Why are fraternities and sororities tax-exempt?
It’s tax season! Well, for many fraternities and sororities across the nation it is. In honor of tax time, OmegaFi wants to share information on the tax-exempt status of fraternities and sororities. We’d like to bet that when elected to office a majority of chapter treasurers and presidents do not know that maintaining their chapter’s tax-exempt status will be a part of their job duties. Furthermore, they do not know what that entails entirely or where to even begin. We are here to help you! First and foremost, under IRS Code Section 501(c)(7), social clubs like fraternities and sororities are recognized as tax-exempt organizations. Generally, social clubs are non-profit organizations primarily supported by funds paid by their membership which is what fraternities and sororities do. In order for a chapter to maintain their tax-exempt status, each chapter is required to file the proper Form 990 based on their annual gross receipts.
Chapters that do not file a Form 990 annually are likely to lose their tax exempt status. Additionally, if a chapter that has lost their exempt status and fails to attempt reinstatement, they run the risk of being audited by the IRS. Now who in the world wants to be audited? I am guessing no one is raising their hand right about now. Yea, us either.
Unfortunately, many chapters do not file annually due to lack of knowledge or understanding of the tax filing process. If a chapter fails to file a proper Form 990, 990-EZ or 990-N, they are fined and let us tell you, penalties are high. If they fail to do so for three consecutive years, their tax exempt status is revoked. This could require that the chapter start paying federal income taxes and possibly even state taxes which could have a significant impact on its operations and of course, a chapters funds. Less funds means less money for membership recruitment, educational programs, member development and philanthropic giving. However, if a chapter does lose its tax-exempt status, there is a reinstatement process.
Does all this sound overwhelming? Well fear not, OmegaFi to the rescue, with Vault Tax Filing!
OmegaFi is an authorized IRS e-filer and subscribes to receive status updates from the IRS throughout the year. Tax filing is a big topic of concern in the interfraternal world these days. However, OmegaFi continues to do what we do best and provide solutions to fraternities and sororities. Through our recent enhancements to Vault Tax Filing, we are able to help chapters file as well as monitor their exemption status year after year.
Next Up: What are my options?
If you find that your chapter has in fact lost its tax exempt status, OmegaFi can provide your chapter with the necessary IRS Forms 1024 and 8718 to complete for reinstatement. Your chapter has the choice (a) obtain the completed forms from OmegaFi and file on your own behalf or (b) OmegaFi will review and file all necessary forms on your chapters behalf to the IRS for an additional fee.
Next Up: How do I get started?
To get started on your Form 990, simply login to Vault and click on Accounting > Tax Filing. The fee for 990N is $35, 990EZ is $45. If a 990 long form is required (gross receipts are more than $200,000), OmegaFi’s preferred accounting firm, Robinson, Grimes & Company can handle your return, for $650. Please note that all Housing Corporation submissions are automatically sent to Robinson, Grimes & Company and will cost $850. All fees are deducted from the OmegaFi Account register so that your chapter can pay through member payments and not have to write a check for the service.
To help break down the process even more, here is a handy flow chart.
We have a team dedicated to making this process simple, easy and efficient. For assistance, please contact your OmegaFi Account Manager – 800-276-6342.