Fraternity and sorority chapter tax filing: Form 990-N, 990-EZ and 990-T

Chapter, house corporation, foundation

A single chapter often involves up to three organizations:

• The chapter itself, usually exempt as a social club under section 501(c)(7). It collects dues and runs the chapter's social and member activities.
• A house corporation that owns or leases the chapter house, if there is one. It is often a separate organization with its own exemption.
• A chapter or educational foundation that receives tax-deductible gifts for scholarships and educational programs, usually a separate 501(c)(3).

Each organization with its own EIN files its own annual return, based on its own gross receipts and assets. The chapter's return does not cover the house corporation, and the reverse.

Which return

• Gross receipts normally $50,000 or less: Form 990-N, the e-Postcard. Social clubs can use it.
• Gross receipts under $200,000 and total assets under $500,000 at year end: Form 990-EZ (or the full Form 990).
• Above either limit: Form 990. 990.tax does not file the full Form 990.

The IRS defines gross receipts as the total amounts received from all sources, without subtracting costs or expenses. For a chapter that means dues, initiation fees, room and board collected from members, and event ticket sales, in full. A house corporation that collects rent from members can pass $50,000 on rent alone; count its own receipts separately from the chapter's.

"Normally" is an average: for an organization three years old or more, the average over the current year and the two before it.

National group exemptions

Some national fraternities and sororities hold a group exemption that covers the chapters they list with the IRS. A group exemption gives the chapter its status; it does not file the chapter's return. IRS Publication 4573 says "A group exemption letter does not change the filing requirements for exempt organizations." A covered chapter files its own return, unless the national organization files a group return on Form 990 that includes it.

The national organization decides which chapters are covered, so ask your headquarters whether your chapter is on its list and whether it files a group return. You can also look up the chapter's EIN in the IRS Tax Exempt Organization Search or the 990.tax nonprofit lookup.

Social club income rules

A 501(c)(7) club is exempt because it is supported by its members. The IRS guideline is that a club may take in up to 35% of its gross receipts from sources outside its membership, including investment income, and no more than 15% from the general public's use of its facilities or services. Going over those levels leads the IRS to look at all the facts and circumstances.

Unlike most exempt organizations, a social club is generally taxed on its investment income, such as interest and dividends, as well as on income from nonmembers. The IRS says an organization with $1,000 or more of gross income from an unrelated business must file Form 990-T. For a social club that count includes investment income. Form 990-T is in addition to the 990-N or 990-EZ, and 990.tax does not file it.

When it is due

The return is due on the 15th day of the 5th month after the tax year ends: November 15 for a chapter on a July–June year, May 15 for a calendar year, and the next business day if the date falls on a weekend or legal holiday. Form 8868 extends a 990-EZ by six months; the 990-N has no extension. See the Form 8868 due date guide.

Missed years

Chapter treasurers often change every year, which is how returns get missed. There is no IRS penalty for a late 990-N; a late 990-EZ can be charged $25 a day, up to the lesser of $13,000 or 5% of gross receipts, unless there is reasonable cause. An organization that files nothing for three consecutive years loses its exemption automatically. See automatic revocation and reinstatement.