December: Holding an Endowment to Benefit a 501(c)(7) or Other Non-Charity

In 2024, our legal resources team answered more than 1,600 questions from Council members! After reviewing the most common topics and questions, we created a new Legal FAQ resource that includes pages for topics like donor-advised funds, disaster grantmaking, fiscal sponsors, global grantmaking, and end-of-year giving.

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Question

We have a 501(c)(7) sportsmen's club that is selling land to a forest conservancy. We have been asked to manage a portion of the proceeds as an endowment. I would like to know what the IRS's outlook would be on this arrangement. Obviously, we would need to make sure that no money that we distribute would be used to benefit individual members or to be used for any lobbying activities in which they might engage.

Answer from Staff Counsel

There’s no legal reason you couldn’t hold an endowment to benefit a 501(c)(7), or any other non-charity for that matter, but you’re correct that you’d need to take additional steps to ensure that all distributions from the endowment would further exclusively charitable activities carried out by the organization rather than supporting its general operations. This documentation could involve requiring the organization to submit funding proposals each time they request a distribution that would outline how they intend to use the funds to further specific charitable projects or activities, and then requiring follow up reporting detailing how funds were expended. And of course, you’d also need to stipulate that funds can’t be used to benefit members’ private interests or engage in lobbying and political activities, as you’ve noted.

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