Gift to Social Club Qualifies

For Annual Gift-Tax Exclusion --James J. Reilly

The Internal Revenue Service recently advised in a private-letter ruling that a cash gift by an individual to a tax-exempt social club should be treated as a gift qualifying for the annual gift-tax exclusion.  The individual who made the gift to the club is a member of the non-stock corporation.

The IRS did not look at the gift as a gift to the individual members of the club to the extent of their proportionate interests in the club.  The IRS concluded that the member’s cash transfer to the club would be a gift to the club as a single entity.  The club’s plan is to use the gift to assist with an upgrade to its facilities, and the gift by the member will immediately be subject to the control of the club through its board of directors.  The gift constitutes a gift of a present interest.  The member would be entitled to take advantage of the annual gift-tax exclusion (presently $11,000) to avoid any potential gift-tax liability.

The private-letter ruling does not discuss the issue, but there should not be a tax to be paid by the social club on the gift.

A private-letter ruling is specifically directed only to the club that requested it, and such ruling may not be used or cited as precedent by other clubs.  Nevertheless, such private-letter rulings are significant to other clubs provided the private-letter rulings contain a cogent analysis of the federal tax law.  Quite a bit of our understanding of the IRS view of the federal tax law comes from private-letter rulings.

James J. Reilly

Condon O’Meara McGinty & Donnelly, New York, NY

212-661-7777 – jreilly@comdcpa.com