deductibility of club dues

 

This paper to briefly summarize the guidelines for determining the very limited circumstances under which club dues are deductible. Once you have had a chance to review this material, I suggest that we get together in order to discuss your particular situation.

In general, dues paid after 1993 to social, athletic, or sporting clubs are not deductible. Club dues paid before 1994 may be deductible but only if they satisfied the various tests to be considered entertainment expenses.

The type of clubs for which dues paid after 1993 are not deductible include clubs organized for the principal purpose of providing entertainment facilities for their members and their members' guests. Dues and fees paid after 1993 to country clubs, golf and athletic clubs, airline clubs, hotel clubs are, therefore, not deductible. This rule also applies to due and fees paid to clubs operated to provide meals under circumstances that are generally considered to be conducive to business discussions. By contrast, dues and fees paid after 1993 to business leagues, trade associations, chambers of commerce, boards of trade, real estate boards, professional organizations (such as bar and medical associations), and civic or public service organizations (such as Kiwanis, Rotarians, etc.) are deductible. However, even dues paid to these types of organizations are nondeductible if the organization's principal purpose is to provide its members or their guests with entertainment facilities.

A taxpayer seeking to deduct dues that she paid before 1994 to a social, athletic, or sporting club must show that the dues were an ordinary and necessary business expense under the rules that are generally applicable to the deduction of business expenses. Even if the taxpayer's club dues payments satisfy the basic requirements to be deducted as a business expense, they then must satisfy two additional requirements before the taxpayer is allowed to deduct them. First, the taxpayer must establish that she used the club primarily to further her trade or business and that the club dues were directly related to the active conduct of that business. Second, the taxpayer must substantiate both that she paid the club dues and that she used the club primarily for business purposes. Finally, the taxpayer may only deduct 80% of the amount that she otherwise would be allowed to deduct.

The rules placing restrictions on the deductibility of club dues are complex and may be also be affected by other tax laws. For this reason, the facts of your situation should be carefully reviewed. I suggest that you contact me at your convenience so that we can further discuss the tax consequences of your proposed transaction.