Acknowledgment: The Club Council will publish a five-part series by Kevin F. Reilly, J.D., CPA, on philanthropy in private clubs. Inspired by “Clubs in Philanthropy,” originally co-authored by Reilly and Larry J. Absheer, MBA, for NCA’s Club Director magazine, these articles revisit and expand upon those ideas for today’s private club leaders.
When clubs discuss philanthropy and foundations, conversations often center around generosity, community impact, and member engagement. Far less attention is given to risk. Yet many club-related foundations encounter problems not because of bad intentions, but because of governance failures, operational shortcuts, or misunderstanding the legal boundaries that govern charitable organizations.
The reality is simple: a foundation is not an informal extension of the club. It is a separate legal entity subject to significant regulatory oversight.
One of the most misunderstood concepts is “private inurement.” In basic terms, this means a charitable foundation cannot improperly benefit the club or its members. This becomes problematic when clubs begin treating foundation funds as if they are simply another source of operating or capital dollars.
For example:
- Using foundation funds for projects outside the approved charitable mission
- Covering club operating shortfalls
- Improving club facilities without a clear public benefit
- Commingling foundation and club funds
- Failing to maintain proper documentation and board oversight
These situations can expose the foundation to IRS scrutiny and potentially jeopardize its tax-exempt status. And contrary to popular belief, the assumption that “we’ll never be audited” is not a strategy. Another common issue is governance overlap.
Many clubs unintentionally blur the lines between the club board and the foundation board. While collaboration is important, excessive overlap can weaken the independence the foundation is expected to maintain. Strong foundations typically establish separate governance structures, regular meetings, independent financial oversight, and detailed minutes documenting decision-making. Operational discipline matters as well.
Foundations require:
- Annual tax filings
- Separate accounting records
- Careful donor documentation
- Compliance with federal and state regulations
- Clear policies regarding gifts and expenditures
Turnover in club leadership can create additional risk if institutional knowledge is not maintained. A new controller, general manager, or volunteer leader may unknowingly inherit responsibilities they do not fully understand.
The most effective foundations recognize that compliance is not merely administrative—it protects the mission itself.
Clubs should also think carefully before transferring valuable assets into a foundation. Once assets belong to the charitable entity, they generally cannot simply be returned to the club. In certain circumstances, even dissolution of the foundation requires those assets to be transferred to another qualified charitable organization.
That reality surprises many boards.
None of this means clubs should avoid philanthropy or charitable foundations. Quite the opposite. Many club-related foundations accomplish extraordinary work benefiting employees, students, youth organizations, preservation efforts, and local communities.
But successful foundations operate with intentional governance and professional oversight.
The strongest foundations share several characteristics:
- Clear mission alignment
- Independent governance
- Financial transparency
- Consistent compliance practices
- Long-term leadership support
- Respect for the legal separation between club and foundation
Philanthropy can significantly strengthen a club’s culture and legacy. However, good governance—not good intentions alone—is what sustains that success over time.
This article is provided as a general educational resource for private club leaders. Neither the authors nor The Club Council are rendering legal, tax, accounting, or other professional advice. Clubs should consult qualified professionals before taking action based on the information presented.
