AboutHarvey Mechanic Expertise US Federal tax issues of nonprofit 501(c)(3) public charities only. Establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation.
To search my previous answers you can do a Google search: site:allexperts.com/q/nonprofit [with your other search terms appended].
Experience I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.
Education/Credentials B.S. Columbia University in New York City, 1970
J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude
Question Our high school band booster club, which is 501c3, earns money for the band program by working concessions at major league baseball games. Participation in working is better if we offer some benefit to the parents who work. Our idea is to offer credits based on hours worked. At the end of the season, we will allocate a portion of the earnings back to these credits, which can be used to offset that student's band fees. Our school district says we cannot have any "student accounts" that are credited based on fundraisers. But there are some families that have financial hardships, and this would be a way for them to offset their band fee expense. Is this allowed for a 501c3? If so, what argument can I present to the school district to show that there is no tax issue and that they should allow it?
Answer No, that is not allowed for a 501(c)(3) booster organization. Your school district is correct. Try soliciting funds directly from donors to benefit those student's whose families are in financial hardship.
The 501(c)(3) organization that is a booster organization is not for the parents or youth to fund-raise and have their efforts benefit individuals excluding other individuals in the sport who do not participate in the booster club as much. That would simply be a way to get tax deductions for payments that would, otherwise, not be deductible as when there is no booster club and parents simply pay a gym directly. For example, parents who pay tuition to the university for their child do not get a tax deductible donation for those payments. Parents need to be only thinking about the benefits for all of the youth who are similarly engaged in the sporting or cultural activity that the booster club is properly set up to support. I have been told that one of the main purposes of youth sporting activities is to teach youth fair play. We would expect, therefore, that parents would want to be fair and act in booster clubs according to IRS regulations.
I am not sure whether you have read my standard basic information for booster organizations that I have given to many questions about booster organizations, so I will give you that here:
The main principle of funding by a IRS 501(c)(3) nonprofit booster organizations is that the organizations may not discriminate in making grants to youth or college students on the basis of their family's membership in, or funding to, the booster organizations, or the family's fund-raising or time put into booster organization activities. A good discussion of that instruction is found at: http://jkn.com/View?j=842129.169787694498
All funds solicited on behalf of the booster organization in fundraisers (sales) must go into the general fund of the booster organization and not directly into individual accounts of the booster fundraiser.
If the 501(c)(3) booster organizations has "individual accounts" make sure that the people know that funds that are earmarked by relatives or friends who are giving their own funds to the 501(c)(3) organization and which are going into the family's individual account are not deductible donations. The funding from the parents and other family members or friends for the individual account are considered pass-through funding and not grants by the organization when given for the use of the particular family member. These would be treated like tuition payments by family members to a university for the use of the family member.
