Question

While the foundation is designed by the IRS as a 501(c)3, the fraternity is a 501(c)7, which makes direct donations to the chapter not tax-deductible.

a) True
b) False

Answer 1

Direct donations to a 501(c)(7) social or recreational fraternity are not tax-deductible, while donations to a 501(c)(3) charitable foundation can be tax-deductible.

Step-by-step explanation:

The statement that direct donations to a fraternity designated as a 501(c)(7) organization are not tax-deductible is true. This is because 501(c)(7) organizations are social or recreational clubs that are tax-exempt, but contributions to them are generally not deductible as charitable donations. On the other hand, a foundation that is recognized as a 501(c)(3) organization is typically considered charitable, and donations to it can be tax-deductible. The distinction is important for both donors and organizations in understanding the benefits and limitations associated with their tax-exempt status.