Fraternity-Testvériség, 1981 (59. évfolyam, 1-4. szám)
1981-01-01 / 1. szám
ELVIN EGLOW: FRATERNAL SOCIETIES AND THE INTERNAL REVENUE SERVICE In June, 1980 an' editorial was written in the Fraternal Monitor pointing out dangerous problems within the Fraternal Society such as continuing high operating expenses, decrease in membership Fraternal Life certificates, erosion of the Lodge system, and decrease in1 funding of Fraternal Benefits and Programs. Well, now you have another problem — the Internal Revenue Service: Basically, Fraternals are exempt from Federal and State taxation, and this also includes your Lodges as well. The I.R.S. is now looking at not only the Home Office operation but whether or not the Lodge or Branch operation is in compliance within their definitions of Branch Activity. At this moment, our Office is fighting the I.R.S. on behalf of one our Fraternal Accounts on the issue where the I.R.S. wants to deny the tax exemption to one of its Branches on the contention' it is inactive and in name only. The tax history goes back to the Corporate Excise Tax Act of 1909 where Fraternal Benefit Societies were exempted from taxation provided they gave Life, Sick, Accident, and other related benefits to its members. Fraternals continued to be exempt from every other Federal Income Tax Act to date. At the beginning, Fraternal Benefit Societies were looked upon as a type of Mutual Benefit Organization. The benefits they originally provided were not insured benefits but were benefits provided according to the available resources of the Group whenever the need arose. As insurance became more common and membership increased, Fraternal Societies were among the first group to offer Life Insurance. This is a fact that should be publicized amongst your groups and is a good selling point. Despite this activity, the Societies were considered to be more than just Insurance Companies, and the insurance aspects of the Organization were looked upon as only incidental to the Fraternal and charitable purposes. As I said, exemption for Fraternal Societies began with the 1909 Act. The only significant change 8 was made in 1913 which extended exemption to organizations operating “for the exclusive benefit of the members of a Fraternity Organization operating under The Lodge System” The purpose of this change was to allow a separately organized Branch of a Fraternal Society to qualify for this exemption. Fraternal Beneficiary Societies generally take the form of a Society which has a set of rites and rituals; some Societies have secret rites and rituals you are supposed to engage in numerous activities of a social, educational and charitable nature. The only activities that the Internal Revenue is concerned with you as an exempt organization are that you operate under the Lodge Systems and that you provide for the payment of Life, Sick, Accident, and other benefits only for the members of your organization. Additionally, your organization mu3t have a “Fraternal Element” — a common bond amongst your membership. This Fraternal element was clearly defined and set forth in 1926 in a tax case between the I.R.S. and the Philadelphia and Reading Relief Association. The Court held that where the sole motive in joining an organization is to receive insurance benefits and where there are no Lodges, rituals, ceremonies or regalia, then there is no “Fraternal Element” present. In 1896 the Eighth Circut Court added its definition of a Fraternal Beneficial Society. I quote: “One whose members have adopted the same or very similar calling, avocation, profession, or who are working in unison to accomplish some worthy object and who for that reason have banded themselves together as an association or society to aid and assist one another and to promote the common cause. The term “Fraternal” can be properly applied to such an association for the reason that the pursuit of a common object, calling or profession usually has a tendency to create a brotherly feeling among those who have thus engaged” — Many of these associations make a practice of assisting their sick and disabled members end of extending substantial aid to the families of deceased members- Their work is at the same time of a beneficial and fraternal character because they aim to improve the condition of a class of persons who are engaged in a common pursuit and to unite them by a stronger bond of sympathy and interest. The Internal Revenue Service will disallow your exemption where the only common1 bond among the majority of its members is the fact of having only membership in the organization.
