	AllExperts > Nonprofit Law
	Search

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 > Individual accounts from fund raising

Nonprofit Law - Individual accounts from fund raising

Expert: Harvey Mechanic - 11/8/2009

Question
We are a parent organization formed primarily to support competition related expenses for club soccer. Is it legal to allow members to raise funds an ear mark 95-98% of the monies for their child's competition expenses? The other 2%-5% would be retained by the NPO for administrative expenses and if that member leaves the club soccer team, they would forfeit any remaining monies to the NPO.

Answer
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".

Also see:
http://viewer.zoho.com/docs/tabZa1
That article also warns that 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. I agree with that
warning.

In denying exemption to a purported 501(c)(3) organization
booster organization, in 1992 the IRS at
http://viewer.zoho.com/docs/s2ca6g
on page 6 stated "The reason you were created and your method of
operation indicate that you are made up of a group of parents who
have joined together to work cooperatively to provide funds to
pay for the participation of their children in athletic events.
The expenses incurred by these children would otherwise have been
paid by the parents. All parents of competitive team members are
automatically members of your organization. Accordingly, members
expect to receive a benefit in return for their membership. You
pay no benefits to non-members.

Another, similar denial of exemption was issued by the IRS in
1990 and may be viewed at
http://viewer.zoho.com/docs/a4vd3

Such an operation would be what the IRS calls a cooperative. A
cooperative is not qualified as a 501(c)(3) organization. A
501(c)(3) booster organization is to be a charitable, not
cooperative, organization.

My summary of IRS regulations relating to 501(c)(3) booster organizations is at:
http://snipurl.com/boosterinf

and you may be interested to read that.

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

Ask a Question