Are 501(c) Fraternal Societies Taxable?

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January 27, 2012; Source: The Sun Chronicle | In Attleboro, Mass., the local Knights of Columbus (KOC) and the local Moose Lodge were surprised to receive property tax bills last month from the local government showing $17,799 owed by the KOC and $6,305 by the Moose Lodge. The bills represented a year’s worth of property taxes, though neither had received a tax bill for the first two quarters of the fiscal year—or ever before, for that matter. There are lots of different kinds of nonprofits, and while we often don’t think of groups like the Knights of Columbus, Moose lodges and such in the same category as public charities, they are often registered as 501(c)(10) organizations, “domestic fraternal societies.”

According to Attleboro’s tax assessor, Stan Nacewicz, both the KOC and the Moose were supposed to have filed documentation of their charitable fundraising and have failed to do so. If both provide documentation about their charitable activities, they could probably get some of the tax bill reduced. Nacewicz said that the Elks Club and others have long been taxed, but because they’ve documented their charitable fundraising and activities, it is at a reduced property tax rate. 

The Moose Lodge administrator, Doug Swenson, said that the tax bill “came out of the blue,” and he pledged not to pay—because they can’t, due to lack of funding. The Knights of Columbus have unleashed a lawyer to nix the tax bill. Swenson told the Sun Chronicle about the lodge’s charitable activities, such as supporting the city’s animal shelter and holding a free Thanksgiving dinner. 

Therein may be part of the problem. 501(c)(10) fraternal societies may be federally tax-exempt, but donations to them aren’t automatically charitably deductible. According to the IRS, contributions to fraternal societies are deductible only if they are “used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.” In other words, other contributions to the Moose or Elks aren’t deductible. Moreover, many fraternal societies earn money through renting (and providing catering at) their lodge halls to other organizations and to individuals, which could subject them to unrelated business income tax (UBIT) charges and, at a minimum, would look like a less-than-charitable use to local tax assessors.

Local property tax exemptions are based not just on ownership, but also on use. A non-charitable use of property owned by a 501(c) organization might make the property taxable. We suspect that fraternal societies and lodges have been treated differently by municipalities across the nation. The IRS says that there are slightly more than 13,000 of these fraternal organizations in the U.S., though in 2002, the IRS counted 22,800. —Rick Cohen

  • mjfrombuffalo

    Oh it’s not everywhere that fraternal societies are treated differently. NYS Masonic Lodges have been charged property taxes for years. What’s ironic is when the taxes for a fraternal organization’s buildings get too high for them to pay, they sell – and the buildings are perfectly designed for churches. So by not giving the fraternal organizations a tax break, they lose ALL property taxes on that property!