Educational Grants for Chapter House Construction and RenovationsPDF
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.
The IRS will analyze all relevant facts and circumstances to determine:
- Whether a grant supports a program that replicates practices of the particular university or college where the chapter house is located in providing for the education of the general student population; and
- Whether any recreational, social, or private purposes are incidental relative to the educational purposes accomplished.
Examples of Permissible Improvements
Applying the test described above, the IRS has approved grants for the following dedicated educational areas:
- Study rooms or study areas
- Computer rooms
- Leadership training rooms
- Audio visual rooms
- Furniture and equipment for educational areas
- Operating expenses for educational areas
- Internet wiring
- Computers, desks and chairs in rooms (similar to those provided in university housing)
- Fire detection and prevention equipment for 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:
- Long-distance telephone services
- Laundry facilities
- Dining areas
- Sleeping quarters
- Dedicated social and recreational areas (such as physical fitness facilities or equipment)
- Mixed-use areas such as common hallways or rooms that are used interchangeably for social or recreational and educational purposes; an item or area will not be considered mixed use where there is minor social or recreational use, such as a reception occasionally held in a study or library area.
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.