Nonprofit Law/Work Obligation

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QUESTION: I am on the board of a youth swim club that holds 501c3 status. Can we require parents of swimmers to work at fundraising events whose funds go directly to the operational expenses of the team?  Additionally, if a parent does not fulfill the designated number of work hours can we impose a financial penalty?  I believe I know the answer to my final question but I thought I'd ask.  If we design our fee structure so that there are two portions to the payment where you have a set amount of say $600 and a fundraising amount for $200 that goes directly to operational expenses, is that permissible?  Parents can choose to pay the full $800 or they can use fundraising methods to pay the designated $200.

ANSWER: A private 501(c)(3) organization may require members to work but, if the club is limiting the work requirement to the beneficiary's family then that would pose a problem. Such an operation would be what the IRS calls a cooperative.  A cooperative is not qualified as a 501(c)(3) organization.  A 501(c)(3) booster organization is to be a charitable, not a cooperative, organization. A charitable organization, like the Red Cross, does not require beneficiaries to work for the Red Cross in order to receive benefits.

In denying exemption to a purported 501(c)(3) organization in 1992 the IRS at http://goo.gl/e9Mkd
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."

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: I'm not sure I understand what you mean by beneficiary's family.  Here is an example of what we would like to do.  We host an annual swim meet each summer.  We need families to work 4 sessions at the meet in some capacity of their choice:  timers, awards, hospitality etc.  If for some reason a family cannot work at the meet, they may find someone to fill their shifts.  If a family does not work the required 4 sessions there is a $100 fee assessed for each missed session.

ANSWER: Evidently youth are the beneficiaries of your purported charitable or educational 501(c)(3) organization.  The families may be required to pay fees, just like families pay tuition for a student to go to a private school or university, but work requirements would be taxable under the employment tax laws.

For example, to colleges and universities (which are usually
501(c)(3) organizations), the IRS has instructed, "Do not use Form
1099-MISC to report scholarship or fellowship grants. Scholarship
or fellowship grants that are taxable to the recipient because they
are paid for teaching, research, or other services as a condition
for receiving the grant are considered wages and must be reported
on Form W-2."
www.irs.gov/instructions/i1099msc/ar02.html#d0e292


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: After I sent my initial question, I found this on your website:  http://en.allexperts.com/q/Nonprofit-Law-2266/Swim-Club-Non-Profit.htm

How is what I am asking different?  I'm not trying to be difficult just trying to get a little education so that we can get started down the correct path before paying for legal counsel.

Answer
That earlier answer of mine that you cited to was in 2007.  In 2011 the IRS clarified how they are treating work requirements and I gave you that link before -- at
www.irs.gov/pub/irs-tege/booster_club_field_directive_6-27.pdf

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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