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Nonprofit Law/Booster Scholarship

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Question
Harvey,

Thank you for volunteering your time to assist non-profits.

In a non-member 501(c)(3) high school sports booster organization that annually awards a scholarship to a team senior, can that scholarship be awarded to the child of an officer of the organization board?  Parents of senior players are not at all involved in the selection process.  The scholarship recipient is voted on by team players under the direct supervision of the coach and the further supervision of board members who are not parents of seniors.

Thank you.

Answer
You need advance approval from the IRS for your method of giving
scholarships if you want assurance that your procedure is not going
to be called illegal by the IRS.

For organizations granting scholarships,  Schedule H of the IRS
Exemption Application needs to be completed and evidence needed as
starting at the bottom of page 25 of Publication 557 at
http://www.irs.gov/pub/irs-pdf/p557.pdf
and you can see there the issues that the IRS is concerned with.

It appears from what you wrote that the main issue is called "charitable class".
See pdf  page 13 of
http://www.irs.gov/pub/irs-pdf/p3833.pdf under the heading
"Charitable Class
--start of excerpt  ---
The group of individuals that may properly receive
assistance from a charitable organization is called a charitable
class. A charitable class must be large or sufficiently indefinite
enough that the community as a whole, rather than a pre-selected
group of people, benefits when a charity provides assistance.
--end of excerpt  ---
More details are found starting at pdf page 6 of
http://www.irs.gov/pub/irs-tege/eotopick99.pdf

It would not be an additional issue that the team players vote for the recipient who then turns out to be an officer of the charitable organization (your booster organization).

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

Expertise

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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