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Zeta Beta Tau Fraternity, Inc. v. Commissioner
United States Tax Court
87 T.C. 421 (1986)
The Zeta Beta Tau national fraternity (Zeta Beta) (plaintiff) was a tax-exempt social club under Internal Revenue Code § 501(c)(7). The investment income of § 501(c)(7) organizations was taxed as unrelated business taxable income. In 1969, Congress added Internal Revenue Code § 501(c)(10) for domestic fraternal societies. Investment income of organizations under § 501(c)(10) was not taxed as unrelated business taxable income. The U.S. Treasury regulations implementing § 501(c)(10) stated explicitly that national college fraternities did not qualify under § 501(c)(10). In 1975, Zeta Beta applied to the Internal Revenue Service (IRS) (defendant) to be classified as a fraternal organization under § 501(c)(10). The IRS denied the application. Zeta Beta appealed the decision in the United States Tax Court. Zeta Beta asserted that aside from its status as a national college fraternity, it qualified as a § 501(c)(10) organization. Zeta Beta argued that it was indistinguishable from common § 501(c)(10) organizations such as the Masons, the Elks, and other lodges.
Rule of Law
Holding and Reasoning (Swift, J.)
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