Nonprofit Law/Can we have separate "classes" of beneficiaries?
After reading just about every tax and non-profit website I can find, I am still confused about whether there is a way to legally distribute funds partially dependent on how much a family has fund-raised.
I looked at Capital Gymnastics Girls Booster Club (CGGBC), incorporated in 2003, which is a different (replacement?) entity than the Capital Gymnastics Booster Club that lost it's tax exempt status in 2003.
This is my understanding of what CGGBC is doing:
1. Team members can elect to join CGGBC. If they join, then they are required to pay competition fees and related expenses (the "assessment") to CGGBC who in turn pays the for-profit gym. They are not required to fundraise. If family leaves the gym and/or CGGBC, they are no longer eligible for distribution, those funds to general funds, and do not get any refund.
2. For funds disbursement, they have created a "Flex Plan". There are ten blind sub-groups into which members fall based
on the percentage of their assessment fundraised. The total fundraised earnings, within each sub-group,
are then divided equally (pro-rated based on their assessment amounts) by the members in the group. The ten subgroups are structured as follows:
- 90-100% of assessment fundraised
- 0 - 10% of assessment fundraised
If a member fundraises over 100% of his or her assessment, the "overage" can be taken into account for
the following assessment period.
Additionally, 1% of all funds raised go to a "Resource Fund", which the board uses to fund the advancement of gymnastics and the needs of families and gymnasts as determined by the board.
Here are my questions:
1. Does the creation of blind classes mean that this type of structure would not be in violation of the tax-exempt status?
2. I am assuming when the family pays-in their assessment fees, those fees are *not* tax-deductible, but that when they receive their disbursement of funds raised, that money is not taxable. Do you agree?
3. This type of fundraising structure still requires tracking of how much each member fund-raises. If a family works a fundraising event, they are earning a share of funds raised. What if a family requests a donation from another person? If that donation "counts" towards the girl's FlexPlan, does that mean the donation is no-longer tax-deductible for the donor?
Thank you in advance for volunteering your time and expertise!!!
1. The creation of any method whereby fund-raising of a family is considered in a 501(c)(3) organization's determination of how much it will grant in benefits to the family is prohibited.
2. I agree that when a family pays their assessments, those fees are not tax deductible. They are not a charitable donation. I do not agree that when people sell items and sends or launders the funds through an organization that gives back the funds that the particular sales income is not taxable. Sales activities may be, in fact, taxable.
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---
The IRS continued in the next paragraph, "It is also possible that
amounts credited to a participant's account due to fundraising
would constitute income from services, and could result in
3. As to charitable deductions, see IRS Publication 526 "Charitable
Donations" which is available at:
on page 6 where the IRS lists as not deductible "Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person." Therefore, if a family requests a donation for the 501(c)(3) organization from someone who is not in the family and the donor has a good reason to believe that the donation is going to go to benefit that family, then the donation is not deductible.
My summary of IRS regulations relating to 501c3 booster organizations is at:
and you may be interested to read that.
You are welcome.
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.