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Nonprofit Law/501c3 benefits to non-members


QUESTION: We have a 501c3 Booster Club that was set up 5 years ago to help cover some of the expenses for cheerleading at a for profit gym.  The first 3 years, the booster club was able to cover some of our expenses.  However, since last year, I am questioning many of the activities the new board has been funding...

1.  The booster board had decided to host a "Holiday Movie Night", where they will be showing 2 movies and providing food and other activities for the athletes.  This event is free to athletes who are members, and they are charging a $10 entry fee to non-members who would like to attend. I believe this goes against the guidelines of a 501c3, am I wrong?  

2.  Our gym is requiring all athletes to purchase a $50.00 bag of supplies for an upcoming competition.  Our booster club has issued a statement saying they will be purchasing these bags for members only ... so they are encouraging non-members to join the club at a cost of $35.00 to save $15.00.  If you do not join the boosters, you will have to pay for your athletes bag. I also believe this goes against the guidelines of a 501c3, am I wrong?

3.  Our booster club used the majority of last years money to pay for activities such as an adult mixer (cocktails) at an out of town competition, a very big end of the year banquet, and goody bags for athletes.  I thought the money was supposed to be used to pay for the expenses associated with cheerleading.  What are the guidelines for 501c3 spending?

Thank You.

ANSWER: Internal Revenue Code section 501(c)(3) which is available at:
has, in part, that the 501(c)(3) organization must be "operated
exclusively for religious, charitable ...or educational purposes
... no part of the net earnings of which inures to the benefit of
any private shareholder or individual".

IRS Publication 598 "Tax on Unrelated Business Income of Exempt
Organizations" at
explains that,  if products or services are not directly related to
the charitable, educational, religious or other purpose or function
constituting the basis for its exemption (other than for production
of income), then the activities are generally taxable.

Their exact wording is found in the middle column of page 3
"Unrelated business income is the income from a
trade or business that is regularly carried on by
an exempt organization and that is not substan-
tially related to the performance by the organiza-
tion of its exempt purpose or function, except
that the organization uses the profits derived
from this activity."

It appears that Movie Night would be taxable unrelated business, but it appears it is not regularly carried on.

2. You are correct. A 501(c)(3) booster organization may not discriminate against non-members or non-workers in making charitable grants. My summary of IRS regulations relating to 501c3 booster organizations is at:
and you may be interested to read that as it includes more details.

3. As the majority of the funds went for non-charitable purposes, the organization is not qualified as a 501(c)(3) organization and may lose their exemption (revocation).

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    

[an error occurred while processing this directive]---------- FOLLOW-UP ----------

QUESTION: I relayed your answer to the booster club / gym owner.  I was instructed that the gym contacted their attorney to make sure that the Booster Club was following the 501C3 guidelines.  The Boosters can differentiate between  members and non-members at all times and only provide benefits for members, without violating any regulations.  They have posted a list of booster members on a bulletin board in the gym to ensure which athletes are entitled to any charitable grants.  The Boosters can spend the funds raised on any activity they desire, regardless if it not an expense directly related to it's purpose or function constituting the basis for the club's tax exemption.

I was told that the guidelines for a 501C3 have changed, and your posts (which I often follow) are old and not valid.  Please advise.

Thank you.

First let me backtrack as it is not clear how often the boosters have "Movie Night".  If it is only once per year that is no problem, but otherwise, it would be.

Have their attorney cite to some law, as I have, and then I can reply to his opinion. But, if that opinion is not in accordance with IRS regulations, then it is not a good opinion. He would specifically need to address the two IRS denials regarding cooperatives.

In denying exemption to a purported 501(c)(3) organization
in 1992 the IRS at
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

I don't understand how you can accept a simple statement that my posts are old and not valid without the IRS citations backing that up.  Anyway, the last major IRS statement was only about 18 months ago. In June of 2011 the IRS wrote:
---Start of Excerpt--
If a booster club confers a benefit on a participant in return for
their fundraising activities, such as by crediting amounts raised
by a participant toward that participant's dues requirement, or by
crediting amounts raised against the cost of a trip, the booster
club is providing a private benefit to that participant.
Consequently, such practices could result in the organization
failing to be described in 501(c)(3).
---End of Excerpt---

If they have something more recent than June of 2011 that is relevant, have them show you their reference.  Otherwise, I suggest that they are baseless.

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about 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 possible 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. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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