Sec 512(a)(3)
(B) Exempt function income
For purposes of subparagraph (A), the term "exempt function income" means the gross income from dues, fees, charges, or similar amounts paid by members of the organization as consideration for providing such members or their dependents or guests goods, facilities, or services in furtherance of the purposes constituting the basis for the exemption of the organization to which such income is paid.
Rev Rul 2003-64.
In addition to dues, fees, and payments from members, A receives an insubstantial amount of income from nonmembers, who use A ’s golf course and purchase food and beverages at A ’s dining facility. Such nonmember income is treated as gross income from an unrelated trade or business under § 512(a)(3).
Rev Rul 81-69.
The social club's sales of food and beverages to nonmembers are not profit motivated because its prices are insufficient to recover costs. As a result, the organization has consistently had, and will apparently continue to have, only losses from its sales to nonmembers.
HOLDING
Because the sales to nonmembers are not profit motivated, the social club may not, in determining its unrelated business taxable income under section 512 of the Code, deduct from its net investment income its losses from such sales to nonmembers.
Some IRS training material in 1996.
https://www.irs.gov/pub/irs-tege/eotopicc96.pdfConsequently, the exemption for social clubs operates properly only if the club's income is derived exclusively from members. For many years, however, income derived by clubs from outside of their membership (e.g., investment income), operated to subsidize the recreational facilities or activities for the members with revenue that was taxed neither to the members nor to the club. To prevent club members from receiving benefits not contemplated by IRC 501(c)(7), Congress extended the unrelated business income tax to social clubs in the 1969 Tax Reform Act. In doing so, however, Congress decided that, unlike most other types of exempt organizations, which were exempted because they provide some sort of community service or public benefit, clubs should be taxed on all income derived from outside their membership, including investment income. Special rules were provided for nonrecognition of gain from certain sales of club property when the proceeds are reinvested by the club for exempt purposes.
I'm not saying they lose their exemption. There's a safe harbor for that. But the safe harbor is not for UBTI.
https://www.irs.gov/pub/irs-tege/rp71_17.pdfThis audit standard relates only to determinations of exempt status. There is no minimum audit tolerance with respect to unrelated business taxable income.
And back to the IRS training document.
It is intended that these organizations be permitted to receive up to 35 percent of their gross receipts, including investment income, from sources outside of their membership without losing their tax-exempt status. It is also intended that within this 35-percent amount not more than 15 percent of the gross receipts should be derived from the use of a social club's facilities or services by the general public...
They're within the safe harbors, but those are for determining exemption, not UBTI.