Members, we (the Recreation Centers of Sun City West – Association) wanted to provide you with an important update on where we are at with resolving the tax status issues with our chartered clubs and the Village Store.
You may have heard a lot of rumors or read misinformation in the Independent and on various social media accounts, so we wanted to update you directly.
Let’s first take a look at the history of this issue. Prior to COVID, one of our chartered clubs (Kiva West Bridge), brought to our attention that their tax preparer had concerns about the club’s filing as it appeared they were in violation of IRS tax codes. The codes require that 501(c)7s (social clubs) ensure at least 85 percent of their revenues come from club members (not Association members, but club members). Specifically, no more than 15 percent of a club’s gross receipts can come from non-club members.
Our clubs are independent tax entities with their own tax ID numbers, boards of directors, and operating rules. They exist under the auspices of our Association as chartered clubs, so there is some crossover. However, we do not check their tax filings for compliance or accuracy. We do help the smaller clubs with the digital filing, and we provide general training to the treasurers and officers.
We had a similar compliance issue with clubs in 2011 that was addressed and corrected at that time. Over the years, compliance from craft clubs has slid off the tracks and the Association is attempting to rectify that by encouraging the clubs to get back in line with the rules. Following IRS regulations benefits the clubs and the Association.
One proposal offered by Director Lou Mancuso would dissolve the clubs’ independent 501(c)7 statuses and move the clubs under the Association’s 501(c)4 umbrella. He further proposes that non-Association members could enjoy the clubs by paying a fee.
The impacts of such a major change have not been fully investigated yet, but we do know more staff would have to be hired to run the day-to-day operations of the clubs and handle the accounting for the clubs. This includes accounting for public usage of the club facilities.
The proposal from Mr. Mancuso was discussed at the June 4 Workshop (you can view it here). It is not clear if this proposal has the support of the full Board. The current Board ends its term on June 30. A new Board will be seated July 1 with many of the same Directors. Which officers will be in place at that time is in question as Mr. Mancuso and Directors Sharon Hettick and Lisa Vines have challenged the last election of officers and called for a new vote simply because one of the Directors resigned from the Board a month later for personal reasons. That effort will be voted upon by the Board at a Special Meeting, which begins at 9 a.m. tomorrow (Thursday) in the Lecture Hall. It is open to the community and may also be viewed live here.
When the 501(c)7 tax issues came to our attention pre-COVID, we looked at ways to rectify it and came up with a proposal to help Kiva West continue operating in much the same way they do now. That proposal was shelved during COVID but as operations got back into gear, we looked again at Kiva as well as the other 102 chartered clubs to make sure they were aware of the tax codes governing 501(c)7s.
It soon became apparent that three groups of our chartered clubs had veered off the track in terms of following IRS regulations, Association policies and RR&Ps, and it was time to get them back in line with the rules. The vast majority of our groups operate just as they should with their tax status. About 10 clubs that fall into three distinct categories are the concern.
The three groups include:
- Social Clubs that have a high number of outside guests, where the revenue from those outside guests far exceed the 15 percent limit.
- Clubs, particularly some sports club, that take in outside advertising revenue. In some cases, this advertising was sought to pay off interest-free loans offered by RCSCW to pay for the club’s facility enhancements. (It has since been determined these loans will no longer be allowed.)
- Craft clubs that sell large amounts of products or higher-priced products at the fairs, their storefronts and through the Village Store.
In the case of group No. 3, it became apparent the Village Store was unintentionally promoting this problem. Due to the complicated nature of these issues, the Board met in executive session to receive legal advice from our attorney on how to proceed. The Board also appointed a special committee to investigate the potential tax status issue.
The committee was comprised of Board Treasurer Anne Brown, General Manager Bill Schwind, CFO Pete Finelli, Accounting Manager Tim DeAngelo, Chartered Clubs Chair Donna Maloney, Pickleball Club rep Ken Holtz (for the club advertising issue), Kiva Bridge representative Gary Bosak (for the outside guests issue), and incoming (and now sitting) Director Lisa Vines, as a representative for the arts and crafts clubs since she is a member and instructor with some of the clubs. Our Association attorney and a tax attorney in their firm that is a CPA also were involved.
The committee held three meetings – April 22, April 29 and May 6. These were held in executive session as we were discussing the legal advice received from our attorneys.
The information they gathered was disseminated as quickly as possible after the committee concluded its work and was dissolved. This was expedited due to a number of timing issues, including: COVID restrictions were lifting, the Village Store Manager was retiring, our snowbirds were beginning to depart, and the Governing Board was nearing the end of its fiscal year and the beginning of a three-month summer hiatus.
The first decision made was the difficult announcement that we were temporarily closing the Village Store. The closure was done to give the exiting manager time to get products back to their artisans before the manager’s retirement and the snowbirds’ departure. The store remains in limbo. We are trying to determine its future.
We then held a meeting with the clubs – all 103 of them! – broken into three sessions to accommodate everyone. We went over our findings and discussed the need for them to get back to following current policy and stay within IRS regulations or risk losing their federal tax-exempt status.
Closing the store resolved that one area of non-compliance; in whatever format or location the store reopens, it will be done in such a way that the issue remains resolved. As far as the fairs, our Events Manager is currently working on a craft fair sale that will allow for member sales while remaining in compliance with tax codes.
At this time, we still have some clubs operating in probable violation of the IRS rules and RR&Ps. Director and Chartered Clubs Chair Donna Maloney attempted to offer a solution by drafting proposed changes to the RR&Ps. The Chartered Club Committee unanimously approved the changes, and they were brought to the Board on June 4. The issue was contentious, and the proposed changes were not approved. (You can view the discussion here.)
Since that time, Director Lou Mancuso has announced he is leading a recall effort on Director Maloney and another Director who supported the changes – incoming President Sue Fitzsimons.
As we know more, we will keep you apprised in future editions of the enews (and the Rec Center News to the extent the deadline allows). If you know residents who do not get the enews, we ask that you encourage them to sign up for future updates.
Unless I over looked it, in which case I apologize, your headline stated “Changes could impact Owner Member Dues”, I saw nothing to say how or why owner dues should/could be impacted. I’d like to know, please
Moderator’s Note: The views expressed here are from Director Mancuso as an individual director. They do not represent the views of the staff or the entire Board.
Please read my response Lou Mancuso, Director RCSCW on June 10, 2021 at 12:13 pm in the enews comment section that will clarify the guest issue that was taken out of context in the enews article.
The change in the guest policy would be for 2 clubs (card and dance club). ALL of our other guest policies that are in place would continue. There would be NO ADDIITONAL NON RESIDENTS AT ANY VENUES IN OUT CITY, WHICH WILL INCLUDE POOLS, EXERCISE AREAS, PICKLEBALL, CRAFT CLUBS, REC CENTER ACTIVITIES, etc. We DO HAVE a solid guest policy and, in my opinion, it should be enforced except for card and dance clubs. As a matter of fact, the GENERAL MANAGER is exploring an EXCEPTION to this policy for a CARD CLUB as we speak. It’s interesting that this wasn’t mentioned. Hmmmm………
As for the $2million dollar annual loss for golf and bowling I have included my response to a resident on this annual loss to our association. I can not attach a file to the comments but if you would like a copy email me at the address in my comments and I will send it to you.
The email response below is after I detailed the losses in the document (FY 21-22 Budget Packet – 3-10-21.pdf) that I reference above.
My point is that we all pay dues to live in this wonderful city with more amenities than any of us could possibly use. Who could want better!
I realize we all pay dues, and our dues support the golf and bowling deficit. I would also say that ONLY +/-25% of our residents play golf. Many just a few rounds of golf annually, however, the 75% that DO NOT PLAY GOLF are covering a hefty golf and bowling deficit of +/- $2million dollars annually with their dues.
I believe our residents who enjoy golf and bowling, as well as these other activities are due the same fiscal resources that golf and bowling residents receive. I doubt that the amount of the additional cost to accomplish compliance with 501c7 tax issues will approach the more than $2 million annual LOSS for golf and bowling. Make no mistake, I believe this deficit will NOT DECLINE in the out years but ONLY INCREASE!
Certainly, some of the changes that will keep our city, nearly as close to what it once was, prior to this issue, will result in additional cost.
Would you refuse the 75% of our residents that don’t play golf and bowl their fair share of our fiscal resources?
Reasonable people make reasonable decisions, my issue is that I don’t believe the committee that was convened to address the 501c7 tax issue did their due diligence. As I mentioned in my comments in the enews article, I’ve only thought about this for a short period of time and have several ideas that at a minimum can be presented to legal and fiscal professionals to determine their viability.
Let’s all live here in harmony, but harmony means we know what the facts are, what the reasonable rules are and there is fairness and equity of our fiscal resources.
I welcome your comments and feedback.
Director Mancuso, you make both a substantive and a procedural point. Your substantive point about golf and bowling ignores that, for many years, this community has “survived” their deficits. In point of fact, the “enterprise”, as a whole, has continuously managed both an increased budget and reserves. despite golf & bowling deficits. This has been “baked” into the budget for years and years. Did you not understand this budget dynamic?
Your procedural point also fails. The committee presented a completely rational solution, to wit: address the 10 or so clubs (out of 103+/-), each with their own separate, independent *corporate*, legal and tax identity. Your critique omits that this committee had the benefit of tax counsel to the Association.
If clubs are intentionally operating in probable violation of the IRS rules and RR&Ps, why couldn’t they be advised to stop all activity until their situation is resolved?
We at Silvercraft West stopped all activity in April. We would love to have this resolved.
I just hope the people at Facebook we’re not responsible for monitoring the visibility of our clubs. Imagine this: old people doing bad things again.
It is unfortunate that there seem to be those who are opposed to following the regulations promulgated by the IRS and who appear to be trying to get rid of their opposition by getting those who do not agree with them removed from the board. All this will do is, eventually, bring the wrath of the US Government down on at least the clubs involved and possibly the entire Rec Center organization, eventually hurting everyone.
Due to the fact that only a few 501(c)7s are not in compliance with the IRS regulations related to their tax-exempt status, the most cost effective and most equitable solution would be to have these chartered clubs either comply with the tax regulations of 501(c)7 or loose their charter status. Thus reducing tax exposure for the rest of our association.
The propasal to have RH Johnson, the 501(c)4 organization, take the 501(c)7s under its tax umbrella will result in significant cost increase and the additional exposure of the 501(c)4 to tax audit.
I do not think or believe that the majority of our members wish to have increased fees being imposed on the owner members for the sake of a few 501(c)7s.
Susan; It would also work if the clubs were able to change their tax status to enable them to sell some of their work, such as is done in Sun City and Sun City Grand.There would NO reason to increase our fees.
Close the club’s. We pay too much in dues now. I can see where you are going with this. Sun City West is going down hill each year. You spent too much money every year, and it falls back on the members. (BMH)
In my opinion, closing clubs defeats the benefits of living here.
How will this “impact owner member dues”? Are you referring to the yearly $498 fee we currently pay each person in a household? Just curious if you are referring to those fees possibly changing.
Opening up to the outside sounds like a bad idea to me. If you dont have a vested interest in the community (home ownership or rental) you are less likely to care about the outcome of the community. If club membership is dwindling in certain areas, the club should be evaluated and possibly eliminated.
Has anyone talked to Sun City how they handel these things?
They have a store.?
Could the crafter’s just have a 1099 at the end of the year.
So many people upset about the store closure.
So many of us bought here for the clubs.
Hope things can get back to some kind of normal.
Thank you.
I am not in favor or opening clubs to the public because the incentive to buy a house in Sun City West is lost and will affect our property values.