Intro to Taxes for College Fraternities and Sororities

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November 30, 2009

College Greek organizations often face a lot of challenges in dealing with financial matters. First, membership and officers change frequently. Often clear policies and procedures are not in place, recordkeeping may be sporadic and usually there are other things you would rather do than worry about tax compliance. We get it. Our Chief Tax Consultant was a member of a college fraternity and served in a variety of positions.

To help you think about what sorts of tax issues you face, NinjaTax has put together the following brief overview. You're encouraged to contact us for specifics.1

Exemption. Typically, chapters of a college Greek organization are exempt from paying income tax. To get tax-exempt status, you must get an exemption letter from the IRS. If you are part of a national organization, it's possible that your national organization has a group exemption that you're covered under (you should contact us or your national organization for questions on this).

Donations. Being tax-exempt does not make you a charity. That is, members, alumni and others that donate to you usually can't take a tax-deduction on their tax returns for donations (this depends on the specifics of your exemption). Some national and local organizations have set up foundations or other charities that are charities, however, but these charities are usually separate from the college chapter and are set up for specific purposes (typically educational or philanthropic ones).

EIN. Most college Greek organizations need to have their own Employer Identification Number. This is a number the IRS assigns to you. You'll usually need an EIN to open a bank account or do any transactions with the IRS (and many state agencies). If you're covered under a group exemption (see above), you will usually have to give your EIN to your national organization.

Payroll. If you use the services of an individual (say, a chef, maid, housemother, RA, etc.), that person may be your employee. If that is the case, you may have to pay certain taxes, withhold payroll taxes and give your employee(s) a Form W-2 annually.2

Contractors. If you use the services of an individual who is a contractor, you may be required to file a Form 1099-MISC for that person. This form reports to the individual and the IRS the amount you paid to the person if it's over $600. You don't usually have to file a Form 1099-MISC for payments made to corporations and other businesses.

Return Filing. Tax-exempt organizations are required to file an information return with the IRS each year (Form 990 series). This is like an income tax return, but is used to create transparency into tax-exempt organizations (not to calculate tax liabilities). Even though you might be covered by a group exemption (see above), you might not be covered by your national organization's annual return. A lot of information is required to complete the Form 990 and penalties for noncompliance can add up.

UBIT. Tax-exempt organizations that operate a business that is unrelated to their tax-exempt purpose may have to make a special filing (Form 990-T) and pay tax on the earnings from that business. The rules are complicated and we can help you figure out whether they apply.