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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 > Inurement

Nonprofit Law - Inurement

Expert: Harvey Mechanic - 11/7/2009

Question
I understand that the allocation of fund raising to individuals is not allowed (inurement rules)in a 501(c)(3). But in a 501(c)(3)is it allowable to allocate specific funds to a team? For example, a trip to Cooperstown for a group of 10 year old players where the organization has ten different baseball teams. Can the 10 year old parents raise money for this trip and not pool it with the other members of the 501(c)(3)? If they can fund raise for the event, can they allocate the receipts based upon the efforts of the individual parents? Can the coach go for free to compensate for his donated time and effort? It gets fuzzy for me.

Answer
The IRS does not prohibit fundraising earmarked for a team where there are more than a few members. They have not published the exact number of members of the team that would be the minimum, however. I doubt that it would be allowed for a two-man bobsled team, but for a baseball team that would be allowed.
---Start of Excerpt--
A charitable organization must be set up for the benefit of an
indefinite class of individuals, not for specific persons. A
corporation organized and operated for the
benefit of specific individuals is not charitable, even if the
specific individuals in question are in need of assistance.
Citing to Rev. Rul. 57-449.
---End of Excerpt--

The Board of Directors of the 501(c)(3) organization would need to decide to allow this type of team fundraising, not the parents of the team.

They may not credit each family, though, as to their work. 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".

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

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