AboutHarvey Mechanic Expertise 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 question about Nonprofit's Unrelated Business or how to fill out forms. This forum is only for legal questions about a specific nonprofit asked by members or those otherwise directly effected by the specific nonprofit organization.
Experience I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.
Expert: Harvey Mechanic Date: 7/15/2008 Subject: Booster club for cheerleading organization
Question We run a booster club for our competitive cheerleading gym. We have filed our 501C3 paper work. We have families in our booster club that do individual fundraising at concerts and sporting events where the events want to pay them through a non profit organization (our booster club)and want the money to go directly to the individual families child's account. In this case, the families are using the gyms name indirectly to have their earnings paid to the gym's booster club. Is this legal? Is the booster club allowed to take a portion of that earning to be used for other athletes or to donate to the up keep of the gym? Thanks.
Answer Evidently families are working at concerts and events and that is considered by the IRS as normal contract labor and all employment tax filings would need to be made by your booster organization for the workers. Such contract labor by your organization is unrelated business. See www.irs.gov/pub/irs-pdf/p598.pdf
IRS Publication 598 "Tax on Unrelated Business Income of Exempt
Organizations" and there you will see that such activities are
generally taxable.
Nonprofit organizations that are granted Federal tax
exemption based on their mission-related purposes
are allowed by the IRS, within certain limits, to generate income
from unrelated business activities.
www.irs.gov/pub/irs-soi/97eounrl.pdf
The organization could, if it has more unrelated activities than
the IRS's vague "certain limit", be jeopardizing its exemption
depending upon the facts and circumstances.
Further, the events that pay your organization may not take deductions as donations for payments for contract labor. The funds may go for the family's child's use, just as if a family paid dues for their child. However, if the 501(c)(3) organization so decides, it may keep a portion of the funds for other athletes but not to donate to a for-profit gym.
This forum is only for federal tax questions regarding 501(c)(3) public charities as I have explained in my profile. Your contract labor issues may also have state tax law implications.
Harvey Mechanic
Attorney At Law
Harvey108@hotmail.com
