LATEST DEVELOPMENTS ON FRATERNITY FOUNDATION FUNDING OF EDUCATIONAL AREAS IN FRATERNITY CHAPTER HOUSES

Barbara Schwartz Bromberg, Thompson Hine LLP, Cincinnati, Ohio

As many of you are aware, for some time there were ongoing discussions between a small group of attorneys who represent fraternal organizations, including this author, and IRS representatives in the IRS National Office in Washington, D.C., on the subject of fraternal foundation funding of educational areas in local chapter houses. There had been some concern that the IRS would take a negative approach to this subject and, consequently, that funding of such projects in the manner that the fraternal world has become accustomed to in the last 20 years or so would be adversely affected.

I am pleased to report that these discussions and negotiations were concluded in July, 200 I, on what I believe hopefully to be a favorable and workable basis. The IRS is again processing requests for private letter rulings and exemption applications that reflect this type of activity and this is indeed good news. ·In fact, in late September 200 l, two new favorable IRS exemption rulings incorporating the guidelines discussed below and granting recognition of charitable tax exempt status to organizations were made public. The IRS is asking organizations that submit exemption applications showing plans to engage in this type of activity to sign a statement that they will adhere to these new guidelines.

In most respects, it appears that these  projects  will  be able to continue much as they have in the past and in many aspects the documentation for such  projects  should  not change. For example, the qualifying percentage of fundable space in a fraternity chapter  house  will  still  be  allocated based upon the ratio that educational spaces  bear  to the overall square footage in  the  house.  Also,  annual  maintenance and operational costs  attributable  to  the  educational  areas may still be so funded according to the same percentage. In determining the educational percentage qualifying for funding by fraternal foundations, any reasonable allocation consistently applied may be used to determine the amount of educational space in a fraternity  house.  A  grant  agreement will of course still be required.

[There are a few important differences in the new IRS operational rules as opposed to the previous guidelines, and many of these are favorable changes.]

However, there are a few important differences in the new IRS operational rules as opposed to the previous guidelines, and many of these are favorable changes. The following are some highlights. First, the guiding principle with regard to the allowability of such funding will be that the facilities provided by the funding must be similar to those provided by the specific college or university at which the house is located for the education of the general student  body. Thus, complete wiring of a fraternity house for computer use will be allowable for funding by a fraternal foundation if the dormitories at the particular college or university are similarly wired for computer use. Grants can also be made for fire alarms, smoke detectors, and internal sprinkler systems for educational areas in a chapter house.

[Thus, complete wiring of a fraternity house for computer use will be allowable for funding by a fraternal foundation if the dormitories at the particular college or university are similarly wired for computer use.]

In determining those areas of a chapter house which qualify as educational, as in the past, no mixed-use  areas such as dining areas and sleeping quarters may be considered educational, however, a minor social or recreational use such as a reception occasionally held in a library will not be considered to change an educational facility into one of mixed use. A fraternal foundation may not make grants for the purpose of funding the purchase of computers, computer desks, computer chairs, and similar items owned by individual members. However, a computer, desk, and chair that are similar to those included in student dormitory rooms may now be the subject of such grants (as long as they are not owned by individual members). As in the past, furnishings and fixtures contained in educational areas of the house may be so funded.

This article is necessarily an oversimplification and generalization as to the new IRS guidelines that apply with respect to fraternal foundation funding of chapter house projects. It would be advantageous for each organization to review with its advisors its particular chapter housing program as soon as possible to determine how these new guidelines affect the organization and its ability to continue, begin, or reinstitute such a program, as the case may be.