Whether your riding club can obtain tax-exempt status will impact its characteristics and finances. Many riding clubs may qualify for federal tax-exemption as social clubs organized for pleasure, recreation, and other non-profitable purposes.  Social clubs are intended to be membership organizations. The logic underlying the tax-exemption of social clubs is that members should be allowed to pool their funds for recreational purposes, rather than for a compelling public benefit.   In order for your riding club to qualify as a tax-exempt social club, however, certain specific requirements must be met.  

First, it must be a “club”. Characteristics of a “club” include membership of individuals, the existence of personal contact, commingling and fellowship among members, sharing of active interests amongst members, and sharing of goals by members justifying the existence of the organization.  Commingling of members should be a material part in the life of the riding club.

Second, it must be organized for pleasure, recreation, and other non-profitable purposes, substantially all of the activities of which are for such purposes. The club may not be a vehicle for carrying on an active business with the public, or for circumventing any type of federal, state and local laws and regulations. In general, a tax-exempt club can receive no more than 35% of its gross receipts, including investment income from sources outside of its membership.  Within that 35%, no more than 15% of gross receipts can be derived from the use of a club’s facilities or services to the public without risking loss of tax-exemption.  For example, in Private Letter Ruling 201830018, the IRS revoked the tax-exempt status of a social club organized to promote interests in horses and horsemanship because it exceeded these thresholds on a regular basis. On the other hand, in Revenue Ruling Rul. 68-119, the IRS ruled that a club organized to promote the enjoyment of equestrian sports did not jeopardize its tax-exempt status under Section 501(c)(7) by charging the public an admission fee to its annual steeple chase where the fees charged were used to defray the cost of the event and all excess revenue was donated to a public charity.
 
Third, no part of the riding club’s net earnings may inure to the benefit of any private shareholder. For example, paying members excessive salaries or entering into transactions with members that aren’t arms length might constitute prohibited private inurement.  If the club has tiered memberships, the level of benefits provided each membership class should correspond to the class’s membership rates. 

Finally, the club may not have a written policy that discriminates against individuals seeking membership on the basis of race, color, or religion (with certain limited exceptions). 
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© Deborah Buyer Law PLLC 2018      These materials do not constitute legal advice or create an attorney-client relationship.  The reader is advised to consult with an attorney to obtain legal advice. 
 

​The world of tax-exempt equestrian organizations is wide and varied, and these organizations obtain federal tax-exempt status in a variety of ways.  The type of tax-exempt status obtained by an organization is important because it dictates many of the requirements and benefits that come with the tax exemption.  This first post will give an overview of some of the various federal tax exemptions available to equine organizations.  Subsequent posts will dive deeper into each of the tax-exemption categories, their requirements and benefits, and the types of equine organizations that often qualify for each tax exemption category.
 
The first and most well known category is the tax-exemption under Internal Revenue Code Section 501(c)(3). To qualify as a tax-exempt 501(c)(3) organization, the entity must be organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, educational purpose, or for the prevention of cruelty to children or animals.  In addition, organizations that foster national or international amateur sports competition may obtain 501(c)(3) status, but only if no part of their activities involve the provision of athletic facilities or equipment.  In an interesting twist, however, certain “qualified amateur sports organizations” may obtain federal tax exemption under IRS Code Section 501(j), even if they have facilities, equipment or are local/regional in nature, if they are organized and operated primarily to conduct national or international competition in sports or to support and develop amateur athletes for national or international competition in sports. 
 
Equine-related organizations that are tax-exempt under Section 501(c)(3) abound. Examples include the United States Equestrian Federation, the United States Dressage Federation, the United States Hunter Jumper Association, the United States Eventing Association and the United States Pony Clubs Inc.*  Additionally, organizations that provide equine therapy to enrich the lives of individuals with disability are often tax-exempt under Section 501(c)(3).
 
Another relevant category is the tax exemption provided under Internal Revenue Code Section 501(c)(5) for agricultural organizations.  Many horse breed registries, such as the American Quarter Horse Association, the Jockey Club and the American Morgan Horse Association are 501(c)(5) organizations.*
 
Trade or business associations may obtain federal tax exemption under Internal Revenue Code Section 501(c)(6).  Examples include the National Thoroughbred Racing Association and the Walking Horse Owners Assocation.*
 
Finally, clubs organized for pleasure, recreation, and other nonprofitable purposes may be treated as tax-exempt under Internal Revenue Code Section 501(c)(7).  Local riding clubs are often incorporated as 501(c)(7) social clubs.
 
© Deborah Buyer Law PLLC 2018      These materials do not constitute legal advice or create an attorney-client relationship.  The reader is advised to consult with an attorney to obtain legal advice. 
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*All references to a specific organization’s tax exemption are based on the organization’s most recent IRS Form 990, obtained from www.guidestar.org.

Effective October 23, 2017, New York became the 48thstate to enact an equine activity liability law.  The new law was included in the New York State Safety in Agricultural Tourism Act. Unlike most other state’s equine activity liability laws, the New York law governs liability of operators of “agricultural tourism”, and “equine activities both outdoors and indoors but excluding equine therapy” are considered agricultural tourism for this purpose. See here for the text of the new law.

Operator Responsibilities:

Under the new law, operators of equine activities are not liable for an injury to or death of a visitor if the following requirements are met:

• Posting a conspicuous Warning to Visitors sign, notifying visitors of the inherent risks relevant to the on-farm activity, the farm operation and site conditions.  According to guidance issued by the NYS Department of Agriculture and Markets, the operator is responsible for developing this sign, which should be as specific as possible regarding the risks of specific activities, farm operations and site conditions. Generic signage will not be sufficient, and a risk assessment and periodic reviews are necessary.  
• Posting directional signage showing paths, areas and buildings that are open to the public.  According to guidance issued by the NYS Department of Agriculture and Markets, such signage should identify “off limits”areas.
• Posting a conspicuous notice of visitor responsibilities (see description of such responsibilities below).
• Posting a conspicuous notice to visitors of the right to a refund for those unprepared or unwilling to accept the risks or responsibilities.
• Distributing written information to visitors, with language provided by the NYS Department of Agriculture and Markets, directing the attention of all visitors to the required Warning to Visitors sign. The language provided by NYS Department of Agriculture and Markets also includes information directing the visitor to the visitor responsibilities notice, as well as information about a refund if the visitor is unprepared or unwilling to accept the risks or responsibilities.
• Providing adequate training to employees.
• Taking reasonable care to prevent reasonably foreseeable risks to visitors consistent with landowner obligations to keep the premises reasonably safe for intended and reasonably foreseeable uses and users.  

 
The NYS Department of Agriculture and Markets guidance indicates that either the failure to disclose a foreseeable risk or the failure to take reasonable care to prevent foreseeable risks could result in the loss of statutory protection.  Additionally, operators should assess risk through the eyes of a visitor who is unfamiliar with the farm’s operations.
 
Note that the operator may establish additional rules of conduct to help manage risks, which may be more specific or robust than what is required by the statute.  If properly displayed or communicated, these rules may provide further protection from liability.
 
Visitor Responsibilities:

The law also imposes responsibilities on visitors to:

• Exercise reasonable care regarding the disclosed risks.
• Reasonably comply with posted directional signs and reasonably remain in designated areas.
• Reasonably follow any and all written information or conspicuously posted rules of conduct provided by such operator to visitors, or verbal or other form of communication of rules of conduct where needed for effective communication for people with disabilities.
• Not willfully remove, deface, alter or otherwise damage signage, warning devices or implements or other safety devices.
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© Deborah Buyer Law PLLC 2018      These materials do not constitute legal advice or create an attorney-client relationship.  The reader is advised to consult with an attorney to obtain legal advice.