OVERVIEW OF THE GRAND LODGE SYSTEM

OVERVIEW OF THE GRAND LODGE SYSTEM Table of Contents OVERVIEW OF THE GRAND LODGE SYSTEM... 1 Grand Lodge... 4 Technical Title:... 4 The Grand Lodge is an unincorporated association.... 4 Structure of Grand Lodge:... 5 Members:... 5 Honorary Membership:... 5 Past Grand Masters and Past District Deputy Grand Masters:... 5 Representatives to the Grand Lodge:... 5 Communications:... 5 Grand Officers:... 6 (a) R.W. Grand Master... 6 (b) R.W. Deputy Grand Master... 6 (c) R.W. Senior Grand Warden... 6 (d) R.W. Junior Grand Warden... 6 (e) R.W. Grand Treasurer... 6 (f) R.W. Grand Secretary... 6 Officers of the Grand Lodge:... 6 (a) Grand Officers... 6 (b) Past Grand Masters, Deputy Grand Masters and Grand Wardens who having served for at least two years... 6 (c) Past Grand Secretaries and Grand Treasures having served for six years... 6 (d) Appointed Officers are not officers of Grand Lodge per se, but appointed to fulfill the specific roles set forth in Article 12 of The Ahiman Rezon... 7 Governance:... 7 (a) Ancient usages, customs and landmarks of the Fraternity... 7 (b) Constitution (The Ahiman Rezon)... 7 (c) Grand Master... 7 Tax Exemption:... 7 Federal... 7 Pennsylvania... 7 1

Gifts and Bequests to Grand Lodge:... 8 Income tax treatment of charitable gifts... 8 Gift tax treatment of charitable gifts... 9 Estate tax treatment of charitable gifts... 9 Income tax treatment of fraternal gifts... 9 Gift tax treatment of fraternal gifts... 9 Estate tax treatment of fraternal gifts... 9 Masonic Villages... 9 Unincorporated unit of the Grand Lodge... 9 Governance:... 10 Tax Exemption:... 10 Gifts and Bequests:... 10 The Masonic Library and Museum of Pennsylvania:... 10 Pennsylvania Non-Profit Corporation:... 10 Governance:... 10 Tax Exemption:... 10 Gifts and Bequests:... 10 The Masonic Library and Museum of Pennsylvania is exclusively charitable. It is a public charity, and in this case there are generally no issues for any type of donors.... 10 The Masonic Youth Foundation of Pennsylvania... 11 Pennsylvania Non-Profit Corporation... 11 Governance:... 11 Tax Exemption:... 11 Gifts and Bequests:... 11 The Masonic Youth Foundation of Pennsylvania is exclusively charitable. It is a public charity, and in this case there are generally no issues for any type of donors.... 11 Masonic Blood and Organ Donor Club of Pennsylvania... 11 Pennsylvania Non-Profit Corporation... 11 Governance:... 11 Tax Exemption:... 11 Gifts and Bequests:... 11 The Masonic Charities Fund... 12 Pennsylvania Trust... 12 Governance:... 12 Trustees:... 12 2

Tax Exemption:... 12 Gifts and Bequests:... 12 The Masonic Charities Fund is exclusively charitable. It is a public charity, and in this case there are generally no issues for any type of donors.... 12 Subordinate Lodges... 12 Governance:... 12 Tax Exemption:... 13 Fraternal... 13 Charitable funds... 13 Gifts and bequests:... 13 Fraternal... 13 Charitable funds... 13 Temple and Hall Associations... 13 Pennsylvania non-profit corporations... 13 Purpose:... 13 Governance:... 13 Tax Exemption:... 14 Scope of Operation:... 14 Distribution of proceeds upon sale:... 14 3

Grand Lodge Technical Title: The Right Worshipful Grand Lodge of the Most Ancient and Honorable Fraternity of Free and Accepted Masons of Pennsylvania and Masonic Jurisdiction Thereunto Belonging The Grand Lodge is an unincorporated association. To the extent not controlled by the Ahiman Rezon, the Grand Lodge must follow the customary usages and principles of parliamentary law and procedure. 15 Pa.C.S.A. 9101. Interestingly, the Ahiman Rezon accordingly provides that Parliamentary Law shall not apply to the Grand Lodge. Ahiman Rezon 9.15. The Grand Lodge can receive unrestricted gifts for fraternal purposes. Liapis Estate, 88 Pa. D. & C. 303 (C.P. Dauphin 1954). Older law provides that the Grand Lodge cannot hold title to real estate in its name for fraternal purposes, Hawk v. Hawk, 88 Pa. Superior Ct. 581 (1926), but whether this law is still good is unclear. The Grand Lodge can probably hold title to real estate in its name for charitable purposes, but direct authority is unclear. To avoid this uncertainty, Grand Lodge uses the Trustees of Title to the Masonic Temple and Other Real Estate of the Grand Lodge to hold legal title to real estate. The Grand Lodge can receive restricted and unrestricted gifts for charitable purposes. Evangelical Association's Appeal, 35 Pa. 316 (1860). The Grand Lodge can defend or maintain an action in its name. Pa.R.C.P., Rule 2153(a), (c). The Grand Lodge as an entity can be charged with a crime if (1) the law describing the crime specifically provides for that result or (2) the offense consists of an omission to discharge a specific duty of affirmative performance imposed on associations by law. 18 Pa.C.S. 307. This is a narrow standard. Unlike corporations, the Grand Lodge cannot be charged simply because the commission of the offense was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent acting in behalf of the corporation within the scope of his office or employment. Because of this distinction, The Philadelphia County Investigating Grand Jury of September 17, 2003 concluded that the Philadelphia Archdiocese (an unincorporated association) could not be charged with a crime arising from clerical abuse. 4

Grand Lodge members are generally not personally liable for the obligations of the Grand Lodge, Duquesne Litho v. Roberts & Jaworski, 443 Pa. Super. 170 (1994), if care is taken to give notice that they do not intend to be personally bound Except where specific legal authority exists to recognize the corporate existence of the Grand Lodge similar to the examples cited above, the Grand Lodge should be understood as a collection of individuals. A trust is one of the tools Grand Lodge can use in certain cases to accomplish corporate objectives that are not specifically authorized. See Article 13 of the Ahiman Rezon for examples of how the Grand Lodge uses trusts, committees and corporations in connection with its business activities. Certain federal statutes do not easily accommodate unincorporated associations. Structure of Grand Lodge: Members: Grand Officers, Past Grand Masters, Past Deputy Grand Masters, Past Grand Wardens by two years service, Past Grand Treasurers and Secretaries by six years service, Past Masters by one year s service and the Masters and Wardens of Subordinate Lodges Honorary Membership: Grand Lodge may confer honorary membership on members in good standing; honorary members may serve on committees but shall not be entitled to vote on Grand Lodge matters Past Grand Masters and Past District Deputy Grand Masters: Past Grand Masters and Past Deputy Grand Masters are life members of Grand Lodge irrespective of an affiliation with a Subordinate Lodge Representatives to the Grand Lodge: Subordinate Lodges elect representatives to the Grand Lodge who represent the Subordinate Lodge and the members of Grand Lodge who are members of the Subordinate Lodge at Grand Lodge Communications Communications: Grand Lodge conducts its business through Communications, and the delegation of authority to a system of committees, trustees, and directors (a) Grand Lodge proceedings are governed by Article 9 of The Ahiman Rezon (i) (ii) five Subordinate Lodges must be represented in order to open Grand Lodge Parliamentary law does not apply 5

(iii) (iv) (v) (vi) (vii) Majority of members present (or voting if by ballot) controls all matters of the Grand Lodge Grand Master decides all questions of order, and there is no appeal from his decision in this regard voice votes are permitted; standing votes may be required by five members; votes by yeas and nays are not permissible Representatives of fifteen Subordinate Lodges may require that any matter before Grand Lodge be put to a ballot at which each member of Grand Lodge shall have one vote; if this is done the matter should be tabled until after Subordinate Lodges have received good notice of the matter and have had a chance to consider and act upon it Subordinate Lodges instruct representatives how to vote on a matter; except that in the case of a ballot where Past Masters may direct representatives to cast one vote specifically as he directs Grand Officers: Elected to two year terms at alternating December Quarterly Communications, subject to annual reaffirmation ballot (a) R.W. Grand Master (b) (c) (d) (e) (f) R.W. Deputy Grand Master R.W. Senior Grand Warden R.W. Junior Grand Warden R.W. Grand Treasurer R.W. Grand Secretary Officers of the Grand Lodge: (a) Grand Officers (b) Past Grand Masters, Deputy Grand Masters and Grand Wardens who having served for at least two years 1 (c) Past Grand Secretaries and Grand Treasures having served for six years 2 1 Entitled to designation Right Worshipful 2 Entitled to designation Right Worshipful 6

(d) Appointed Officers are not officers of Grand Lodge per se, but appointed to fulfill the specific roles set forth in Article 12 of The Ahiman Rezon Governance: (a) Ancient usages, customs and landmarks of the Fraternity (b) (c) Constitution (The Ahiman Rezon) Grand Master Tax Exemption: Federal Section 7701 of the Internal Revenue Code provides that an unincorporated association is a person for tax purposes. Section 501(c) describes the types of persons which are exempt from most federal income tax laws. Originally, Section 501(c) only recognized fraternal benefit societies which provide life, sick, accident or other benefits to members. Original Section 501(c)(8) did not consider the distinction between entities which provide primarily fraternal benefits and entities such as the Masons which provide charitable benefits to persons who sometimes happen to be members. Congress eventually created 501(c)(10) to exempt domestic fraternities the net earnings of which are devoted exclusively to religious, charitable, scientific, literary, educational and fraternal purposes, and do not provide life, sick, accident or other benefits to members. Around 1972, the Grand Lodge became a 501(c)(10) entity for purposes of the Internal Revenue Code to take advantage of the change in the statute. Older IRS determination letters refer to the Grand Lodge as being a 501(c)(8) organization, but this is no longer correct. Pennsylvania Tax exemption under the Pennsylvania statute 12 P.S. 375 is for the most part a highly factual entitlement. Some aspects are discussed below, but two points which are sometimes confusing are worth mentioning here however. Section (c)(1) of the Pennsylvania statute does not ask if the institution is a 501(c)(3) organization. Rather, it asks if the institution avoids private inurement, meaning that the property of the institution does not belong to the members and cannot be paid as dividends or in liquidation to the members. Masonic bodies typically avoid private inurement. Section (e)(5) of the Pennsylvania statute holds that certain types of institutions are not charities for Pennsylvania purposes. A fraternal benefit society (Internal Revenue Code Section 501(c)(8)) is not a Pennsylvania charity. The Grand Lodge and the Subordinate Lodges are not fraternal benefit societies and are organized under Tax Code Section 501(c)(10). Generally, as long as a Subordinate Lodge provides a sufficient level of purely charitable benefit as defined in the statute, it should be tax exempt for Pennsylvania purposes. Sales tax exemption, however, requires applying for a certificate and evaluation under Pennsylvania law. Generally, Grand Lodge is not exempt from the real estate transfer tax, although some transactions by Grand Lodge can fit into particular exceptions. 7

Gifts and Bequests to Grand Lodge: Income tax treatment of charitable gifts Three different sections of the Internal Revenue Code may be applicable to charitable contributions to the Grand Lodge, its constituent elements and affiliates. Some elements and affiliates have obtained an express exemption under Section 501(c)(3). Two additional sections may be available for a gift to a fund or association that has not obtained an express 501(c)(3) exemption. The most important is 170(c)(4) but 170(c)(2) is also available. (a) 501(c)(3) Most Masonic charities with an express charitable exemption are able to maintain public charity status. This means there are generally no tax issues in making a charitable contribution of any sort. If the Masonic charity is not organized as a corporation or trust, then the charity will be an activity or fund of the unincorporated Masonic association that sponsors it. The activity or fund can itself be a 501(c)(3) charity even though it is a constituent part of the Grand Lodge or Subordinate Lodge and does not exist as a separate entity. Rev. Rul. 54-243. For example, the Masonic Villages are recognized as a 501(c)(3) charity even though it is actually just an activity of a 501(c)(10) Grand Lodge. This can be very confusing. However, an activity or fund intending to be recognized as a 501(c)(3) charity must file for an express tax exemption with the IRS. (b) 170(c)(4) (i) This section only applies to lifetime gifts made by individuals. Section 170(c)(4) provides a favorable result on all tax issues, so 170(c)(2) basically applies only to gifts by partnerships, corporations, trusts, etc. to Masonic bodies without an express exemption. This should be fairly rare. It is possible that gifts by pass-through entities would be treated as gifts by individuals and thus qualified under 170(c)(4), but this is not clear. (ii) The gift is made to the Grand Lodge itself, but Grand Lodge must be directed to use the gift exclusively for charitable purposes and excluding fraternal purposes. (c) 170(c)(2) section. (i) As noted above, only partnerships, corporations, trusts, etc. would use this (ii) The gift is made to an activity (language used by the IRS) or fund (language of the Tax Code) of the Grand Lodge. The intent to give to an activity or fund can be implied when a gift specifies a particular charitable purpose which is an established activity or fund. (iii) If a regular corporation, and possibly partnerships and other pass-through entity, makes a gift to the Grand Lodge for an activity or purpose that has not received a separate 501(c)(3) ruling, then the contributor may not be able to take a fair market value deduction for contributions of appreciated property. Individual members of pass-through entities would be 8

subject to the 30% limitation, unless the contribution would be treated as qualifying under 170(c)(4). (iv) A major reason for creating the Masonic Charities Fund was to create a solid basis for a charitable deduction to Masonic charitable purposes that have not themselves received a 501(c)(3) exemption. Gift tax treatment of charitable gifts As a general rule, only individuals are subject to the gift tax. Section 2522 is essentially identical to 170(c)(4), so lifetime gifts by an individual to the Grand Lodge exclusively for charitable purposes do not create any tax issues. Estate tax treatment of charitable gifts Only individuals are subject to the estate tax. Section 2055 contains additional language not contained in Section 2522. Income tax treatment of fraternal gifts No income tax deduction. Gift tax treatment of fraternal gifts This is a complicated topic. The IRS view is that any lifetime transfer for which the transferor does not receive reasonably equivalent value in money or money s worth generates gift tax. The $12,000 annual exemption does not apply. In theory, if someone gives a dime to the fraternity in excess of dues, he owes the IRS 5 cents (rounded up). The counter-argument starts with Carson v. Commissioner, 71 T.C. 252 (1978). The case is about political contributions but can be applied to fraternal gifts. The bottom line is that a brother should probably get tax advice before making a large lifetime gift for fraternal purposes. Estate tax treatment of fraternal gifts No estate tax deduction. Masonic Villages Unincorporated unit of the Grand Lodge The activities of the Masonic Villages are considered directly conducted by the Grand Lodge. Although the assets employed for these purposes are owned by the Grand Lodge and not as a trust, the assets are nevertheless impressed with a charitable purpose for Pennsylvania law purposes. Craig Estate, 356 Pa. 564 (1947). 9

Governance: The Grand Lodge ordinarily controls the operation of the Masonic Villages through the Committee on Masonic Homes, which consists of the Grand Officers and seven additional members of the Grand Lodge elected by the Grand Lodge. Elected terms are limited to eight years. A.R. 13.32. The Grand Lodge has established rules for the operation of the Committee. A.R. 13.34. Tax Exemption: The Masonic Villages has its own separate tax exemption as a 501(c)(3). Generally, this means that there are no tax problems with contributions to the Masonic Villages directly. Gifts and Bequests: The Masonic Villages are exclusively charitable. They are a public charity, which generally means there are no issues for any type of individual gifts during life or at death. Gifts by nonindividual donors may want to specify any gift is made to the Masonic Villages itself as distinct from its endowment fund or to the Masonic Charities Fund. The Masonic Library and Museum of Pennsylvania: Pennsylvania Non-Profit Corporation: The Masonic Library and Museum of Pennsylvania is a Pennsylvania non-profit corporation controlled by the Grand Lodge. Its extensive purposes are described in A.R. 13.42. It operates within the Masonic Temple in Philadelphia but does not own it. The Masonic Library and Museum of Pennsylvania also conducts programs and exhibits throughout the state in cooperation with Subordinate Lodges. Governance: The Grand Lodge ordinarily controls the operation of the Masonic Library and Museum of Pennsylvania through a Board of Directors consisting of the Grand Officers, the Chairmen of certain standing committees of the Board and others appointed by the Grand Master. Tax Exemption: The Masonic Library and Museum of Pennsylvania has its own separate tax exemption as a 501(c)(3). Gifts and Bequests: The Masonic Library and Museum of Pennsylvania is exclusively charitable. It is a public charity, and in this case there are generally no issues for any type of donors. 10

The Masonic Youth Foundation of Pennsylvania Pennsylvania Non-Profit Corporation Governance: The Masonic Youth Foundation of Pennsylvania is a Pennsylvania non-profit corporation controlled by the Grand Lodge through a Board of Directors appointed by the Grand Master. It is the successor to two prior Masonic non-profit corporations. Its purposes are described in A.R. 13.39. Tax Exemption: The Masonic Youth Foundation of Pennsylvania has its own separate tax exemption as a 501(c)(3). Gifts and Bequests: The Masonic Youth Foundation of Pennsylvania is exclusively charitable. It is a public charity, and in this case there are generally no issues for any type of donors. Masonic Blood and Organ Donor Club of Pennsylvania Pennsylvania Non-Profit Corporation Governance: The Masonic Blood and Organ Donor Club of Pennsylvania is a Pennsylvania non-profit corporation controlled by the Grand Lodge through a Board of Directors appointed by the Grand Master. Tax Exemption: The Masonic Blood and Organ Donor Club of Pennsylvania has its own separate tax exemption as a 501(c)(3). Gifts and Bequests: The Masonic Blood and Organ Donor Club of Pennsylvania is exclusively charitable. It is a public charity, and in this case there are generally no issues for any type of donors. 11

The Masonic Charities Fund Pennsylvania Trust The Masonic Charities Fund is a perpetual Pennsylvania charitable Trust. The Masonic Charities Fund has a flexible mission to coordinate and conduct gift planning and development functions for the charitable activities of the Grand Lodge and its charitable components and affiliates. Governance: Trustees: The Trustees of the Masonic Charities Fund are the Grand Officers, who follow the terms of the Trust Agreement (See AR Section 13.04) Tax Exemption: The Masonic Charities Fund has its own separate tax exemption as a 501(c)(3). Gifts and Bequests: The Masonic Charities Fund is exclusively charitable. It is a public charity, and in this case there are generally no issues for any type of donors. Subordinate Lodges Unincorporated associations warranted and constituted by Grand Lodge and subject to governance by Grand Lodge A Subordinate Lodge is a Pennsylvania unincorporated association. Each Subordinate Lodge is governed by the Ahiman Rezon as the constitution of Pennsylvania Freemasonry. In effect, each Subordinate Lodge owns its property in trust for the Grand Lodge. Upon dissolution, all property must be disposed of in accordance with A.R. 17.22. The Warrant issued by the Grand Lodge creating the Subordinate Lodge must be displayed in order to open a Subordinate Lodge. Governance: (a) Ancient customs, usages and landmarks of the Fraternity (b) The Ahiman Rezon (c) Digest of Decisions (d) Grand Master Edicts (e) Lodge Bylaws 12

Tax Exemption: Fraternal A Subordinate Lodge has a group exemption as a 501(c)(10) domestic non-benefit fraternal society. Charitable funds The charitable funds of a Subordinate Lodge are exclusively charitable. They are exempt as an integral part of a 501(c)(10) entity. A 1958 IRS ruling implies that charitable funds of Subordinate Lodges may also be considered 501(c)(3) charities, but this is not clear. Some charitable funds of Subordinate Lodges may have received an express 501(c)(3) ruling. Gifts and bequests: Fraternal No income tax deduction is available. For gift tax, modest life time gifts are probably not taxable, but see the discussion at 1.7.5. No estate tax deduction is available. Charitable funds If a Subordinate Lodge has received a 501(c) ruling, generally no problem should arise. For individual donors, 170(c)(4) will generally be sufficient, but other donors should consult with tax advisors or work through the Masonic Charities Fund. Temple and Hall Associations Pennsylvania non-profit corporations Pennsylvania Temple and Hall Associations must be organized as Pennsylvania nonprofit corporations or trusts. Hall Associations do not file audits with the Grand Lodge. Purpose: The sole purpose of a Temple and Hall Associations is to hold title to assets for Subordinate Lodges and appendant Masonic bodies. Typically, the asset will be real estate. Generally the interested Subordinate Lodges and appendant Masonic bodies which formed the Association control it. Governance: The Grand Lodge has published model bylaws for the Hall Associations. In order to protect the interests of its Subordinate Lodges, Grand Lodge requires certain governance features to be 13

present in the bylaws and amendments thereto to be approved by the Grand Lodge Committee on Bylaws. The Grand Lodge has the right, and in some cases the responsibility, to (i) inspect the operations of Hall Associations to ensure compliance with applicable Masonic and civil law and (ii) to insist upon approval of certain transactions, including the sale of real estate owned by the Hall Association for use by Interested Masonic Bodies. See Paragraph 62.10 in the Digest of Decisions. Tax Exemption: An Association is a 501(c)(2) entity. No tax deduction is available for a contribution to an Association. An Association can charge rent to its users, but its net income must be remitted annually to the Subordinate Lodges and appendant Masonic bodies which formed it. Income can be used to pay expenses, and depreciation counts as an expense for this purpose. If the Association borrows money, unrelated business income could be generated and the Association could lose its tax exemption. Special rules apply if more than one Masonic body owns an Association. Among other items, the governance documents must contain cross-purchase terms and the Association can only own real property and tangible property connected with real property. Associations do not need to file a tax return if they normally earn less than $5,000. Normally means on average over the organization s final three tax years in operation. Treas. Reg. 1.6043-3(d)(2), cross reference to Treas. Reg. 1.6033-2(g)(3)(iii). A return is almost always needed if an Association earns unrelated business taxable income. An Association with a single owner can file a consolidated return with its owner. Salary payments to officers and employees can generate payroll taxes. The 501(c)(2) entity will lose its exemption if the interested Masonic owners lose their exemptions. Scope of Operation: A 501(c)(2) entity is not allowed to conduct an active business. Operating social facilities like a bar and buffet is an active business and is not permitted to the 501(c)(2) unless the all-volunteer labor exception applies. A small amount of tangible property can be leased in connection with real estate. An Association cannot provide services with a lease. Distribution of proceeds upon sale: Generally speaking, Hall Associations may only sell the real estate owned for Masonic purposes after first (i) making a recommendation to the interested Masonic bodies, and (ii) having the 14

recommendation approved by a majority of the interests in the Hall Association after good and timely notice to the members of the interested Masonic bodies. The resolutions should authorize the directors or specific officers of the Hall Association to carry out the transaction according to specified terms or parameters. If the Hall Association and/or the Lodges are subject to a local business privilege tax, then the sale may give rise to tax obligations thereunder. Depending on the identity of the buyer and the nature of the transaction, the sale will probably be subject to Pennsylvania and local realty transfer tax. The sale of the 501(c)(2) s assets will generally terminate its tax exemption. The IRS deems this change in status to occur on the day after the sale. See, e.g., PLR 9551021. Unless the Hall Association qualifies for exemption under some other section of the Internal Revenue Code, it will thus be subject to federal income tax (as well as Pennsylvania corporate net income tax) on all income received after the date of the sale. The sale should be structured so that all consideration for the property will be accrued, if not actually received, at the time of sale. If the Hall Association stands to generate or realize any other forms of income, it should be sure to do so no later than the date of the sale. The assets should be distributed proportionately to the owners. An owner should have owned an interest for at least two years. There are a number of steps involved in winding up a Hall Association. The owners should obtain clearance certificates from PA Dept of Revenue (longest lead time) and PA Dept of Labor and file withdrawal with PA Dept of State. This will require advertisement and certain notice to the local authorities. No real estate transfer tax due on liquidation if the real property is outside Philadelphia. Philadelphia is one of the localities that might impose a business tax, so tax planning is essential. 15