Considerations for private clubs with an association or league

Sep 08, 2017
Private clubs

If your club has associations, such as a men’s or ladies’ golf league, are they using your club’s Employer Identification Number (EIN)? If so, there can be issues.

Many clubs have separate and independent small associations, which are run by certain members of the club. Recently, we have seen mistakes in how these associations have been formed and accounted for.

If your club has associations that use the club’s EIN, they would be required to be included in the club’s audited financial statements, tax return, and could not run separate and independent of the club.

If the association would like to act and be treated as a separately governed entity, they must establish a separate legal entity. In order to do so, the association must file articles of incorporation with the state and file for an EIN with the federal government. The state usually has a small fee associated with the filing and requires an annual payment. The filing process is fairly straight forward and the club controller usually can help the association through the required filings. During the setup process, the association can choose from several different types of entities. The two most common entity types are exempt associations, which file Form 990 and nonexempt, which file Form 1120. Depending on the size of the organization, it might not make sense for the association to spend the additional fees to apply for exempt status. Generally speaking, associations that collect money and spend all the money collected in the same year would not pay any tax. If this is the case, there would be less of an advantage for the association to file for exemption.

After the proper filings are complete, the association would have its own separate EIN and become its own legal entity. With the separate legal entity, the association will be able to maintain its separate governing body and retain decision-making abilities. The EIN can be used to open bank accounts for collection of funds and payment of expenses.

If your club currently has an association or league that was formed or is maintained incorrectly, we would advise discussing it with your club’s controller or CPA firm. They will be able to help you go over the options and the best methodologies to fix or maintain the association.

RSM contributors

  • Frank Lucas
  • Jackie Sullivan
    Senior Manager

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