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The Private Club Foundation: A Charitable Legacy

Philanthropy in the United States, which exists in many forms, has seen substantial growth since the 1980s. Guidestar lists more than one million foundations on its website. Even with the recession, Americans continue to contribute in record numbers to charitable organizations. Baby Boomers contribute a bigger share of total donations than any other demographic. They represent 34 percent of all donors but are responsible for 43 percent of all contributions. Philanthropy within private clubs and the golf industry as a whole has also been on the rise. 

How are Clubs Using Foundations?

Charitable tournaments and other functions are familiar territory for clubs. In addition to these events, a number of clubs have established or may soon establish a club foundation or endowment. The impetus for creating a separate entity can vary from a member’s interest in making a substantial contribution, a desire to garner donations for additional purposes, or an interest in pursuing charitable activities that complement the primary mission of the club. Such entities may help to fund community service and educational programs undertaken by the club, such as supporting the development of library and art collections and providing scholarship programs. 

The Union League Club of Philadelphia has a very unique setup. The Heritage Center is home to the Union League’s three foundations emphasizing youth work, scholarships and Abraham Lincoln. The Abraham Lincoln Foundation acts as a steward of the League’s priceless art and archival collections. It has provided thousands of teachers, students, researchers, visitors and members with access to its unique collection by bringing its exhibits to more people on a regular basis through a virtual tour. The League’s other two foundations have a long history of working with youth and providing scholarships. Since 1955, more than 900 students have received scholarships, which amounts to more than $3.1 million. 

Taking another example, the Jonathan Club has two foundations. The Jonathan Art Foundation oversees a collection of pre-1940 California plein air artwork, while its Heritage Foundation maintains the club’s historic treasures and provides outreach to members communicating the club’s rich history. Just underway, the Jonathan Scholarship Fund recently awarded its first round of $10 thousand educational scholarships to 10 recipients. Each recipient is eligible to receive the scholarship for four years. Club staff children, grandchildren, spouses and significant others are all eligible to apply.  

Celebrating its 30th anniversary in 2014, the University Club Foundation in Washington, D.C., has provided decades of support for philanthropic endeavors within the club’s walls and throughout the local community. The mission of the foundation is to support the club’s Keefer Memorial Library and programs characterized as charitable, educational, scientific, artistic and literary. Funds are used for a variety of purposes, including providing fruit, vegetables and meat to 100 families and 340 individuals in partnership with the food bank at the nearby AME Church and granting scholarships that help children of employees realize their post-high school educational goals. The foundation has become an integral part of the lives of club members and the community. 

The Union League of Chicago is involved in extensive foundation activities dedicated to supporting the community and the arts. It has three separate foundations devoted to charitable activities. One helps to endow six Boys and Girls Clubs in the Chicago area and has worked with 11,000 children in the inner city and seen a 97 percent graduation rate. A second foundation is devoted to promoting civic activity and scholarships in the visual and performing arts. The third supports the field of engineering. All three have separate boards of trustees housed within the club and receive significant support from the club and its members. 

Endowment Funds 

Generally speaking, endowments are segregated funds created by one or more contributions that are intended to be held as a permanent fund and invested. Often, they are initiated with a single gift or several gifts of some magnitude as a beginning amount from which to build. The investments generated from that corpus are then made available for use by the organization or foundation for designated purposes. 

Though some clubs have established separate foundations that permit members to make tax-deductible contributions, others take a different approach. One example is to set up an endowment fund to which members can contribute, and, while not tax deductible, donations can provide a means for supporting major needs of the club, particularly capital improvement projects. 

A number of clubs have also set up special funds as a means of encouraging member contributions for specific projects. Among country clubs, a common example is a tree fund, dedicated to the preservation and replacement of trees on club property. 

Tax and Legal Issues 

It is important to distinguish between these special funds and a 501(c)(3) foundation. The special club funds receive contributions from members to accomplish private goals of the club. Unless specifically restricted by the donor, the club can use the funds for any purpose. Foundations, on the other hand, must have some public benefit. The foundation may be associated with, but should be separate from, the club. A number of steps should be taken to ensure that the foundation qualifies as a charity exempt from tax under 501(c)(3) of the Internal Revenue Code. 

Section 501(c)(3) of the Code provides, in part, for the exemption from federal income tax of corporations organized and operated exclusively for charitable, scientific or educational purposes, provided no part of the corporation’s net earnings inure to the benefit of any private shareholder or individual. 

To be exempt as an organization described in Section 501(c)(3), an organization must be both organized and operated exclusively for exempt purposes. If an organization fails to meet either the organizational test or the operational test, it is not exempt. An organization will be regarded as operating exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in Section 501(c)(3). An organization will not be considered exempt if more than an insubstantial part of its activities are not in furtherance of an exempt purpose. 

The biggest problem many clubs encounter in establishing a foundation is the notion of private inurement—the club benefiting from activities of the foundation. An organization does not exist exclusively for any of the purposes specified in Section 501(c)(3) unless it serves public rather than private interests. Thus, to meet this requirement, it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as, among others, the creator of the organization. If an organization serves a public interest and also serves a private interest, other than incidentally, it is not entitled to exemption under Section 501(c)(3). 

The word “incidental” has both qualitative and quantitative connotations. In the qualitative sense, to be incidental an organization must show that the benefit to the public cannot be achieved without necessarily benefiting the club. In the quantitative sense, to be incidental the benefit to a private interest must not be substantial. 

A foundation may not be established to accomplish activities of the club that are required functions of the club itself. While historic preservation, establishment of a library, preservation of artwork, or conducting educational forums are all worthwhile goals, they must benefit the public and not merely the club. The IRS wants to see a broad public interest served. Since the foundation must serve a public benefit, clubs should consider the impact on the club’s private status. Members may be unwilling to open the club to the general public. Clubs should also be very cautious about gifting assets to the foundation. For example, if the foundation is established to acquire and preserve artwork, and the club contributes its collection to the foundation, the artwork is gone. Even upon dissolution of the foundation, the assets cannot be returned to the club. Rather, the assets will be distributed to another 501(c)(3) organization. State laws should also be considered. 

A foundation should apply to the IRS if it desires recognition as a tax-exempt entity under Section 501(c)(3) using Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. The form provides a checklist for the foundation to follow in submitting its application. Oral requests are not accepted. A user fee of either $400 or $850 is required, depending on the expected size of the foundation, along with the application. Incomplete applications or applications without a user fee will not be processed. The application should include the organizing documents, bylaws, description of activities and financial data, if available. 

If the IRS does not approve your request, the ruling can be protested. You also have a right to a conference. If neither option is exercised, the ruling becomes final after 30 days. Carefully completing all of the steps in the application process should prevent rejection. 

Initial Steps in Setting up a Foundation 

A foundation is often viewed as a means for receiving tax-deductible contributions from the membership and thus, a source of additional funds. However, establishing and supporting a 501(c)(3) foundation can represent a major commitment of time and resources for a club and its governance structure. A foundation that is an “adjunct” to another organization can pose a challenge to the parent organization and will likely require a fair amount of assistance and support, particularly in its early years.

Without a strong commitment from the club’s leadership, it may prove difficult to achieve success. Clubs should initially consider the following: 

  • What is the foundation’s intended purpose or mission? 
  • What benefit will this provide to the public? 
  • Why do we need a separate foundation for this? 
  • Who should serve on the board of the foundation? 
  • What will be accomplished, particularly in terms of programs or services? 
  • Who is likely to provide funding? 
  • How will funds be raised? 

The Foundation’s Board and Staff 

Before establishing a foundation, the club should carefully consider a variety of governance issues, including the relationship between the parent organization (the club) and the foundation, and the degree to which the club wishes to be involved in the foundation. Whether to have an overlap in the boards of the club and the foundation may depend on the type of foundation established and the related legalities, i.e., the extent to which an overlap is either encouraged or prohibited by IRS regulations. However, the prudent course is to minimize the overlap and maintain as much separation as possible between the two entities. 

Determining the best candidates to serve on the board of the foundation may largely depend on the roles and responsibilities of board members. As a general rule, it is helpful to select board members with knowledge of investments, legal issues, or philanthropy; familiarity with the club’s activities and mission and the foundation’s mission; experience or expertise with fundraising activities; and a willingness to contribute to the work of the foundation. 

Policies and procedures that define the work of the foundation might include the foundation’s bylaws, committee structure, investment policies, fundraising programs, degree of direct board involvement and control, and interaction with staff and outside counsel. It is helpful to establish bylaws that broadly define foundation activities, so that they provide flexibility for the future. It is also important that the foundation maintain good communications with the club, both at the governance level and through the staff. 

Some club-related foundations have been developed by members of the club, rather than the club’s board of directors, and while most, if not all donors are club members, there are specific provisions in the structure of the foundation that maintain a completely separate entity from the club itself. Staffing issues related to a foundation often involve these basic questions: What type and number of staff are needed, and how should the foundation staff function relative to the club’s own staff and operations? The answers to these questions will vary by club, but can be addressed by examining the level and amount of staff time needed for administrative tasks (such as record keeping and accounting), staffing of board meetings, preparation of printed materials and other support for fundraising programs, and staff involvement in research and program implementation. 

Based on these and other factors, an assessment can be made of the skills and time commitments needed for foundation staffing. In some cases, it may be determined that one or more club employees may be able to share duties with the club’s foundation, particularly if full-time staff is not required. 

Some foundations sharing staff or overhead with a club pay for those services, although in many cases, the club donates the overhead support as an in-kind contribution to the foundation. Clubs considering a foundation should address this issue in terms of not only staff, but also office space, supplies and support services. 

Developing a Mission and Case Statement

Many organizations view the development of a foundation mission from the standpoint of a case statement—defining a need that would be addressed through the activities funded by the foundation. The case statement should help the foundation assess objectively and explain clearly the needs and opportunities for support. Its purpose, like a prospectus, is to provide information and direction to the board, staff and prospective donors. Put simply, the statement tells the world what you’re going to do and who will be involved. The foundation’s mission statement should help clarify how it will be different from the club’s mission and how it will complement the club’s statement of purpose. 

In some cases, this may involve identifying which of the club’s programs or services requires funding from this additional source, or what new initiatives would become possible as a result of the expanded base of funding. Again, it is important to differentiate between the club’s needs and those that the foundation will fulfill. The next step involves defining realistic needs and projected costs of the identified programs and services and setting priorities for implementing them as funds become available. 

As part of the initial process of foundation development, it is advisable to consider a study of potential donors (likely to be the club’s members) to determine the likelihood of their support, issues they would like to see addressed by foundation programs, and other factors. One start-up foundation discovered through a survey that members expected it to operate separately from the parent organization and not be a source of support for any shortfalls in operating revenues. It is critical that contributions to a charitable foundation not be used to fund shortfalls in a club’s operations. Members may feel that it is important for a club foundation to demonstrate a separate agenda from the club’s own goals and a study could help the foundation leadership identify that agenda. 

Fundraising Activities 

The terms “foundation” or “fundraising” can raise concerns about approaching members for more money, seeing that in most foundations affiliated with a club, the primary source of contributions is club members. This may start with the members of the foundation board, and perhaps the club’s board of directors, where members may encounter the adage, “give, get or get off.” 

Most successful fundraising programs follow the premise that people give to people. Thus, these programs involve members or leaders who can influence other donors. For clubs establishing a separate foundation board of directors, it may be helpful to identify such influential members as prospective board members. The fundraising committee or council of a foundation should certainly include individuals who will have this type of influence. It may also prove helpful to include representatives of the foundation board to coordinate efforts. 

What level of contribution should you ask for and how do you get it? The volunteers serving on the board or fundraising committee can help to address these questions, taking into account the club’s relationship with prospective donors and their likely interest in possible programs or activities. It is often helpful to establish a baseline gift level, or even several levels for giving, because it helps donors decide what is appropriate. 

Fundraising methods will likely vary by size and type of club and need to take into account the internal culture of the club. They often include annual fund drives directed to the club’s membership, silent auctions and other types of special events. Most often, members contribute cash, but donations are also made through gifts of appreciated or long-term capital gain property, such as stocks, bonds, land or tangible personal property like paintings or manuscripts. 

Administrative and Tax Aspects of Fundraising 

Clubs may receive large gifts from members in connection with foundation campaigns. Donor tax liability can be minimized or avoided in most cases by making sure that the funds are solicited and used in conformity with IRS guidelines. Generally, an individual donor may contribute cash to a tax- exempt charitable organization and treat the gift as a charitable contribution, which is deductible in calculating his or her income tax assuming the donor itemizes deductions. If the club’s foundation is a public charity, the donor may deduct up to 50 percent of his or her adjusted gross income for a cash gift, and 30 percent of adjusted income for appreciated property. However, overall limitations on itemized deductions may limit this amount. 

It should be noted that contribution deductions are allowable to donors only to the extent that their contributions are gifts. In addition, charitable deductions of $250 or more must be substantiated by documentation from the charity. This documentation should substantiate the amount of the deductible contribution and must be received by the donor no later than the date when the donor actually files his or her tax return. Charities must disclose any goods or services provided to the donor in exchange for the contribution, as well as any quid pro quo contributions in excess of $75. 

Tax-exempt foundations are required to file Form 990, Return of Organization Exempt from Income Tax, if the gross receipts each year are greater than or equal to $200,000 or the total assets are at least $500,000 at the end of the year. If gross receipts are greater than $50,000 but less than $200,000 and total assets are less than $500,000 at the end of the tax year, the foundation may file Form 990-EZ. Otherwise, Form 990-N must be filed. As with the other tax-exempt groups, Form 990 must be made available for public inspection for three years after the return is due. The exemption application and supporting documents must also be made available upon request. The foundation would also be required to file the federal income tax return, Form 990-T, if it is subject to unrelated business income tax. It is advisable to refer questions regarding tax deductibility and other tax issues to the club’s accountant or tax counsel. 

Susanne R. Wegrzyn is president and CEO of the National Club Association and the NCA Foundation. She can be reached at [email protected]. Kevin Reilly is a partner with PBMares, LLP and is a member of NCA’s board of directors and is Secretary Treasurer of the NCA Foundation. He can be reached at [email protected] or 703-385-8809. 


501(c)(3). Section of the Internal Revenue Code that designates an organization as charitable and tax-exempt. Organizations qualifying under this section include religious, educational, charitable, and amateur athletic, scientific or literary groups. 

509(a). Section of the tax code that defines public charities (as opposed to private foundations). A 501(c)(3) organization must also have a 509(a) designation to further define the organization as a public charity. 

Assets. Money, stocks, bonds, real estate, or other holdings of a foundation. Generally, assets are invested and the income is used to make grants. 

Bequest. A sum of money made available upon the donor’s death. 

Endowment. A bequest or gift that is intended to be kept permanently and invested to create income for an organization or foundation. 

In-kind donation. A donation of goods or services, rather than cash or appreciated contribution property. 

Quid pro quo contribution. A payment made partly as a contribution and partly for goods or services provided to the donor by the charity. (An example might be an item valued at $40 given to a donor who has made a contribution of $100. In this example, only $60 would be deductible.) 

Private foundation.A nonprofit organization with funds (usually from a single source, such as an individual, family or corporation) and a program managed by its own trustees or directors that was established to maintain or aid social, educational, religious or other charitable activities. Private foundations are subject to a variety of rules and restrictions that do not apply to public charities. 

Public charity. A nonprofit organization that receives at least one-third of its annual income from the general public. This public support test can also be satisfied if the foundation receives at least 10 percent of its total support from the general public and also has a variety of other characteristics that make it sufficiently “public,” such as engaging in direct services or other charitable activities that serve the common welfare. 


1. Identify opportunities for donors to give, including what programs or activities would be most attractive to them. 

2. Set an overall goal for funds to be raised and, if appropriate, specific targets for individual programs. 

3. Identify prospects most likely to give (for clubs, donors are typically members). 

4. Develop strategies for approaching prospective donors (annual fund drives, silent auctions, estate planning, etc.) 

5. Establish a management (staff) structure to implement the fundraising program, with a budget for fundraising activities. 

6. Develop a volunteer structure to support the fundraising efforts (a board or committee, along with other key members). 

7. Set a timetable for the process to establish expectations.