168th Ekklesia Phi Gamma Delta Fraternity Housing Conference Organizational and Financial Best Practices Ron Sages (Ohio ‘73) Director of Housing The Fraternity of Phi Gamma Delta 203-255-9993 rsages@chapinasset.com August 12, 2016

Agenda Director of Housing Roles and Responsibilities Organizational Issues Financial Best Practices Banking Relations Accounting and Reporting Auditing Budgeting Tax Considerations Questions

Director of Housing Role and Responsibilities Provide guidance to new colonies and reconstituted/existing chapters on acquiring housing Provide resources & guidance on the formation of house corporations Resource for promoting survival & continuity of house corporations Resource and strategies for financing and funding needs Maintaining and updating educational materials/resources and sample documents for house corporation use

Director of Housing Role and Responsibilities Evaluate the need for training house corporation members and develop appropriate methodologies Publish periodic e-newsletters specific to house corporation needs Stay abreast of other housing developments throughout the Greek Community

Organizational Issues Form of Organization Registration with Secretary of State Designation of Individual for Service of Process Filing with Internal Revenue Service Form 1024 Form 990 - Annually Board of Directors & Terms of Office

Financial Best Practices Banking Relations Accounting & Reporting Auditing Budgeting (Operating & Capital) Taxes

Banking Relations Convenience Accounts Investment Accounts Checking, savings, and security deposit Investment Accounts Credit Facilities Mortgage Line of Credit Corporate Credit Card Credit Card processing

Accounting & Reporting Fund Accounting or Traditional Corporate Selection of Fiscal Year End Frequency of reports Board of Directors General Membership Historical Information

Auditing Internal Audit (multi-purpose) Ensure conformity with generally accepted accounting principles Promote integrity and confidence in housing corporation financial activities and practices Circumvent any unintentional omission or recognition of involvement or donations by graduate brothers

Budgeting Operating Budget Capital Budget Heuristics: Mortgages – 28% - 30% of Annual Gross Income Commercial Mortgage Terms generally shorter than Residential Mortgages (i.e., 10 to 15 years) Commercial Mortgage rates generally variable with floor Fund Annual Insurance Retention Fund Depreciation and Amortization Expense Capital Budget Plan for and cycle work that can generally best be accomplished during school closure periods

Tax Considerations Generally house corporations recognized under either IRC §501(c)(2) or §501(c)(7) In general, member source income (“exempt function income”) avoids income taxation Income from other sources (UBTI) subject to income tax @ Corporate Income Tax Rates Contributions made to “(c)(2)” or “(c)(7)” entities not deductible by donors No profits/assets may inure to any member

Social & Recreational Club §501(c)(7) vs. §501(c)(2) §501(c)(7) Social & Recreational Club §501(c)(2) Title Holding Company Broader charter than §501(c)(2) Exempt Function Income extends to member dues, contributions, etc. UBTI & non-member income permitted subject to “safe harbor” threshold limitations Income accumulations permitted “Set asides” may be made for charitable purposes Exclusive use is to hold title to property, Collect income thereon, & Remit net income to a tax exempt organization Cannot have UBTI other than what is classified as such due to debt financing of property owned Cannot accumulate income Cannot engage in broader activities

Taxes Form 1024 (www.irs.gov) – Apply for EIN Annual Filings - Form 990, 990-EZ or 990-N? Gross Receipts < = $50K, Form 990-N Gross Receipts > $50K & < $200K, Form 990-EZ Gross Receipts >= $200K or assets >= $500K, Form 990 Form 990-T? UBTI > $1K

Taxes When are 990-N, 990-EZ, 990, & 990-T due? On the 15th day of the 5th month following close of taxable year. If Corporation has previously filed a 990-T with a tax liability, and expects to owe more than $500 for the current year, the Corporation is required to make Estimated Tax Payments during the current year

Estimated Taxes Estimated Tax Payment Dates & Percentages: 15th day of 4th month – 25% 15th day of 6th month – 25% 15th day of 9th month – 25% 15th day of 12th month – 25% Required Annual Payment (not “large” corps.) Lesser of 100% of current year tax or 100% of prior year tax liability, unless prior year tax liability was $0

Tax Considerations Revenues Member Source Income (“exempt function income”) – tax exempt Dues & gifts Pig Dinner receipts Room rents Unrelated Business Taxable Income (UBTI) – taxable Interest, dividends and capital gains Non member source income Rents and royalties

Taxes Conditions for maintaining 501(c)(7) status: >35% of Gross Income from non-member sources >15% of Gross Income from non-member use of club facilities & services Facts and circumstances to be reviewed in terms of loss of 501(c)(7) status

Taxes Investment Income – no distinction between: Qualifying and non-qualifying dividends Long term and short term capital gains UBI less applicable deductions (“tier system”) = UBTI Specific Exemption of $1K per year unless part of an “affiliated group” Net UBTI is taxed at Corporate Income Tax Rates

“Set-Asides” UBTI that is specifically “set aside” for religious, charitable, educational, scientific, literary, & for prevention of cruelty to children or animals (IRC §170(c)(4)) is exempt from income tax. More than an accounting entry Funds must be segregated by due date for return

Questions