Charity, Lodge, Vereins and Tax Exemptions

As American Canadian Grand Lodge Freemasons, we proudly wear the heritage of those North American brethren servicemen that ensured liberation from the Nazi-regime, which amongst other atrocities persecuted Freemasons, disowned them and sent them to concentration camps.
The allied military brethren help the remaining German brethren rebuild, while at the same time leaving their mark by setting the cornerstone of how we practice Freemasonry under this Grand Lodge today.
And while we never forgot about these historic events, nowadays we may sometimes wonder how lodges stateside but also our ACGL lodges back then may have been able to donate six-figure sums of money to charity in post-WW2 Germany while dues were on the lower end.
One explanation might be that many ACGL lodges were housed on military bases before American troops were withdrawn, which were legally considered to be based on US territory. Those lodges also held US-based bank accounts (e.g., with PNC bank amongst others) with US tax code (Internal Revenue Code section 501(c)(8) or 501(c)(10) being applied to those bank accounts.

In practice, this meant that any Fraternal beneficiary society, order, or association under Grand Lodge system was (and still is today) tax-exempt in the US, including its economic activities, if they fulfil(ed) the following requirements.

1. It must have a fraternal purpose. An organization has a fraternal purpose if membership is based on a common tie or the pursuit of a common object. The organization must also have a substantial program of fraternal activities.
2. It must operate under the lodge system or for the exclusive benefit of the members of a fraternal organization itself operating under the lodge system. Operating under the lodge system requires, at a minimum, two active entities: (i) a parent organization; and (ii) a subordinate (called a lodge, branch, or the like) chartered by the parent and largely self-governing.
   **To be exempt under IRC 501(c)(8) further:
3. It must provide for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents.
4. An organization that provides benefits to some, but not all, of its dffmembers may qualify for exemption so long as most of the members are eligible for benefits, and criteria for excluding certain members are reasonable.
   OR
   **To be exempt under IRC 501(c)(10) further:
5. It must not provide for the payment of life, sick, accident, or other benefits to its members. The organization may arrange with insurance companies to provide optional insurance to its members without jeopardizing its exempt status.
6. It must devote its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes.
7. It must be a domestic organization, that is, it must be organized in the United States.
   So, after the lodges where no longer chartered and/or seated on US military bases, the option of
   IRC 501(c)(10) disappeared due to it no longer being considered US domestic organization in the sense of the tax code.
   Now lodges on German soil where often incorporated as registered Association (eingetragener Verein, or in short e.V.), as that is a common way of incorporating clubs and fraternal organizations in most regions of Germany. However, the tax implications are a vastly more difficult stone to work.
   For tax exemption, just giving a few examples, a German Verein is prohibited from discriminating:
8. by sex (nowadays extended to gender),
   meaning the requirement to join the Verein as organization cannot be limited to men. Same would apply for men after physical sex change (surgery) or legal gender reassignment (legal status). If it does, it may have the Revenue Office retrospectively withdraw the tax exemption in consequence making past income of the Verein fully taxable (~30% corporation and trade taxes).
9. by age,
   e.g., when it comes to dues a segmentation of the amount by age is only possible in very narrow boundaries.
10. by citizenship,
    which in case of a majority of members being non-EU citizens would give the Verein the status of a so-called “Ausländerverein” whose economic activities are under strict supervision and additional scrutiny. The same may apply to its membership. Also, an annual report to the competent authority is necessary to not get one’s Verein dissolved.
11. by membership,
    when it comes to assistance by the Verein towards payment of life, sick, accident, or other benefits to its members. If members benefit from the Verein in such a way, the tax-exemption of the Verein may be withdrawn by German Revenue Services (“Finanzamt”).
    What does this mean for a lodge organized with a Verein in Germany?
    There are three common ways of looking at it:
12. Verein and Lodge being the same (no tax exemption)
    If one considers how other German lodges organize themselves, they are not eligible for a tax exemption at all and declare the lodge and the verein to be the same. The benefit being it is less of an administrational hassle and a “Standard Vereinssatzung” (Model Articles of Association) provided by the grand lode requires no legal knowledge to set up.
13. Verein being a vehicle carrying the lodge plus other ventures (tax exemption possible)
    If the Verein is only a body corporate to execute the economic will (orders, offers, contracts, payment, taxes) and carries the cost of the lodge and other activities relating to traditions, culture, arts and/or music. Thereby the membership might also include philanthropic friends of the lodge that are non-masons and just want to support the lodge or specific charitable causes that donations are collected for. In this case there are distinct types of membership tailored to the reality of the specific lodge, e.g., with voting rights (i.e., lodge members) and without voting rights (philanthropic friends, honorary members, etc.). An honorary member of the lodge may then also become an honorary member of the Verein, hence not having to pay dues. The lodge byelaws would be a section of the inner order (“Innere Ordnung”) which the Verein is not required to disclose publicly.
14. Separate Lodge Verein (not charitable) and Charitable & Relief Verein (fully exempt)
    The Lodge charitable activity would need to be coordinated with Charitable & Relief Verein would get the best of both worlds and would allow for easier access to donations due to the Verein being able to issue donation receipts (German “Spendenquittung”), thereby making all donations tax deductible for all German resident members. The downside would be that it would require twice the administrational effort, which might not be worth the hassle.

Fraternally
Bro. George Dietrichsbruckner

Bro. George holds degrees in Financial Engineering, Accounting and Audit as well as Law, and has been working in various capacities in the Financial Services industry amongst others as a Regulatory Expert, Auditor and Supervisory Board Member over the last 15 years. He is the Master Elected for 23/24 of Bavaria Lodge No. 935.