Revenue Procedure 71-17 Recordkeeping for Private Clubs

Revenue Procedure 71-17 is the IRS guidance that tells tax-exempt social clubs how to document member and nonmember use of club facilities. It dates from 1971, but the IRS still relies on it when it examines clubs, and published IRS determinations show clubs losing exemption partly because they didn't keep the records it describes.

This guide explains the presumptions, the records required, and how to make compliance a routine part of event booking and member billing. It pairs with our guide to the 501(c)(7) nonmember income limits. Confirm your club's practices with your tax advisor.

Key takeaways

• Groups of eight or fewer with a member are presumed member use if the member or employer pays.
• Groups that are 75% or more members get the same presumption.
• Every other nonmember function needs full documentation.
• Make the 71-17 form part of every event contract.

The two presumptions in Rev. Proc. 71-17

The procedure creates two situations where nonmembers are presumed to be guests of members, so the receipts count as member income, provided the club receives payment directly from the member or the member's employer:

• Groups of eight or fewer that include at least one member.
• Groups where 75 percent or more are members.

Even under these presumptions, the club must keep records showing the group size or member percentage, that a member was present or part of the group, and that payment came from the member or the member's employer.

Records required for all other occasions

For functions outside the presumptions, the procedure requires the club to keep books and records on each occasion of nonmember use. Clubs typically capture the following, often on a "party of more than eight" or 71-17 form:

• Date of the function.
• Total number in the party and the number of nonmembers.
• Total charges and the charges attributable to nonmembers.
• Charges paid by nonmembers.
• When a member pays for nonmembers, a statement signed by the member saying whether the member has been or will be reimbursed, and the amount.
• When the member's employer pays or reimburses, the employer's name, the nonmember's relationship to the member, and the business, personal or social purpose of the member served by the function.
• When a nonmember pays and says the payment was a gift to the member, a statement signed by both attesting to that.

Without these records, the club can lose the ability to treat the receipts as member income, which pushes nonmember receipts toward the 15 percent limit.

Building 71-17 compliance into operations

• Make the form part of every event contract. Catering and events staff collect it at booking, before the event takes place.
• Ask for the form even when the club thinks the event qualifies. It costs little and protects the classification.
• Train staff. Catering, membership, accounting and front desk staff should know why the form matters.
• Code events in the POS as member, member-sponsored or nonmember so receipts flow to the right revenue accounts.
• Reconcile monthly. Accounting matches event revenue to completed forms and follows up on missing ones.
• Retain records with the club's tax records for the period the IRS can examine.

Taxable clubs should track it too

Clubs taxed under Section 277 aren't subject to the 35/15 exemption limits, but they still need to separate member and nonmember income and expenses to compute taxable income correctly. Good 71-17 style records support those calculations as well.

A quick self-check

• Does every event over eight guests have a completed form?
• Can accounting produce a monthly report of member versus nonmember event revenue?
• Does the finance committee see nonmember income as a percentage of gross receipts each month?
• Has anyone reviewed the expense allocation method used on Form 990-T in the last two years?

If any answer is no, start with the event contract and POS coding. Our club accounting cleanup work often includes setting up this tracking.

Common questions

What is Revenue Procedure 71-17?

IRS guidance issued in 1971 that sets recordkeeping requirements and presumptions for member and nonmember use of facilities at tax-exempt 501(c)(7) social clubs.

What is the party of eight rule for private clubs?

Under Rev. Proc. 71-17, a group of eight or fewer that includes at least one member is presumed to be the member's guests if the club is paid directly by the member or the member's employer.

What is the 75 percent rule in Rev. Proc. 71-17?

If 75 percent or more of a group using club facilities are members, the nonmembers are presumed to be guests of members, provided payment comes from members or their employers.

What records does a club need for a member-sponsored wedding?

Full Rev. Proc. 71-17 documentation: date, party size, number of nonmembers, total and nonmember charges, who paid, and signed statements about any reimbursement or employer payment.