Educational Grants for Chapter House Construction and Renovations

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Robinson Bradshaw Publication
Aug. 17, 2011

Background

The fraternal organization community shares the hope and expectation that the Collegiate Housing and Infrastructure Act soon will revolutionize the way we raise funds for chapter house construction and renovation projects. In the meantime, it is critically important that we follow Internal Revenue Service guidance restricting grants made for construction or renovation of chapter house educational spaces.

IRS Lines in the Sand

When donors make contributions to the fraternity foundation which in turn makes a grant to the local chapter, the foundation’s grant to the local chapter must be in furtherance of the foundation’s tax-exempt purposes. A grant for made for an improper purpose (a purpose that is not a tax-exempt purpose) may adversely affect and jeopardize the foundation’s tax-exempt status. Accordingly, it is critical that foundation grants for chapter house improvements serve only educational purposes and do not further non-permissible purposes such as the social, recreational, or private interest of the fraternity or its members.

The IRS has provided an analytical framework, as well as examples of the types of expenditures related to chapter houses that would be educational in nature and those that would not, through private rulings and other pronouncements.

Basic Test

The IRS will analyze all relevant facts and circumstances to determine:

Examples of Permissible Improvements

Applying the test described above, the IRS has approved grants for the following dedicated educational areas:

Examples of Improvements that are Not Permissible

In contrast, the IRS has ruled that grants for the following facilities, services, or goods are not permissible because they are too closely related to the social and recreational aspects of a fraternity:

It is important to remember that the IRS is not bound by prior private rulings, and may find that one study room serves an educational purpose while another one does not. Whether any particular expenditure serves an educational purpose depends on the facts and circumstances of each case. Please proceed with caution and do not hesitate to call if we may provide further guidance about these rules or the related required grant agreements.

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