Why Are Separate Organizations Necessary?
Fraternities and Sororities exist in the seemingly mystical realm of IRS code that governs non-profit, tax-exempt, and charitable organizations. There are over 25 categories of tax-exempt organizations falling under the auspices of section 501 of the IRS code, each with its own sub-section defining and constraining them. Fraternities are defined as a social club and fall under section 501(c)7. A chapter house would require a housing corporation, and that would fall under section 501(c)2. The Delphi Foundation as a charitable organization falls under section 501(c)3.
Not all non-profit and tax-exempt organizations are charitable organizations. The tax-exempt status pertains to the organization’s exemption from paying taxes on donations, fees, and income. Being a charity pertains to the work of the organization and the use of donated monies (often referred to as a “use test”). Within the realm of IRS code an organization can generally serve only one purpose – either it serves its members or it serves as a charity, but it can’t do both without conflicting interests.
Here’s the basics – A donation or fee paid to Delta Lambda Phi Fraternity incurs no tax obligation on the part of the Fraternity because DLP is not in business to make money, just to perform services for its members. But the fee or donation IS NOT tax-deductible on your income taxes because DLP is not a charitable organization; it’s only a tax-exempt organization. A donation to the Delphi Foundation is deductible on your income taxes because Delphi is organized as a charitable organization and by law MUST only use donations for a qualified charitable, educational, religious, literary, or scientific purpose.
Having the Delphi Foundation in existence is not a cure-all to getting large sums of money to start flowing into Delta Lambda Phi. External funding sources and foundations that we approach will have many, many “strings” attached to money they give. They want maximum bang for their buck and want to be able to show how their money has been used for change. With all the “bad press” associated with fraternities we have to understand that giving money to any fraternity, even Delta Lambda Phi, just is not going to excite foundations to break down our door to give us money. However, most external foundations will only give money to a qualified charitable entity, thus the Delphi Foundation is the mechanism that enables Delta Lambda Phi to qualify for such funding sources.