WRAL Investigates: Private country clubs can claim nonprofit status

The Internal Revenue Service tax code says social clubs can apply for tax-exempt status. That includes private country clubs that charge tens of thousands of dollars just to join.

Marty Martin, an attorney who specializes in more traditional non-profits, such as churches or charities, says country clubs don't get all the breaks that charities do. However, country clubs are also not required to have any charitable purpose.

“Is there a public good that's being served here that justifies a tax subsidy?” Martin said. “Are these organizations demonstrating positive impact, and how can they demonstrate that to the community at large?”

At one time, country club members could deduct their dues. However, Congress ended that tax perk in the 1990s. The clubs do pay property and sales tax and tax on investment and non-member income. The real advantage is that they do not pay corporate income tax.

“When (for-profit clubs) have revenues that exceed expenses, they do pay tax on that,” he said.

According to the newest tax returns, none of the clubs took advantage of the tax exempt status because all three lost money. All of their expenses go to salaries and amenities.

“Even if they use the profits simply to expand their facilities, there are lots of companies that mostly use their profits to expand their facilities and they still have to pay corporate income tax,” Schmalbeck said.

The nonprofit status does come with strings. New member advertising is restricted, profit can't pay dividends and clubs must open their books.

WRAL Investigates tried to contact all of the private clubs mentioned in the story for comment, but no one returned the calls. Not all private clubs claim nonprofit status. Clubs such as Raleigh Country Club and Prestonwood Country Club in Cary have for-profit ownership groups. It's a business decision for each club, and tax code gives them the option.