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About Harvey 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

You are here: Experts > Real Estate > Tax Planning: U.S. > Nonprofit Law > Different Requirements for Different Members

Nonprofit Law - Different Requirements for Different Members

Expert: Harvey Mechanic - 10/23/2009

Question
My son and daughter are members of a team, not a booster organization, that is a registered 501C3. Each member pays varying dues based on their level of ability and amount of coaching and training provided. My son is considered an elite athlete and travels across the country to various competitions. We were advised by the BOD that the "elite" athletes will be required to fundraise all monies to cover the expenses of the coach who travels with them. Prior to this statement, the club, through dues and fundraising, covered any coaching travel expenses. Athlete travel expenses are paid for by the athlete's family. There is no "mandatory" fundraising per-se, meaning that each family is not required to raise a specific dollar amount that is put into the general fund, although there are fundraising events to benefit the club as a whole. My question is this: As a 501C3, can fundraising requirements vary among members of the same team? The contention of the BOD is that members who do not travel or benefit should not support the travel of the coaches who are required to be with the athlete at the competition site.

Answer
A 501(c)(3) organization may not require someone to raise funds for his own account and have that the funds raised are considered charitable donations. See IRS Publication 526 "Charitable Donations"
www.irs.gov/pub/irs-pdf/p526.pdf
on page 6 where the IRS lists as not deductible "Contributions to
individuals who are needy or worthy. This includes contributions
to a qualified organization if you indicate that your
contribution is for a specific person."

Further, the IRS may have a problem with a 501(c)(3) organization allowing
individuals to collect funds to go for their own, private
benefit. See
www.irs.gov/pub/irs-wd/02-0041.pdf on the top of page 2 about
Scouts collecting for their own use. "Earmarked accounts may not
be compatible with continued tax exemption." The IRS then cites
to
www.irs.gov/pub/irs-tege/eotopica93.pdf (Example one on page 5),
where they determined that the resulting "private benefit to the
individual members was substantial and negated the charitable
intent of the organization precluding exemption under section
501(c)(3) of the Code".

Sales activities are generally taxable if the salesperson gets benefits from the sales.
See starting at the bottom of page 2 of
www.irs.gov/pub/irs-wd/02-0041.pdf
"You have asked whether issuing a Form 1099 for each Scout
receiving such benefits would negate the private benefit
question. In this case, you would treat all income the Scout
receives through the earmarked account as compensation for tax
purposes. An exempt organization can, of course, pay reasonable
compensation for services. Treating the receipts as income to
the individual, however, may raise additional issues for the
Pack. In particular, the fundraising activity may, if conducted
by paid labor rather than volunteers, be characterized as
unrelated business income taxable under section 511 of the Code.
You may wish, therefore, to consider whether creating a possible
tax liability for both the individual Scouts and the Pack is
appropriate under the circumstances."

However, a 501(c)(3) organization may have different levels of fees required from different levels of athletes.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

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