Tax Exemption for your lake association

There are several levels of tax exemption that a local lake association may qualify for. Most important is exemption from federal and state corporate income taxes. These exemptions are usually prerequisites to, but do not automatically assure, obtaining exemption from state and local sales taxes.

Even if your association is tax exempt, individuals cannot deduct contributions to it on personal tax returns unless the association has a specific 501 (c)(3) recognition. That is recognition by the IRS as a charitable, religious, educational, scientific, literary, or similar organization under Sec. 501 (c)(3), IRC. The IRS has ruled (Rev. Ruling 70-186 [1970-1CB128]) that “…a nonprofit association formed to preserve and improve a lake used extensively as a public recreational facility…” qualifies for a 501 (c)(3) exemption.

It is not mandatory that your association be incorporated as a non-stock, nonprofit Wisconsin corporation under Chapter 181, Wis. Stats. to get exemption from federal and state corporate income tax— but it sure helps. And there are other advantages of incorporation, such as limitation of member and officer liability. It is neither difficult nor expensive to incorporate, and in most cases legal assistance will not be required. Do that first before applying for tax exemption.

Your organizing instrument (usually articles of incorporation [AOI]), bylaws, and other organizing documents must meet several tests for IRS recognition of tax exemption. If your association has no AOI, a comparable legal document is required. Bylaws alone are not acceptable. The organizing documents must show your association to be:

• Organized and operated for an acceptable social welfare purpose.

It must operate primarily to further the common good and the general welfare of the public.

• Non-profit.

No member, officer, or other person may receive any direct financial or other economic benefit from the organization’s operations, nor upon its dissolution. However, reasonable payments may be made for expenses incurred and services rendered.

• Non-political.

The organization may not participate directly or indirectly in political campaigns on behalf of or in opposition to any candidate for public office, nor may it expend a substantial part (not more than 5%) of its resources in legislative lobbying.

Articles of Incorporation

Most lake associations choose to incorporate as a Wisconsin non-profit, non-stock corporation under Chapter 181, Wis. Stats. It is not expensive nor is it difficult to do. A lawyer is not usually necessary. The cost is normally less than $50, excluding any unusual legal fees.

Download articles of incorporation form: (includes instructions and the fees required)
(PDF 85 KB)

Other important forms for lake associations

To qualify for state lake planning, protection, and recreational boating facilities grants, a lake association must be incorporated under Chapter 181 Wisconsin Statutes for at least one year and meet other standards (PDF 72 KB).

Lake associations must complete the Lake Association Organizational Application form (PDF 98 KB) in order to apply for or receive financial assistance from the Department of Natural Resources Lake Grants Program. Its purpose is to establish that a lake association meets the qualifications as required by Wis. Statutes.