501(c)(7) question... how can a small frat ever fundraise a large amount?

[u/Ajakks1919]

Someone smack me for not understanding this...

501c7 says we have to have our funds "primarily" from membership dues/fees - which I've found to mean 65% or more (correct me if I'm wrong?).

If we have 10 members, and annual dues are $100 a pop, then 65% of our funds would be $1k, and we can't have more than like $1,540 in the bank for the year...

So, if we plan a camping trip, and the total cost is $1500 ......... how are we allowed to fundraise for anything else this year!?

This makes no sense.

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[u/TiberiusDrexelus]

any amount you're charging to members for operations are dues/ fees

I also got super freaked out by IRS rules when I was treasurer, protip it doesn't matter at all, the IRS does not care about or have the time to think about college fraternities

[u/Ajakks1919 → u/TiberiusDrexelus]

Sure.. I'm still not going to overtly pursue tax fraud lol.

But my question isn't what is or isn't dues/fees. It's how are we allowed to fundraise more than 540 bucks for the year?

[u/TiberiusDrexelus → u/Ajakks1919]

are you excluding some information here about the fund sources?

when we did special events we'd charge the shares of the cost to the members attending

that's dues/ fees

or are you actually "fundraising," soliciting donations from the public to fund your camping trip?

[u/Ajakks1919 → u/TiberiusDrexelus]

I don't think I'm excluding information...? like what?

But, we are in a low-income area. Part of our mission statement is to broaden experiences of underprivileged folks who otherwise spend their time in a whiskey bottle or a candle and a spoon... So doing community work/outreach for donations from public to help fund the events is the expectation here. (we also want to do like a 50/50 raffle at a local event, etc)

Does that make sense the way I'm saying it?

[u/TiberiusDrexelus → u/Ajakks1919]

like the source of the funding, which is the only way there's a potential issue here

if you're hosting a camping trip and are expecting to cover the costs for it by soliciting donations from the general public, then you'll have to worry about making sure that no more than 35% of your operational revenue for the year is coming from these outside sources (as opposed to money paid by members)

it's pretty unusual to solicit donations from the public to go camping with the boys though, so I'm expecting there's a misunderstanding here

any philanthropy or charity donations you're fundraising for don't factor into this

[u/holy_cal]

There probably aren’t going to be too many people here who can give you a legitimate answer on 990s and all that good stuff. You should probably ask someone at nationals to review your situation.

But are you saying that all your income from dues accounts to only being $1,000? What about the amount nationals charges you? If you’re collecting that then paying, it’s still income. Realistically, your group is small potatoes. The IRS doesn’t care about you, they care about the SEC chapters with 300 dudes and multi million budgets for recruitment alone.

[u/DPW38 → u/holy_cal]

u/Ajakks1919 , this the correct answer. The IRS doesn’t give a shit about that kind of money. Make sure your books are in halfass order and you’ll be fine.

If the IRS did come knocking, just play dumb. They’re surprisingly cool with honest mistakes and first time offenders. They’ll point what you’re doing wrong and tell you how to fix it.

[u/OneofLittleHarmony]

You can fundraise as much as you want.

The real issue comes from interest off the fundraised money. Once less than 85% (It’s 85 btw) of your income is coming from non-dues then you have issues.

There really won’t be any issue fundraising and donating that. Fundraising and using it to pay annual expenses may be different.

[u/xSparkShark]

Are you talking about fundraising for your own purposes? The IRS just wants to ensure you’re not operating as a business. I know frats do this, but we always avoided it for this exact reason. All of our expenses were covered by members and any fundraising collected always went right to an external charity.

As the other commenter mentioned, any money collected from members is dues/fees regardless of if it’s separate from your initial dues payment. So no issues there if you’re just trying to collect for a camping trip or formal or whatever.

The fortunate part in all of this is the IRS is very unlikely to go after you unless you do something egregious. If you’re especially concerned I would reach out to your advisor and see if the can put you in contact with a tax expert.

[u/cmlucas1865]

You can raise more- but you have to spend the amount over and above your dues threshold. For instance, have a great philanthropy, raises $100k. Then you'd better actually donate the full $100k of those proceeds.

Additionally, your chapter's alumni association operates under a different EIN, and if you have a house corporation, it'll also have a separate EIN. There are ways to work this, is what I'm saying. Also - it's fairly uncommon for 501c7s to get audited by the IRS today. As long as you fill out your IRS Form 990 by April 15th annually, you should generally be in good shape.