26 U.S.C. § 277 — Deductions incurred by certain membership organizations in transactions with members

(a) General rule — If a social club or other membership organization is run mainly to provide services or goods to its members, and it isn't tax-exempt, it can only deduct the costs of furnishing services, insurance, goods, or other items of value to members up to the amount of income it earned that year from members or member transactions (including income from member-education institutes and trade shows). If those costs exceed that income in a given year, the excess is instead treated as a deduction attributable to the following year. Also, such an organization can't claim the special dividends-received deductions under sections 243 and 245 for the taxable year. (b) Exceptions — Subsection (a) doesn't apply to an organization that (1) is taxed under subchapter H or L for that taxable year; (2) elected treatment under section 456(c) before October 9, 1969, or is affiliated with an organization that did; (3) is, on every day of the taxable year, a national securities exchange regulated under the Securities Exchange Act of 1934, or a contract market regulated under the Commodity Exchange Act; or (4) is mainly engaged in gathering and distributing news to its members for publication.