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 I am the treasurer for a high school marching band booster club. We operate
as a 501c3 charity. I keep track of deposits for individual students. A student
has quit band with a balance in her account. Her father is requesting a
disbursement check. Some of the funds are a result of selling candy and ads
for the competition we host. Is the father due a refund. Wouldn't he owe taxes
on the portion that was from a profit on the candy and ads?
Answer Whatever the family gives may be returned to them but not the amounts from other persons (who purchased items or gave donations). The fundraiser has no right to claim any of the funds collected for an organization absent a professional fundraising contrat. However, if your booster organization did not clarify the issue before the collection then the boosters may have caused confusion and made it possible for the family to make a claim on the funds allocated. The boosters made the situation complicated by having an "individual" account funded by the fundraising.
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".
See starting at the bottom of page 2 of that same
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."
http://snipurl.com/boosterinf
is my summary of IRS regulations relating to 501(c)(3) booster organizations. You may be interested to read that.
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
