The Two Entities at a Glance

Kappa Alpha Psi's local structure in Denton-Lewisville includes two distinct legal entities — not divisions of the same organization, but two completely separate nonprofits under the IRS tax code.

What Is a 501(c)(3)?

The IRS grants 501(c)(3) status to organizations organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes. The key requirements are:

• Net earnings may not benefit any private shareholder or individual
• No substantial part of activities may constitute lobbying
• The organization may not participate in any political campaign
• The organization must serve a public benefit — not primarily its members

The Denton-Lewisville Guide Right Foundation exists to deliver youth programming — mentorship, career guidance, scholarship support, and civic education. These purposes squarely qualify as charitable and educational under 501(c)(3).

What Is a 501(c)(7)?

Under IRS Code Section 501(c)(7), a social club is exempt if it is organized for pleasure, recreation, and other non-profitable purposes, and if substantially all of its activities are for these purposes. Fraternities and alumni chapters fit this classification because they serve their membership through fellowship, networking, and social activities.

The critical distinction: a 501(c)(7) primarily serves its members, while a 501(c)(3) primarily serves the public.

Guide Right, Kappa League, and the Foundation — Who Owns What?

Governance: Why Each Org Needs Its Own Structure

The Foundation must have a Board of Directors with documented fiduciary oversight, separate from the chapter's officer structure. Board meetings must be documented with minutes, and financial decisions must be recorded separately from chapter meeting minutes.

The Chapter is governed by its elected officers under the chapter's bylaws. Chapter officers may also serve on the Foundation board, but when they do, they act in their Foundation capacity — not as chapter officers — and must be careful not to conflate the two roles in meetings or financial decisions.

Your Organizations' Specific Governance Structure

The DLA Alumni Chapter was established March 1, 1997, re-activated November 17, 2018, and operates under a Polemarch, Vice-Polemarch, Keeper of Records (KOR), Keeper of Exchequer (KOE), Parliamentarian, Historian, Strategus, Lieutenant Strategus, and an eight-member Board of Directors. The chapter's fiscal year runs October 1 – September 30.

The Denton-Lewisville Guide Right Foundation's bylaws (v4, approved March 22, 2023) establish a separate Board with its own officers. The Foundation's fiscal year runs January 1 – December 31. This fiscal year difference is not a violation — but it means budget planning for the two entities must be coordinated carefully each fall.

501(c)(3) Foundation: Funding Rules

The Guide Right Foundation must pass the IRS Public Support Test to maintain its status as a public charity (as opposed to a private foundation). This means at least 33⅓% of its total support must come from governmental units or the general public over a rolling five-year period.

Acceptable Revenue for the Foundation

• Individual tax-deductible donations from the public
• Corporate sponsorships and grants designated for educational/charitable purposes (e.g., AT&T educational grant — must come directly to Foundation EIN)
• Government grants for education or youth programs
• Foundation grants from other 501(c)(3) organizations
• Foundation-run fundraiser proceeds (galas, golf tournaments, donor campaigns run for the Foundation)
• Kappa League dues or KL fundraiser proceeds — only when the Foundation EIN is the registered payout account; this is a deliberate structural choice, not automatic
• Formally structured grants from the Alumni Chapter (requires written grant agreement reviewed by counsel)

501(c)(7) Chapter: The 65%/35% Rule

For the Alumni Chapter to maintain its 501(c)(7) tax-exempt status, the IRS requires that at least 65% of gross receipts come from members. No more than 35% may come from outside the membership — and within that 35%, no more than 15% may come from non-member use of facilities or services.

What the Chapter Cannot Accept

• Tax-deductible charitable contributions (501(c)(7) donations are not tax-deductible)
• Foundation funds passed directly to the chapter treasury (without a formal grant agreement)
• Corporate grants or donations designated for charitable/educational purposes — those must go to the Foundation EIN so donors get their deduction
• Any funds where the donor specifically expects a 501(c)(3) tax receipt — the chapter cannot issue those

Side-by-Side Comparison

Two Types of Budget Requests

Because the two organizations have distinct funding pools, any program requiring financial support must request it from the correct entity. Using the wrong entity is not just an accounting error — it is a compliance violation.

How to Submit a Foundation Budget/Sponsorship Request

When Guide Right or Kappa League needs funding, the program coordinator (or chapter Guide Right chairman) submits a formal written request to the Foundation Board. This request must include:

1. Program name and description — what is the activity, who benefits, and how does it serve the Foundation's charitable mission?
2. Itemized budget — list every expense with estimated costs
3. Educational or charitable nexus — explicitly state how the activity qualifies as educational, charitable, or youth development
4. Date and venue
5. Expected number of youth served
6. Requested amount
7. How outcomes will be reported back to the Board

Case Study: Reviewing an Actual Budget Request

The 2025–2026 Guide Right Program budget request (submitted August 2025) totals $13,120 across 8 line items. Let's walk through two specific issues it raises, because they represent exactly the kind of errors this course is designed to prevent.

Kappa League Dues: A Note on Clarity

The Kappa League Constitution (Art. IV §2a) sets dues at "$150 per General Membership meeting." This language is ambiguous — it could be read as $150 per meeting attended (which at twice-monthly meetings would be unreasonably high) or $150 per annual membership year. Until this is formally clarified through a bylaw amendment, communicate clearly in writing to Kappa League families what the annual dues obligation is.

Kappa League dues flow through the chapter account — Kappa League is a chapter program. The dues process is: KL members pay dues → funds go into the chapter treasury → chapter allocates program budget for KL operations. These are chapter funds used to support a chapter program.

Chapter Dues: What They Can and Cannot Fund

Chapter fraternity dues are collected by the chapter from its members and deposited into the chapter's 501(c)(7) account. These funds serve the chapter's operational and fraternal purposes. They may NOT be used to fund activities that belong to the Foundation.

The Travel Expense Rule

Travel is one of the most commonly misrouted expenses. The rule is straightforward:

What Is Commingling of Funds?

Commingling occurs when money belonging to one legal entity is mixed with, used by, or routed through another entity. For our organizations, this means any situation where Foundation funds enter the chapter account (or vice versa) without proper legal structure — even temporarily.

The IRS looks at the actual flow of funds, not the intent. "We were going to pay it back" is not a defense.

Three Myths Common in Dual-Entity Chapters

In January 2024, DLA Guide Right Program leadership circulated a letter to address three persistent myths about how money flows between the Foundation and the Chapter. These myths reflect real misunderstandings that occur in chapters across the country. Knowing them by name helps you recognize and stop them before they become violations.

Violation Scenarios

When Is an MOU Required?

Any time the Guide Right Foundation (501(c)(3)) and the Alumni Chapter (501(c)(7)) jointly produce, fund, or execute an event or program, a written Memorandum of Understanding (MOU) or Memorandum of Agreement (MOA) is required before any funds change hands or expenses are incurred.

An MOU is required when:

• Both organizations contribute financially to an event
• Chapter members volunteer for a Foundation event and chapter resources are used
• The event serves both a social/fraternal function (chapter) and an educational/youth function (Foundation)
• Revenue from the event will be split between both organizations
• A single vendor is paid with funds from both organizations

Required MOU Elements

A valid MOU between the two organizations must include the following:

1. Names and EINs of both organizations
2. Purpose of the agreement — specific event or program name
3. Date(s) of the event/program
4. Roles and responsibilities of each organization
5. Financial contributions — how much each entity contributes and from which account
6. Revenue allocation — how ticket sales or event proceeds will be divided
7. Expense allocation — which costs each entity bears
8. Fund disbursement timeline and process
9. Reporting requirements — documentation each entity must retain
10. Indemnification and liability
11. Signatures of authorized officers from both organizations
12. Date of execution

Sample MOU Template

The Guide Right Committee: A Structural Note

The DLA Chapter Bylaws (Article VII §2C) establish a Guide Right Committee as a chapter committee, described as providing "a mechanism to inspire youth to achieve their highest endeavors." This is good — it creates an official chapter role for coordinating Guide Right support.

However, the bylaws contain no language stating that Guide Right financial activities must flow through the Foundation, not the chapter. This creates ambiguity: a committee member reading the bylaws could reasonably conclude that the Guide Right Committee controls Guide Right finances — which would lead to routing Guide Right expenses through the chapter budget, a violation.

Fund Disbursement at Co-Sponsored Events

When revenue is collected at a co-sponsored event (e.g., ticket sales at the door), care must be taken to route funds correctly from the moment they are received:

• Use separate payment processors or receipts for Foundation vs. Chapter ticket types where possible
• If cash is collected through a single register, conduct a post-event allocation reconciliation within 48 hours and transfer to the correct account with documentation
• Never deposit all receipts into one account and promise to sort it out later
• All in-kind donations (goods, services donated by sponsors) must be assigned to the correct entity and documented at fair market value

The Three Categories of Workers

Stipends and Honoraria

Paying a small amount to a volunteer — whether called a "stipend," "thank-you," or "honorarium" — does not keep it tax-free. Any payment to an individual for services rendered is generally taxable compensation, regardless of what it is called.

Rules for Stipends

• A stipend paid to a Kappa League facilitator by the Foundation is compensation — if $600 or more annually, a 1099-NEC must be issued
• A "thank you" gift card given to a speaker has a dollar value that must be tracked
• Paying a brother a flat fee to manage the Guide Right program makes him a contractor or employee — not a volunteer

Reimbursements vs. Compensation

True reimbursements — paying back documented, out-of-pocket expenses at actual cost — are not taxable compensation, provided the organization has an accountable plan:

• The expense must have a business/programmatic connection
• The recipient must provide receipts and documentation within a reasonable time (60 days)
• Any excess reimbursement must be returned

If these conditions are not met, the payment is treated as wages, subject to payroll taxes.

Pay-in-Kind

Pay-in-kind (PIK) refers to compensation paid in goods or services rather than cash. It is still taxable income to the recipient and must be reported at fair market value.

Examples in Our Context

Private Inurement and Excess Benefit Transactions (501(c)(3))

For the Foundation specifically, the prohibition on private inurement is absolute: no part of the Foundation's net earnings may benefit any private individual — including the officers, directors, or brothers who run it.

An excess benefit transaction occurs when the Foundation provides economic benefit to a "disqualified person" (an officer, director, substantial contributor, or their family members) in excess of the value of services provided. This triggers automatic IRS excise taxes — on the individual who received the benefit and potentially on organization managers who approved it.

Your Foundation's Specific Rules on Compensation

The Denton-Lewisville Guide Right Foundation bylaws include a stronger-than-average prohibition on director compensation. Foundation Bylaws Article V, Section 16 states that the Foundation shall not make any loan of money or property to any of its directors or officers.

Note that this no-compensation provision for directors is separate from the question of paying staff or contractors. The Foundation can hire paid staff (a program coordinator, for example) and pay independent contractors. What it cannot do is pay its board members or officers for their governance role, or make loans to them in any form.

501(c)(7) Chapter: Compensation Considerations

While the private inurement prohibition is less strict for 501(c)(7) organizations, the IRS still scrutinizes compensation paid from member dues. Officers are generally unpaid volunteers. When compensation is paid (e.g., to a part-time bookkeeper), it must be:

• Reasonable and documented by the chapter
• Approved by the chapter membership or executive committee
• Accompanied by proper payroll tax withholding (if an employee) or 1099-NEC issuance (if contractor)
• Reported on the chapter's Form 990

Can a 501(c)(3) Own a Building?

Absolutely. Universities, churches, museums, and educational nonprofits of all kinds own real property in furtherance of their charitable missions. There is nothing in the Internal Revenue Code that prohibits a 501(c)(3) foundation from purchasing, constructing, or operating a facility — provided the facility's primary purpose advances the organization's exempt charitable and educational mission.

For the Denton-Lewisville Guide Right Foundation, this could take the form of a Leadership and Scholarship Center — a dedicated facility for youth programming, scholarship administration, community education, and leadership development. Many national fraternity and sorority foundations operate exactly this model successfully.

What the Building Can Be Used For

A Foundation-owned Leadership and Scholarship Center may host any activity that advances the Foundation's 501(c)(3) charitable and educational mission. Examples the IRS recognizes as appropriate include:

Can the Alumni Chapter Use the Building?

Yes — but under documented, appropriate terms. The Alumni Chapter (501(c)(7)) may use the Foundation's facility provided:

• The chapter pays fair market value rent or operates under a documented cost-sharing agreement — the Foundation cannot simply give free space to the chapter without it constituting an improper benefit
• The uses are consistent with the facility's educational purpose — officer training, leadership retreats, educational seminars, scholarship banquets, and public service events are appropriate; purely social gatherings and ritual events are not
• A written Facility Use Agreement is executed between the Foundation and the Chapter before any use begins, specifying the terms, rental rate, scheduling, and permitted activities
• The chapter remains one user among several — not the primary or controlling user of the space

Governance: The Foundation Must Maintain Independent Control

This is the most critical structural requirement. The Foundation — not the Alumni Chapter — must independently control the property in all respects:

Who Can Donate — and Is It Tax-Deductible?

A 501(c)(3) Foundation can receive donations for a building fund from virtually any source — and because the Foundation is a public charity, those donations are generally tax-deductible to the donor:

Best Practice Structure

The most successful fraternity foundation facility arrangements follow this model:

          Foundation (501(c)(3))
                 │
     Owns the building and land
                 │
     Operates educational programs
                 │
     Receives tax-deductible donations
                 │
     Maintains independent governance
                 │
    ┌────────────┴────────────┐
    │                         │
Alumni Chapter (501(c)(7))   Community Groups
  Educational meetings        Youth organizations
  Leadership training         Other nonprofits
  Scholarship events          Civic organizations
  [Pays FMV rent / Use Agmt]  Public programs

The key is that the Foundation's charitable mission drives ownership and use of the facility. The Alumni Chapter is one of several users under a documented agreement — not the owner, not the primary beneficiary, and not the decision-maker for the building.

Naming the Facility

Names that emphasize charitable and educational purpose are stronger from an IRS standpoint than names that primarily signal fraternity identity. Effective naming options for DLA's consideration include:

• Leadership and Scholarship Center
• Community Leadership Institute
• Educational Resource and Training Center
• Youth Development and Scholarship House
• Foundation Learning and Leadership Academy

The name should reflect what the building does, not merely who built it. This matters both for IRS perception and for community fundraising — donors respond to mission-driven names.

Practical Steps Before Breaking Ground

Before the Foundation purchases property, raises a building fund, or enters into any real estate arrangement, the following steps should be completed with qualified professional guidance:

1. Engage a nonprofit attorney experienced in IRC §501(c)(3) property ownership and fraternity foundation structures to review the plan before any commitments are made
2. Engage a CPA with nonprofit expertise to advise on UBIT (Unrelated Business Income Tax) exposure, property tax exemptions (Texas law), and 990 reporting of real property
3. Amend Foundation governing documents if necessary to clearly state that owning and operating an educational facility is within the Foundation's charitable purposes
4. Draft a Facility Use Agreement between the Foundation and the Alumni Chapter establishing fair market rent, permitted uses, scheduling procedures, and prohibited activities
5. Create a Gift Acceptance Policy covering donations specifically for the building fund, including naming rights, restricted gifts, and in-kind contributions
6. Establish a separate building fund account within the Foundation's books, distinct from operating funds, to track capital campaign contributions
7. Document public access to the facility — schedule and publicize community-facing programming that demonstrates the facility serves the public, not exclusively the chapter

Yes, a 501(c)(7) Can Own a Building

One of the biggest misconceptions in fraternity alumni chapters is that owning property is the sole domain of their 501(c)(3) foundation. That is not correct. The IRS does not prohibit a 501(c)(7) social organization from owning real property — including a chapter house or meeting facility. Organizations like the Elks, Moose Lodge, VFW, American Legion, and countless fraternity alumni associations operate member-owned clubhouses under 501(c)(7) status.

The IRS's concern is not whether the chapter owns a building — it's why the building exists, who primarily benefits from it, and how it's funded. If the facility exists primarily to serve the social and fraternal purposes of chapter members, it is appropriate under 501(c)(7).

Permitted Uses for a Chapter-Owned Facility

A chapter house or meeting facility owned by the Alumni Chapter (501(c)(7)) may be used for the full range of member-focused activities:

How a Chapter House Is Funded

Unlike a Foundation Center, which can tap tax-deductible public donations, a chapter-owned facility is funded primarily through member-related revenue. This is a significant practical difference — the chapter cannot issue tax deduction receipts to donors.

The 65% / 35% Nonmember Income Rule — Applied to Facilities

The same IRS administrative rule that governs general chapter revenue applies directly to facility-related income. The IRS has long applied guidance (Revenue Rulings and administrative practice) indicating:

Chapter House vs. Foundation Center: Side-by-Side

The Hybrid Model: Both Entities, Both Facilities

The most successful long-term structure for a fraternity alumni chapter with real estate ambitions is the hybrid model — two entities, two facilities, each serving its distinct IRS-recognized purpose while collaborating through formal written agreements.

         Alumni Chapter (501(c)(7))
                   │
   Brotherhood • Meetings • Ritual • Social Events
                   │
       Owns or leases Chapter House
       Funded by: dues, assessments, member fees
       Benefits: members
                   │
       Independent but Cooperative
       (Written Facility-Use Agreements)
                   │
            Foundation (501(c)(3))
                   │
    Scholarships • Leadership • Youth • Community
                   │
       Owns Leadership & Scholarship Center
       Funded by: tax-deductible donations, grants
       Benefits: public / charitable class

In this model:

• The 501(c)(7) chapter owns or leases a modest chapter house for governance, member meetings, fellowship, archives, and administrative operations — funded by member dues and assessments
• The 501(c)(3) Foundation owns a separate Leadership and Scholarship Center dedicated to scholarships, youth development, Kappa League programming, leadership training, and community education — funded by tax-deductible public and corporate donations
• The two organizations collaborate through formal written agreements — MOUs for co-sponsored events, Facility Use Agreements for shared space use, and separate financial records maintained independently

Can the Chapter Use the Foundation Building — and Vice Versa?

Yes to both — under the right conditions:

• Chapter using the Foundation Center: Permitted for activities consistent with the Foundation's educational mission (leadership workshops, scholarship banquets, officer training with an educational component). Requires a written Facility Use Agreement and, where appropriate, fair market rent or documented cost-sharing. The chapter should never have unrestricted or exclusive control.
• Foundation using the Chapter House: Permitted on a limited basis, provided the use is documented, compensation is appropriate, and Foundation activities at the chapter house do not become so substantial that they change the facility's primary character. An occasional Foundation board meeting at the chapter house is fine; running the Foundation's programs primarily from the chapter house is not.

Which Form 990 Does Each Organization File?

The IRS determines which version of the Form 990 an organization must file based on its annual gross receipts and total assets. Both the Foundation and the Chapter file separately under their own EINs.

Filing Deadlines for DLA & DLGRF

The Form 990 is due on the 15th day of the 5th month after the fiscal year ends. Because the two organizations have different fiscal years, their deadlines differ:

Extensions — Form 8868

Either organization can request an automatic 6-month extension by filing Form 8868 with the IRS by the original due date. This is a simple one-page form filed electronically. No explanation is required — the IRS grants the extension automatically.

Late Filing Penalties

The IRS imposes daily penalties on organizations that file late without an approved extension:

⚠️ Automatic Revocation — The 3-Year Rule

This is one of the most serious compliance risks for small nonprofits. Under the Pension Protection Act of 2006, the IRS will automatically revoke the tax-exempt status of any organization that fails to file a required annual return (990, 990-EZ, or 990-N) for three consecutive years.

Since re-activation in 2018, the DLA Chapter and the Foundation have both had annual filing obligations. If there were any years where a return was not filed, that gap must be addressed immediately — either by confirming the filings exist, or by filing a late return before a three-year gap is reached.

Reinstatement After Revocation

An organization whose status has been automatically revoked must apply for reinstatement — it is not automatic. The process:

1. File a new application with the IRS (Form 1023 for 501(c)(3), Form 1024-A for 501(c)(7))
2. Pay the user fee (currently $600 for Form 1023; $600 for 1024-A)
3. Provide a reasonable cause statement explaining the failure to file
4. File all missing returns

If the revocation occurred within 15 months and was a first-time issue, the organization may request retroactive reinstatement, restoring status as if it was never revoked — but this is not guaranteed and requires a detailed reasonable cause statement.

The Three Fiduciary Duties

Under Texas law (Texas Business Organizations Code, Chapter 22) and general nonprofit governance principles, every director and officer of the Guide Right Foundation owes three fiduciary duties to the organization:

Conflict of Interest Policy

A Conflict of Interest (COI) Policy is the most important governance document after the bylaws. Form 990 Part VI, Question 12 asks: "Does the organization have a written conflict of interest policy?" The answer goes on a public record viewed by donors, grantors, and regulators.

What a Full COI Policy Requires

A complete Conflict of Interest Policy must cover:

• Definition: What constitutes a conflict (financial interest, family relationship, outside employment)
• Covered persons: All directors, officers, and key employees
• Disclosure procedure: How and when to disclose a conflict (before any discussion or vote on the matter)
• Annual disclosure forms: Each covered person signs a written disclosure annually confirming known conflicts
• Recusal process: The conflicted person leaves the room during the discussion and vote
• Meeting documentation: Minutes must record who disclosed, who abstained, and the vote of the remaining members

Whistleblower Policy

Form 990 Part VI, Question 13 asks: "Does the organization have a written whistleblower policy?" A whistleblower policy protects people — members, employees, volunteers, or third parties — who report suspected financial misconduct, fraud, or legal violations. Neither the Foundation nor the Chapter currently has one.

A whistleblower policy must:

• State that the organization will not retaliate against anyone who reports a good-faith concern
• Identify how concerns should be reported (e.g., to the board president or a designated director, in writing)
• Describe how reports will be handled and investigated
• Protect the confidentiality of the reporter to the extent possible

Document Retention Policy

Form 990 Part VI, Question 14 asks: "Does the organization have a written document retention and destruction policy?" This policy tells everyone in the organization which documents to keep, for how long, and what the process is for secure destruction. It also mandates a legal hold — suspending all destruction — when litigation or an IRS investigation is reasonably anticipated.

Unrelated Business Income Tax (UBIT) — IRC §§ 511–514

Tax-exempt organizations are not immune from all taxes. If an organization earns income from a trade or business that is regularly carried on and that is not substantially related to its exempt purpose, that income is subject to Unrelated Business Income Tax (UBIT) at regular corporate rates.

When gross unrelated business income (UBI) reaches $1,000 in a calendar year, the organization must file Form 990-T with the IRS.

Intermediate Sanctions — IRC § 4958

IRC §4958 allows the IRS to impose excise taxes on individuals — rather than always revoking the organization's status — when a 501(c)(3) or 501(c)(4) organization provides an excess benefit to a disqualified person.

Who Is a Disqualified Person?

• Current or former officers (President, Treasurer, Secretary)
• Current or former directors and board members
• Highest-compensated employees ($150,000+ in any of the prior 5 years)
• Substantial contributors (typically those who gave $5,000+ within the last 5 years)
• Family members of any of the above (spouse, children, parents, siblings)
• Entities 35%+ controlled by any of the above

What Is an Excess Benefit Transaction?

An excess benefit transaction occurs when the Foundation provides a disqualified person with an economic benefit exceeding the fair market value of services or goods received in return. Examples:

• Paying a board member's company $15,000 for services worth $8,000 = $7,000 excess benefit
• Reimbursing an officer for personal expenses not related to Foundation work
• A Foundation-owned property transferred to a director for less than fair market value
• Compensation paid without a comparable compensation study or board approval

Political Activity — Absolute Prohibition for 501(c)(3)

IRC §501(c)(3) contains an absolute, unconditional prohibition on participation or intervention in any political campaign on behalf of — or in opposition to — any candidate for public office. This is not a "limited" restriction. It is a complete ban.

Note: The 501(c)(7) Alumni Chapter has more flexibility — social clubs may take positions on some issues — but direct electoral campaign activity is risky for any tax-exempt organization and should be avoided without specific legal guidance.

Donor Acknowledgment Requirements

The Foundation must provide written acknowledgment for any single charitable contribution of $250 or more before the donor files their federal tax return. Donors cannot claim the deduction without the letter.

Internal Revenue Code Sections

IRS Forms

IRS Publications & Revenue Rulings

DLA & DLGRF Governing Documents

Texas State & External Resources