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

(a) General rule: A social club or other membership organization that mainly serves members — and is not tax-exempt — can deduct costs from furnishing services, insurance, goods, or other items of value to members only up to the income it earned that year from members or member transactions (including income from member-education institutes and trade shows). If those deductions exceed that income for a year, the excess is treated as a deduction in the following year instead. Also, the dividend-received deductions under sections 243 and 245 are not allowed for organizations covered by this section. (b) Exceptions: Subsection (a) does not apply to an organization that (1) is subject to tax under subchapter H or L for the year; (2) elected before October 9, 1969 under section 456(c), or is affiliated with one that did; (3) is, for every day of the year, a national securities exchange regulated under the Securities Exchange Act of 1934, or a commodity contract market regulated under the Commodity Exchange Act; or (4) is mainly engaged in gathering and distributing news to its members for publication.