The IRS, in PLR 201025078, denied exemption under section 501(c)(7) to a winemaking club. The club was formed for the specific purpose “to encourage the appreciation of winemaking, promote the responsible use of wine, educate wine tasters and home wine makers, and to promote and support the healthful creation of wine made without sulfites.” Although the club, had it been properly managed, could have qualified under section 501(c)(3) as an educational organization, the club failed to qualify as exempt under any section due to its commercial nature. Specifically, the club allowed anyone to become a “member” for a fee, didn’t allow its “members” any actual rights, and didn’t allow its “members” enough socializing amongst each other. Perhaps if the wine club had been more exclusive in its membership and hosted more parties among its members, the IRS would have granted exemption. Of course, the club should have also considered adding a few more disinterested board members and entering into a few less transactions with its founders…
The lesson here? If you want to form an exempt wine club, follow these simple rules:
- Be exclusive (but not too exclusive);
- Host winetasting parties regularly (at least weekly);
- Prepare long, educational soliloquys about your love of wine (or your recent Italian vacation); and
- Most importantly, consider tipping your hostess with cheese that complements the wine (I prefer soft blue cheeses with my Cabernet Sauvignon).