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Nonprofit Law/sports - stay to play

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QUESTION: Hi there, as a non-profit can they contract out with for-profit companies and then require/mandate their services be used? As the example, many youth sports clubs host tournaments but then mandate visiting teams/parents use their contracted housing vendors who are in it for profit. Even when those vendors are obviously padding the price and providing fewer choices, teams are forced to abide by the terms the clubs have negotiated, not what the teams are capable of  negotiating. Can these non-profits enforce/require visiting teams to utilize these vendors especially when those vendors have nothing to do with the fundamental purpose of the non-profit. Let's face it, forcing one where to lay their head has nothing to do with the sport the non-profit is sponsoring.

ANSWER: I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. The IRS will allow a 501(c)(3) organization to require its beneficiaries (like youth)to stay together in the same facility when traveling as they would only need a valid reason and, I don't believe that your conclusion is valid that you made, "Let's face it, forcing one where to lay their head has nothing to do with the sport the non-profit is sponsoring."  The 501(c)(3) organization may want to keep track of the youth who they are responsible for when the youth are out-of-town for the team.  If you disagree, and still hold your conclusion, please give me your reasoning and I may reconsider, but, as long as there is a valid reason, the team is not required to find the least expensive place to stay.  There is no requirement in the Internal Code regulations for an organization to always buy goods or services at the least expensive price, especially when there are differences in the goods and services, such as, for example, for lodging, the location and quality.

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.    



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

QUESTION: Thank you, not to continue more than required, I just wanted to clarify as it seems the question may have been taken a bit backward based on your answer. The youth sports club that the teams are members of 'parent club' are not the ones requiring the team to stay together or stay in specific hotels in this case. You made a very valid point about the safety of the team that their parent club would be interested in. And, in actuality I wish more clubs would take that stance and work on behalf of their own teams when it comes to travel. In this case, however, it's a separate club 'host' that is mandating usage of specific hotels - obtained by their contracted for profit vendor. Using safety as an example, what if host clubs ( or their vendor actually ) were to force visiting teams into a lodging agreement that is counter to what the parent club or even individual team requires? Sounds like it's simply a do what we want at or don't come decision? Unfortunately, that decision is not up to the parents yet their the ones being forced to pay for the situation. Again, thank you for your time and reply.

Answer
The clubs have a right contract and the IRS is not going to interfere.  If the parents do not have any authority over the matter, then you are correct that it is "do what we want or don't come", unless there is something else negotiated.

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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