Many professionals, including CPAs, attorneys, and business owners, join civic organizations such as the Lions Club, Rotary, Kiwanis, Masons, and Shriners to network and contribute to their communities. But an important question arises: Are membership dues and related expenses tax-deductible?
The IRS explicitly states that dues for some organizations are deductible, while others are not. The key factor in determining deductibility is whether the organization’s principal purpose is civic and public service rather than social or entertainment-based activities. Let’s break it down.
The Club Disallowance Rule
The IRS prohibits deductions for club dues paid to organizations that are primarily for business, pleasure, recreation, or other social purposes. This means that if an organization is designed for entertainment or networking without a strong civic component, the dues are not deductible. Examples of organizations that fall under this disallowance rule include:
- Country clubs
- Golf and athletic clubs
- Airline clubs
- Hotel clubs
- Business meal clubs
The IRS does not determine deductibility based on an organization’s name, but rather its actual purpose and activities.
Exception: Civic and Public Service Organizations
The IRS makes an exception for civic and public service organizations, stating that they generally do not fall under the club disallowance rule. Organizations that the IRS has explicitly recognized as deductible include:
- Lions Club
- Rotary Club
- Kiwanis Club
- Civitan Club
These organizations have a clear mission focused on public service, community improvement, and charitable work, which makes their membership dues and related expenses deductible as ordinary and necessary business expenses.
Are Dues for Masons and Shriners Tax-Deductible?
Lack of IRS Precedent
Unlike the Lions, Rotary, and Kiwanis Clubs, Masons and Shriners are not explicitly named by the IRS as deductible civic organizations. However, this does not automatically disqualify their dues from being deductible. The IRS uses a “principal purpose” test to determine eligibility.
The Principal Purpose Test
To be considered a civic and public service organization, the primary mission of the club must be to serve the community rather than to entertain its members.
- Masons: The Freemasons are one of the oldest fraternal organizations in the world, with a long history of philanthropy, scholarships, and community service. If a Mason can establish that his membership is primarily for civic and charitable purposes, similar to the Lions or Rotary Club, then dues may be deductible.
- Shriners: Shriners International is an advanced branch of Freemasonry, and its members support Shriners Hospitals for Children, among other charitable causes. Like Masons, if a Shriner can demonstrate that their involvement is primarily civic and public service-oriented, their dues may also be deductible.
How to Justify the Deduction
Since the IRS has not explicitly ruled on Masons and Shriners, members should be prepared to justify their deductions by demonstrating:
- The civic and public service activities of the organization.
- How membership helps advance business interests (e.g., networking, community involvement).
- That the organization is not primarily for entertainment purposes.
Ordinary and Necessary Business Expenses
For dues to be deductible, they must also meet the “ordinary and necessary” business expense test:
- Ordinary Expense: An expense that is common and accepted in your trade or business.
- Necessary Expense: An expense that is helpful and appropriate for your business.
For example, if you are a CPA, attorney, or business owner, membership in a civic organization can enhance your business visibility, credibility, and networking opportunities, making it an ordinary and necessary expense.
Example:
A CPA joins the Lions Club to engage in local charity work and network with business professionals. Because the club is IRS-approved as a civic organization and the membership benefits their business, the dues are deductible.
Key Takeaways
- The IRS prohibits deductions for club dues that are primarily for entertainment, recreation, or social purposes (e.g., golf clubs, country clubs).
- Civic organizations like Lions, Rotary, and Kiwanis are explicitly recognized as deductible, while Masons and Shriners are not specifically mentioned.
- The principal purpose of the organization is the key factor in determining deductibility.
- Masons and Shriners members should document how their membership serves a civic and public service purpose if they wish to deduct their dues.
- Dues must also meet the “ordinary and necessary” business expense test to qualify for a deduction.
If you’re unsure whether your membership dues are deductible, consult a tax professional to assess your specific situation and ensure compliance with IRS rules.
