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Deductibility and your classification
Two exemption categories, two different answers, and neither is a charity.
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This is the page to read before writing a word of an auction listing, because the sentence a lodge puts on its page about deductibility is the one it is most likely to get wrong.
Exempt is not the same as charitable
Fraternal organizations are generally exempt under 501(c)(8) as fraternal beneficiary societies, or 501(c)(10) as domestic fraternal societies. Both are tax-exempt organizations. Neither is a 501(c)(3) charitable organization, and the confusion between those two ideas is where lodges go wrong.
- 501(c)(8) — a fraternal beneficiary society operating under the lodge system and providing for the payment of life, sick, accident or other benefits to members
- 501(c)(10) — a domestic fraternal society operating under the lodge system that does not provide those benefits, and devotes its net earnings to charitable, fraternal and other specified purposes
Contributions are generally deductible only where they are used exclusively for charitable, religious, scientific, literary or educational purposes, or for the prevention of cruelty to children or animals — and the treatment differs between the two classifications in ways that matter.
Which means the question is not only "what are we?" but "what is this money for?"
Purpose decides it
Two auctions run by the same lodge in the same hall can have different answers.
- Money for the scholarship fund, the local children's charity, disaster relief — likely to be in charitable territory, subject to your classification and how the funds are actually applied
- Money for the hall roof, the bar, the social calendar, member benefits — generally not
- Money for general lodge funds — generally not, and the mixing is the problem
So separate them. A lodge that runs its charitable fundraising through a distinct fund, with distinct accounting and distinct language, can say something accurate. A lodge that runs one auction into one account cannot.
Find out whether you have a foundation
Many fraternal jurisdictions operate an associated charitable foundation precisely because of this. Where one exists, routing charitable fundraising through it gives donors a clean answer and gives the lodge a straightforward structure.
A surprising number of local lodges do not know whether their grand lodge or national body has one, or how to use it. One call answers it.
What to write on the page
One plain sentence naming the receiving entity and stating the position accurately, whatever it is.
- Do not copy language from a charity auction template
- Do not write "tax deductible" without knowing that it is
- Do not issue receipts that look charitable where they should not
- Where you are not sure, say the lodge cannot advise on tax treatment and direct people to their own adviser — which is honest and which nobody objects to
The last option is available at any time and is better than a confident wrong answer. Businesses and donors are used to being told to ask their accountant.
The bidder-value rule still applies where it applies
Where a contribution is deductible, the usual rule follows: a bidder may generally deduct only the amount paid above an item's fair market value, and that value should be stated at the time of the auction.
So the valuation discipline is the same as anywhere — state a basis per category, do not appraise, and record it.
Unrelated business income
Worth knowing exists. An exempt organization carrying on a trade or business not substantially related to its exempt purpose may have taxable income from it, and lodges frequently run activities — hall rental, a bar, regular gaming — that raise the question.
This is well beyond what a fundraising committee should decide. It is a question for whoever prepares the lodge's return.
Get advice once, and write it down
A single conversation with the lodge's accountant covering the classification, the foundation, the separation of charitable funds and the language for the page will serve for years.
Write the answer into the lodge's records rather than one officer's memory. Officers rotate annually in most jurisdictions, and this is exactly the knowledge that disappears with them.
General information, not legal or tax advice for your lodge. Whether contributions are deductible depends on your exemption classification and on the purpose the funds are used for — this is exactly the situation to put in front of your own adviser and your grand lodge before telling anybody anything.
More guides for Fraternal Lodges
Sizing an ageing membership The building, gaming and the bar
What a hall brings with it Grand lodge reporting
Whose permission, and what returns Charity night formats
Opening a closed door Item ideas that actually sell
The hall, the members and the history Getting items donated
Decades of relationships, unwritten
Frequently asked questions
Is our lodge a charity?
Generally not. Fraternal organizations are usually exempt under 501(c)(8) or 501(c)(10) rather than 501(c)(3) — both tax-exempt, neither charitable, and the confusion between those two ideas is where lodges go wrong.
What is the difference between (c)(8) and (c)(10)?
A 501(c)(8) is a fraternal beneficiary society providing life, sick, accident or other benefits to members; a 501(c)(10) operates under the lodge system without those benefits and devotes its net earnings to charitable, fraternal and other specified purposes. The treatment of contributions differs in ways that matter.
Does it depend on what the money is for?
Substantially. Money for a scholarship fund or a children's charity is likely to be in charitable territory; money for the roof, the bar, the social calendar or general lodge funds generally is not — and mixing them is the problem.
What if we are not sure?
Say the lodge cannot advise on tax treatment and direct people to their own adviser. It is honest, nobody objects, and it is far better than a confident wrong answer.
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