Internal Revenue Service
TE/GE Customer Account Services
P.O. Box 2508
Cincinnati, Ohio 45201
I am writing in regard to a 501 (c) (7) membership organization
(social and recreational club) entitled the "Smoke Rise Field Club,
Inc", P.O. Box 1791, Cashiers, N.C. 28717.
Recently, various newspaper reports and articles have indicated that this
organization may have been involved in a number of activities including private
land development and equipment sales activities that may be precluded under
existing IRS regulations. Recognizing that these and other potential violations
of IRS rules may have occurred, we would respectfully like to request that the
IRS conduct a field investigation and review of the tax-exempt status of this
organization and its activities and programs allegedly being operated for the
benefit of its members.
Specifically, we would like to point out the following
discrepancies in their financial records as obtained under the IRS public
- The organization is claiming
depreciation and other related maintenance expenses for property it does
not own. Specifically, a clubhouse on a site the property leases has been
depreciated yet the actual owner of the property has paid the appropriate
county taxes. The Jackson County tax assessor has commenced an
investigation of the group on this issue as well as issues related to
personal property and business equipment taxes that were not paid.
- The organization in its 2003
IRS Form 990 reported income of over $23,000 from allegedly exempt
functions and over $37,000 from related functions. Both sources of income
are derived from functions that would appear to invalidate this
organizations exempt status pursuant to the 1994 EO CPE Text rulings.
Moreover, these revenues are not supported by an appropriate expense
category sufficient in size to account for the related sales of equipment
or supplies. Similar reports are contained in the organizations 2001 and 2002
IRS Form 990ís as filed. In addition, in 2001, the organization reported
over $72,000 in program revenue, yet provided no indication of the amount
that came from exempt functions.
- In 2003, the organization
reported salaries of over $68,000 with only $303 in employee payroll taxes
being reported. The amount of payroll taxes being reported in this fiscal
year as well as other fiscal years is totally inadequate given the level
of salaries being indicated and may constitute an act of tax fraud.
- Information obtained through
the State of North Carolina corporate tax records
indicates that a sizeable portion of the membership revenue is being
derived from the sales of guest and single day memberships. The proportion
of income being generated from these sources would appear to totally
invalidate the organizationís claim of a membership organization under the
provisions of the 501 (c) (7) section and would
appear to be used to protect their operations from further public scrutiny
and public control. In addition, it provides the member and organization
with a tax exempt status that is totally improper and possibly illegal
under existing IRS regulations.
- Finally, recent advertisements
by this organization indicate that daily memberships are available to the
general public. This arrangement would appear to invalidate the
organizationís claim of private membership club and would support our
claim that this organization should be recognized as a private business
without the tax exempt benefits that it presently enjoys.
While we have highlighted only a few of the discrepancies that we
have identified through our review of the limited tax returns and other
information available to the public, we are also aware of other apparent
violations of IRS regulations that could be more readily identified through a
professional review of this organizationís tax exempt operations. Based on the
above listed information alone, we respectfully request a full field review of
this organizationís tax exempt status.