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Nonprofit Law/Booster Club writing checks to for profit

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Question
I am a board member of a non profit 503(c) Booster club that is associated with a for profit gym.  We understand that all money raised must benefit all children and not go to individuals.  We do not keep a record of individual accounts.  Monthly tuition is paid by the families to the for profit gym.  Our booster club raises funds to pay for items such as competition fees, costumes etc.  

Is the for profit gym allowed to pay for the competition fees and/or costume fees and be reimbursed by the booster club provided the for profit gym supplies the booster club with a receipt matching the amount paid out by the Booster Club?  Or, does the booster club need to write the checks to pay for costumes/competition fees directly to the costume company and/or competition company?

Answer
Reimbursements are fine as long as you are given proper receipts.  Although the gym is not an employee, the reasoning is the same: the IRS rule for what nonprofits may spend money on is similar to the standard that the IRS uses when determining what is a valid business expense for an ordinary business. For example, at: http://www.irs.gov/pub/irs-tege/eotopich02.pdf the IRS refers extensively to the regular business expense rules and applies them to 501(c)(3) organizations. On page 32 we see "Reimbursements are technically covered by Regs. 1.62-2.  However, for administrative
purposes, all TE/GE [Tax Exempt & Government Entities Division] administrative personnel will treat reimbursements of a business expense the same as if the expense were paid directly by the
employer, as long as the employee complies with the substantiation rules..."
See also:
http://www.irs.gov/pub/irs-pdf/p535.pdf "Business Expenses"
on page 3, under "What Can I Deduct"
--start of excerpt  ---
To be deductible, a business expense must be
both ordinary and necessary. An ordinary ex-
pense is one that is common and accepted in
your industry. A necessary expense is one that
is helpful and appropriate for your trade or busi-
ness. An expense does not have to be indispen-
sable to be considered necessary.
--end of excerpt  ---

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

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

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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 Harvey108@hotmail.com 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 "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

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.

Education/Credentials

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

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


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