A detail from a painting of Henry James FitzRoy, Earl of Euston in Masonic dress. (Credit: Mark Masons' Hall/The Public Catalogue Foundation/Wikimedia Commons) Here’s an example of part of the regalia worn by Henry James FitzRoy, earl of Euston, sometime before 1928. (Credit: Mark Masons’ Hall/The Public Catalogue Foundation/Wikimedia Commons)

The Internal Revenue Service has blackballed two organizations that want the IRS to classify them as tax-exempt fraternal benefit societies.

The IRS acknowledges in private letter rulings that both groups provide benefits for their members, but it says that neither group meets the federal standards for fraternal benefits societies.

Neither group operates a lodge system, performs ceremonies or rituals at its meetings, or has regalia, officials write in the rulings.

“Thus, you are not fraternal in nature,” IRS officials conclude.

Resources

  • The latest IRS private letter ruling rejecting a would-be fraternal benefit society is available here.
  • A similar letter ruling that was issued to another would-be fraternal benefit society back in December is available here.

Taxpayers ask for private letter rulings to get the IRS view on a specific matter. The IRS posts anonymized versions of the rulings on its website.

One of the two groups applied for fraternal benefit society status July 25. That group offers its members social activities, a banquet hall, and sick benefits and death benefits.

The IRS issued a letter to that group Sept. 25 and posted the letter on the web Dec. 20.

The second group applied Aug. 26. The second group serves police officers. The group sponsors civic events. It also provides some retirement benefits for its members, and death benefits for members’ survivors.

The IRS issued a letter ruling on the second group’s application Oct. 21 and posted the ruling on the web Jan. 17.

Fraternal Benefit Societies Basics

Some of the earliest stable sources of life insurance and disability insurance were nonprofit mutual assistance societies.

Some of the major fraternal groups that formed or expanded in the late 1800s include the Elks, the Masons, the Knights of Columbus, the Shriners and the Rotary Club.

Internal Revenue Code Section 501(c)(8) exempts qualified fraternal benefit societies from federal income taxes.

(Related: Fraternals Want Congress to Speak Up for IRC Section 501(c)(8))

The IRS has rejected many applications for 501(c)(8) status in recent years.

In both of the new fraternal benefit society application rejection letters, IRS officials cite Philadelphia and Reading Relief Association v. Commissioner, a 1926 federal Board of Tax Appeals court case, for a description of what a group needs to be a 501(c)(8) organization.

A group needs rituals, ceremonies, a lodge system and regalia, IRS officials say.

A “lodge” is a regular meeting place.

The term ”regalia” refers to special robes, collars, jewels, hats, award ribbons and other ceremonial items.

— Read IRS Posts Annuity Fee Letter Rulings, on ThinkAdvisor.

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