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Nonprofit Law/gymnastics booster club

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QUESTION: I am trying to help my daughter's coach set up a booster club and I have a few questions:
1. Can the coach/owner be a director or officer?
2. Do we have to have members? Could we just benefit the competitive team as a whole without members?
3. If we have parents pay the meet/coaches fees to the booster club until we raise enough to cover those fees, do they need to be members?
4. I don't think we qualify as a public charity (we will submit the 1023 next week) but have you ever seen a club that does?
5. Can the bylaws require a time commitment or committee requirement?

Thanks for your help.

PS. I do realize the importance of not using individual accounts or credits especially given the tax court ruling against Capital Gymnastics Booster club recently.

Annette

ANSWER: 1. The coach may be a director or officer. However, see http://www.irs.gov/pub/irs-tege/eotopica93.pdf starting on pages 11 "Private Facility Owners" which discusses
prohibited private benefit and excessive control of the booster organization by such private facility owners.

2. Under State law a corporation may have members or not. Also if your group is a charitable trust it does not need members, but an unincorporated association is composed of members.

3. No. That is considered pass-through funding.

4.  I don't recommend using the word "club", but there are literally thousands of 501(c)(3) organizations that obtain much of their funds through solicitations to the public and, therefore, they properly have public charity status.

5. Yes, but the benefits given to the family can not be considered at all using the work of the family.  Otherwise, employment tax issues and private inurement issues arise (like in the Capital Gymnastics Booster club case.

My summary of IRS regulations relating to 501c3 booster organizations is at:
http://goo.gl/ULw6f6 and you may be interested to read that.

You are welcome.

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.    



.

---------- FOLLOW-UP ----------

QUESTION: Thanks so much for your quick response!
Regarding Question 2:  I am aware that members are not required, but I am not sure of the pros and cons of having members.  Without members, do we just pay meet fees and coaches fees for the team in general? Is it logical to make one parent of each competitive gymnast a member?
if so, then...
Question 3: I see many booster clubs using both a membership fee and an assessment (the meet/coaches fees) and requiring those to be paid in order to maintain membership and allow the gymnast to compete.  How do we do that legally?  The goal would be to reduce everyone's assessment.  Or, back to Q2, is it cleaner to have no members and not have anyone pay any fees or assessments?
Question 4: Since we have no history, should we apply as a public charity, is it that much more advantageous?

Thanks so much!!!

Annette

ANSWER: 2. http://goo.gl/Zm9Z6  starting at section 5002 is the California Nonprofit Corporation's law and specifically starting at 5110 is the law for Nonprofit Public Benefit Corporations. If your group chooses that type of entity, Section 5310 has
---Start of Excerpt--
(a) A corporation may admit persons to membership, as
provided in its articles or bylaws, or may provide in its articles
or bylaws that it shall have no members.  In the absence of any
provision in its articles or bylaws providing for members, a
corporation shall have no members.
---End of Excerpt--

Specifically Section 5132 states that:
---Start of Excerpt--

(a) The articles of incorporation may set forth any or all of
the following provisions, which shall not be effective unless
expressly provided in the articles:

...(2) The classes of members, if any, and if there are two or more
classes, the rights, privileges, preferences, restrictions and
conditions attaching to each class.
http://pages.citebite.com/c1k7l9n3k0xlg


Please note that the word "members" used in this context is a
technical definition.

In his book "How to Form a Nonprofit Corporation in California"
Attorney Anthony Mancuso on page Page 2/16 explains:
---Start of Excerpt--
G. Members

Membership vs. Non-Membership Corporations: The term "member" has
a special, limited legal definition quite different from its
common-usage meaning. Specifically, a member is a person who is
given the right in the Articles of Incorporation or Bylaws to vote
for the election of directors, for the sale of substantially all of
the assets of the corporation, or for a merger or dissolution of
the corporation. A legal member is also a person who is
specifically referred to as a member in the Articles or Bylaws.
These members are, as a matter of law, given other fundamental
rights regarding major corporate decisions (see below). In
California the majority of nonprofit corporations are set up as
non-membership corporations, often to avoid the problem of having
major decisions subject to membership approval (e.g., election of
directors, amendment of Article and Bylaw provisions, dissolution
of the corporation, etc.). Consequently, although it's common to
loosely refer to many "interested people" associated with a
nonprofit corporation (who may or may not pay annual  dues or other
fees) as "members" and to give them certain rights to participate
in corporate affairs (positions on advisory committees, special
for services, etc.), they are not legal members unless they are specifically granted one or more of the "legal-member" powers..
---End of Excerpt--

[from netbooks  link from www.lapl.org/catalog/ebooks.html

A good discussion start on page 31 of "Starting & Building a
Nonprofit : A Practical Guide" by Peri Pakroo, from Nolo Press
(2005) http://goo.gl/yKjAn
The Google Books version is available (bookmarked to page 215) at
http://goo.gl/pxGKE
--- Start of Excerpt ---

Should You Have Voting Members?

    If you Incorporate your nonprofit, you'll need to decide
another issue- whether to allow people to join your nonprofit as
members with voting rights in nonprofit affairs. (This is sometimes
referred to as choosing a membership or nonmembership structure as
described below. Generally speaking, state laws give legal voting
rigtss to members of nonprofit corporations, allowing members to
participate along with directors in corporate decision making.
Among other rights, voting members of a nonprofit corporation  have
legal rights to elect Board members, to approve or reject changes
to the nonprofit's articles or bylaws, and to vote for a merger or
dissolution of the nonprofit.

    Voting rights and other membership specifics should be
detailed in your nonprofit's bylaws, If vour bylaws don't address
the issue or you have no bylaws at all, (the laws of your state
will apply as a default. Some states ask you to specify a
membership or nonmembership structure in the standard articles of
incorporation. If your state's standard articles ask you to choose
a membership structure, make sure that your articles are consistent
with your bylaws, which will undoubtededly cover the issue at more
length.

Why You Probably Don't Want Voting Members

If your members have voting rights, they can have a major say in
steering your nonprofit. If they don't, then only the board will
have voting rights-and the legal power to guide the nonprofit. In
practice, involving all members in corporate affairs is too
burdensome for many small nonprofits. To keep things simple and
avoid the hassles involved in allowing members to vote-convening
and giving notice of meetings, especially-most nonprofits choose
not to give members voting rights. Even though these participants
may not have the right to vote, they can be treated much like
voting members - for example, they can receive benefits like a
newsletter or reduced admission to events. If a nonprofit does not
want voting members, it can opt not to have members at all. Or, in
most states, it can set up a special class of members with no
voting rights. If the nonprofit doesn't have members or if no
members are given voting rights only the board of directors has the
power to vote. However, bear in mind that state laws and processes
governing membership rights vary consider ably, so proceed with
caution if you want to allow people to become members but don't
want to give them voting rights. Restricting voting rights from
some members doesn't mean that those members have no rights at all
under your state's laws. For example, state laws typically
establish rules for expelling members, which will generally apply
to nonvoting members and voting members alike.
---End of Excerpt---
http://goo.gl/VEFwr

It is not logical to make every parent a member.  They may not be interested in spending any time with your organization.

3.  As you may have noticed in the recent tax court ruling against Capital Gymnastics Booster club there are problems with having all beneficiaries as "members". http://goo.gl/F2dZws
Forbes Magazine had a piece with the comment that implied that many
booster organizations were no in compliance. http://goo.gl/vq1sbD
Another interesting article relating to the issues was in the Wall
Street Journal. http://goo.gl/U6vd2s

Everything, therefore, should be voluntary and benefits given not on the basis of membership by the family or work for the organization.

4.  I generally recommend applying for public charity status if you have a plan, within the first three years to be getting support from the public. It is substantially better.  A quick summary of the differences between public charities and
private foundations can be found at:
www.guidestar.org/news/features/foundations.jsp

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.    







---------- FOLLOW-UP ----------

QUESTION: Thanks again for all the information that you have provided thus far.  I have one follow up question regarding assessments and pass through funding.
In another answer: http://en.allexperts.com/q/Nonprofit-Law-2266/2013/9/nonprofit-booster-club-asse
you indicated that having team members pay an assessment to the booster club for meet fees etc. would be okay and that it would not be included in gross receipts.
Is it legal to have all team members pay an assessment to the booster club (about $1000) and use fundraising money to reduce/eliminate that amount over time for all athletes on the team?  If so, is there anything that we need to show to make sure that the pass-through is clear?
My confusion lies not in that the funds used must benefit all athletes on the team but in what parents can (or are mandated to) contribute initially.  I see lots of membership fees and/or assessments on other booster clubs, but that may not be legal.
We are paying meet entry fees to the meets directly and not the the Gym (for-profit) to pay for the athletes.  I assume that paying expenses directly is preferable, correct?

Answer
The organization may have all team members pay an assessment to the booster club (about $1000) and use fundraising money to reduce/eliminate that amount over time for all athletes on the team, but that is not what the IRS refers to as a pass-through arrangement which would be when a certain amount is collected and passed onto a third party. Under your scenario the $1000 is not required to be passed on, as it may, in part, be refunded, or held in the account.

You can not require the parents to pay your group anything.  If they wish to pay the third parties directly, then that is their option.  Your group is simply offering a convenience.  Now, if the third party requires the total payments to come from the a 501(c)(3) organization, then that would be a different matter. I would not, though, state that is it preferable for parents to pay fees directly to the third parties.

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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