. Comm’r, T.C. Memo, 1986-568. In that case, which involved a sports league for football, softball, volleyball and other games, anyone over 21 years old could join, regardless of skill. Instruction was offered but not required and members were not required to participate in the athletic activities. The Court found that the organization functioned primarily to serve the recreational interests of its members and did not qualify under section 501(c)(3). This case further indicates that promotion of sports among adults is less likely to qualify for as charitable by the Service.

Educational Sports Organizations

A sports organization that teaches sports to children or adults or that is affiliated with an exempt educational organization, such as a college or high school, may qualify under section 501(c)(3) as educational. In Revenue Ruling 77-635, the Service found that an organization that conducted clinics, workshops, lessons, and seminars at municipal parks and recreational areas to instruct and educate individuals of any age in a particular sport qualified as educational. By contrast, an organization that publicized a sport and conducted tournaments, without a regular teaching program, did not qualify as educational. Rev. Rul. 80-4.

The educational programs of a sports organization should be the primary purpose of the organization and not a pretext where the underlying purpose is in fact the recreational interests of members. For example, the Service will be less likely to grant 501(3) exemption if the organization does not have a regular teaching program, or the teaching program is insubstantial.

Organizations that Foster National and International Amateur Sports Competitions

Organizations that are not charitable or educational but that foster national and international amateur sports competitions may qualify for exemption under the language of either section 501(c)(3) or section 501(j).

Section 501(c)(3) provides exemption for an organization organized and operated exclusively “to foster national and international amateur sports competitions (but only if no part of its activities involve the provision of athletic facilities or equipment)”.

Section 501(j) provides that a “qualified amateur sports organization” that otherwise satisfies the requirements of section 501(c)(3) will qualify as exempt regardless of whether it provides athletic facilities or equipment and regardless of whether its membership is local or regional in nature. A qualified amateur sports organization is defined as any organization organized and operated exclusively to foster national or international amateur sports competition if such organization is also organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in such sports.

The distinction between the language of section 501(c)(3) and 501(j) with regard to these organizations is not clear. Effectively, 501(j) removes the restriction on provision of athletic facilities or equipment for amateur sports organizations.

The Service considers a typical amateur sports organization under section 501(j) to be one that promulgates official rules and standards of play; charters and supervises teams, provides coaching equipment and facilities, organizes inter-team competition, and promotes and advertises a sport. Internal Revenue Manual 7.25.26.3.

To qualify for exemption, the primary purpose of the organization cannot be the recreation of its members but instead must be to foster national or international competition. Although not all members must be serious athletes, the organization must promote serious competition. The Service will take a facts and circumstances approach in making its determination of whether serious competition exists and will consider the following factors, not all of which are given equal weight:

  • Is the sport that the organization supports an event in the Olympic or Pan-American Games?
  • Are the athletes that the organization supports in the age group from which Olympic-quality athletes are usually chosen?
  • Are the athletes of a caliber that makes them serious contenders for the Olympic or Pan-American Games?
  • Do the athletes have to demonstrate a certain level of talent and achievement in order to receive support from the organization?
  • Does the organization provide intensive, daily training, as opposed to sponsoring weekend events that are open to and attract a broad range of competitors?
  • Is the organization devoted to improving the performance of a small group of outstanding athletes or does it emphasize the improvement in health of the general public?
  • Is the organization a member of the United States Olympic Committee?

An organization whose activities are clearly local in scope and far removed from any relationship to national or international competition will not qualify under section 501(j) (although it may qualify as a charitable or educational organization). However, if the local competition is part of a well-organized chain of tournaments or play-offs leading to a competition of national scope, the organization is more likely to qualify. The Service will take a facts and circumstances approach to this requirement as well.

Sports Organizations Exempt Under Sections 501(c)(4) or 501(c)(7)

A sports organization that does not qualify under one of the categories outlined above may qualify as a section 501(c)(4) social welfare organization or a section 501(c)(7) social club. Donations to such organizations do not qualify as charitable donations deductible under section 170(a); however the organizations are generally exempt from federal income taxation. To qualify as a social welfare organization, the entity must primarily promote the common good and welfare of the people of the community as a whole. For example, a nonprofit that stimulates the interest of youth in organized sports by providing virtually free admission to youths and encouraging their attendance at sporting events may qualify under section 501(c)(4). Rev. Rul. 68-118.

To qualify as a 501(c)(7) social club, the organization must be run primarily for the pleasure and recreation of its members. Amatuer hunting, fishing, tennis, swimming and other sports clubs frequently qualify under 501(c097). For more information on the requirements of a 501(c097) social club, see this article.

How to Start an Amateur Sports Organization

For a checklist to start an amateur sports organization under section 501(c)(3) in California, see this article.

Further Resources on Amateur Athletics Organizations

Written by Cameron Holland.