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Newsletter > January 2003 > "NEW IRS PUBLICATION ON FRATERNITY FOUNDATION GRANTS"
NEW IRS PUBLICATION ON FRATERNITY FOUNDATION GRANTS
Barbara Schwartz Bromberg, Dinsmore & Shohl LLP
In October, 2002, the National Office of the Internal Revenue Service released its annual Continuing Professional Education (CPE) materials for 2003 relating to tax-exempt organizations. CPE materials are used for training IRS agents in the field. These new materials include a segment on “Fraternity Foundation Grants.” The last time the IRS addressed the subject of fraternity foundation grants in its CPE materials was in 1999, and those materials related strictly to the housing area.
Non-Housing Educational Grants:
These materials really contain very little in the way of new information, but since fraternity foundations were selected as one of approximately fifteen important subjects for the Service to discuss, they do show that fraternity foundations are still very much on the Service’s agenda. The materials are interesting as they confirm the long-standing rule that scholarships restricted to members of a particular fraternity are acceptable as long as they are awarded on an objective basis consistent with the accomplishment of educational and charitable purposes. In addition, the Service also confirmed that the sponsorship of leadership training classes for fraternity members, which “assist members in managing their local fraternities and in their personal development” also further educational purposes, even though the group receiving the training is limited to fraternity members. The Service states that the reason for this is each member would be receiving training in skills that would improve his or her individual capabilities in the future, even though there is some benefit to the fraternity. Again, such leadership grants should be awarded on an objective basis consistent with the accomplishment of educational and charitable purposes.
Educational Areas Housing Grants:
The new CPE materials then proceed to discuss the subject of housing, and contain the first public pronouncement of the IRS position on fraternity foundation housing grants since its issuance of two private letter rulings in September, 2001, following the issuance of the new IRS housing guidelines in July, 2001. (See my articles on this subject in the November, 2001 and March, 2002 issues of Fraternal Law.) The materials indicate that the IRS is continuing to view favorably grants made for projects which satisfy the requirements stated in the 2001 guidelines, as long as such grants are properly structured and memorialized.
The materials confirm that the analysis of whether a housing project can be funded with foundation grant money remains twofold. First, the IRS will analyze whether a particular grant supports a project that replicates the practices of the particular university where the chapter house is located. Second, the IRS will analyze whether any recreational, social or private purposes are incidental as compared with the educational purposes accomplished by the funding. The materials also emphasize that fraternity foundations must keep records showing that the grant funds are being used for charitable and educational purposes. This requirement can be satisfied by appropriate educational area grant documentation tailored to the specific housing project involved.
As contrasted to the 1999 IRS CPE materials, which initiated an approximately three-year dialogue with the IRS, the 2003 CPE materials end on what appears to be a positive note, with the IRS acknowledging that technology and evolving educational approaches will fuel innovation by fraternity foundations, and that the principles and examples set out in the new CPE materials provide a guide for analyzing such new programs. The materials then conclude with instructions to agents when processing an application or examining a fraternal foundation, to apply these standards.
As mentioned above, the issuance of these materials and the concluding instructions to IRS Exempt Organizations agents evidence the IRS’ continuing interest in the fraternity world. If you have any questions as to how these materials apply to your specific circumstances, or how to implement an educational area housing program that complies with the new IRS guidelines, you should seek professional advice.
WATCH FOR NEWS ON STUDENT GROUPS AND FIRST AMENDMENT RIGHTS
The Philadelphia-based Individual Rights in Education (FIRE) recently filed a federal lawsuit against Rutgers University on behalf of the student group InterVarsity Multi-Ethnic Christian Fellowship. The student group alleges that the university revoked the group’s recognition because InterVarsity’s constitution and leadership policy reserving leadership positions for only those individuals who share the same religious beliefs of the organization does not comply with University guidelines on nondiscrimination. As a result, InterVarsity alleges that the university violated its first amendment rights of freedom of speech and religion as well as·its freedom of association rights.
Watch for an article discussing this case and others like it and their implications for the Greek world in the next issue of Fraternal Law.