The depiction of Greek life as a never-ending series of toga parties, excessive drinking and sex, was clearly over-the-top in National Lampoon’s 1978 comedy Animal House.  Far more common than the headline-making incidents of beer pong gone awry is the reality that many local sororities and fraternities are running without a toga, or any cover at all.  Initially set up as nonprofit corporations with federal tax-exempt status, local chapters lose their protective corporate cover when students graduate, and the incoming officers don’t know they must file reports and tax returns every year to keep their status.

A look at the IRS master file of tax-exempt organizations shows over 1000 local chapters have had their tax-exempt status revoked.   An even larger number have lost their corporate status.  My son, the vice-president of his local fraternity, has spent the past two years working to convince his chapter of the need to incorporate and maintain tax-exempt status, prodded on by his attorney-mom who knows that he and his brothers could be held personally liable for anything that happens in the fraternity house.

The national offices of most sororities and fraternities help incorporate and obtain the tax-exempt status of new local chapters.  The chapters are then left on their own to maintain their status, with little if any knowledge about why incorporation and tax-exemption is important.  They, and their parents, aren’t told that without corporate status there is no “entity” to sue when things go wrong.  This means that the individual members of the fraternity and sorority, and potentially their parents too, may be held liable for legal claims. Without tax-exempt status, the funds raised by the local chapters may be subject to federal income tax. Taxes and penalties may be assessed for failure to file tax returns.

Many volunteer-run nonprofits run into the same problem.  They are set up properly but the corporate history, including the annual state and federal filings required, get lost when last year’s volunteers move on, and this year’s volunteers get a notebook full of paper that they don’t understand or don’t have time to read.  This constant churn in the nonprofit world, in which 80,000 new organizations were granted IRS tax-exempt status in 2016, while another 50,000 organizations were stripped of their status at the same time, may be good for the IRS and its collection of filing fees, but certainly isn’t good for the organizations.

How do we solve this problem?  By training the national and local university staff that oversee fraternities and sororities of the importance of helping the local chapters keep up with the required federal and state registrations – IRS 990 tax returns and state corporate reports.  And providing tools, like the online dashboard found at myrenosi.com, to make the process of keeping up with the government paperwork easier.

Sandra Pfau Englund is a practicing attorney and founder of nonprofitlaw.com, RENOSI, and Parent Booster USA.  Her company, RENOSI, helps set-up and maintain the federal tax-exempt status and state corporate and charity status, of nonprofit organizations.  Sandy can be reached at: [email protected] or 407-614-0005.