Two fraternities lose tax-exempt status

Penn’s chapters of Sigma Phi Epsilon and Alpha Psi recently lost their tax exempt status as nonprofit institutions.

According to the Internal Revenue Service website, Alpha Psi’s tax-exempt status was revoked on May 15, 2010 and SigEp’s was revoked on Nov. 15, 2010. The fraternities are no longer recognized as 501©7 organizations.

Andrew Lemens, SigEp’s director of Fraternity Operations, said in an email that the national organization became aware of this revocation of Penn’s chapter in 2011, by consulting the IRS’s list of Automatic Revocation of Exemption.

Alpha Psi, the co-ed veterinary fraternity, does not belong to a national organization, so its financial management procedures are currently unclear. However, the national organization of SigEp states that each chapter president and vice president of finance should collaborate with the chapter’s Alumni and Volunteer Corporation to file a Form 990 and maintain their nonprofit status.

“Alumni volunteers may remind them or help them with that but ultimately that is something that would be completed by the chapter president,” Tyler Boggess, Sigma Phi Epsilon’s East Chapter Services director, said. According to Lemens each chapter determines their own procedure for this process.

Brett Danko, president of the Alumni and Volunteer Corporation for Penn’s chapter of SigEp, said the AVC takes the lead on filing the necessary tax forms rather than the student leaders. He added that he is the member of the AVC in charge of the chapter’s tax forms.

“I’m going to take the fault myself because I didn’t follow it as much as I should have,” Danko said.

According to Lemens, “Since 2008, each chapter has received quarterly reminders and best practices about the filing requirement.” Danko said that he likely received notifications from SigEp headquarters about filing the 990’s, but he said there were misunderstandings along the way. As a volunteer on the AVC, he said, he wasn’t familiar with the intricacies of the tax requirements. “I was aware that we needed to fill out things. I just didn’t know if it exactly pertained to us,” he said.

According to GuideStar, an online database of nonprofit records and tax information, “[These organizations’] exempt status[es] [were] automatically revoked by the IRS for failure to file a Form 990, 990-EZ, 990-N, or 990-PF for 3 consecutive years. Further investigation and due diligence are warranted.”

Student leaders of SigEp and Alpha Psi did not respond to requests for interviews.

However, Penn’s chapters are not alone in receiving this revocation of their tax exempt status. According to Boggess, there are 235 chapters of SigEp nationwide. Data from the IRS shows that 155 SigEp chapters have lost their tax-exempt status since May 15, 2010.

Commenting on these revocations across the country, Lemens said, “The IRS data reflects duplicates, closed chapters, chapters awaiting reinstatement of their status and separate alumni corporation or housing entities not considered subordinate organizations of SigEp.”

Donald Kramer — who teaches a course on nonprofit organization law at the Law School school and is chair of a nonprofit law group at a Philadelphia law firm — does not expect this revocation to have a serious impact on the structure or functioning of the fraternities.

According to Kramer, the only consequence of this change is that the fraternities will now have to pay federal income taxes.

“They need to reapply for tax exemption and file annual tax returns. Until they do, they can be assessed taxes at a corporate rate on any profits above their expenses to operate,” Lemens added. He said the national organization of SigEp, “will continue to provide resources and support to help chapters maintain or regain tax exempt status.”

This change in tax status should not affect any property taxes related to the fraternity houses, since the fraternities do not own their chapter houses.

Moving forward, Danko says SigEp’s AVC is working with an accountant to properly file its taxes in the coming years. It may re-apply for nonprofit status, but for now, he said, “The one thing we want is to be in full compliance with any rules and regulations that are out there.”

Editor’s note: Although both Sigma Phi Epsilon and Alpha Psi have lost their tax-exempt statuses, the two fraternities are not unique in this regard, as there are other Greek chapters and student organizations at Penn that have lost their tax-exempt status in recent years.

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