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Nonprofit Law/Gymnastic Booster Club

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QUESTION: Our gymnastic booster club, filed as Domestic Non-Profit Corporation, has the opportunity to work major city venue events in the concessions. We are paid by the amount of concessions sold and can also keep tips. Any member and or family member can work these events. The money earned goes into your individual booster account and can be used toward competition or coaches fees, leotards, private lessons, even regular gymnastic class fees. My question, is this legal in the eyes of the IRS? The way I read the IRS regulations, it is not, however the board members see no problems.  We have some members who deposit their own money into their individual booster account (money not raised through any fundraising) and we also have a general fund account where the money raised specifically for that is distributed equally to all members of the team. My fear is we are in jeopardy of losing any money earned or deposited if there was an IRS audit.

ANSWER: The 501(c)(3) organization should not get involved in providing contract labor as that would be considered business unrelated to its charitable purposes. In 2011 the IRS revoked exemption retroactively for an organization that only was engaged in contract labor in which the benefits of the labor went to their family members.
http://goo.gl/5JBFR

Even if your organization engaged in other activities, IRS Publication 598 "Tax on Unrelated Business Income of Exempt Organizations" at
http://www.irs.gov/pub/irs-pdf/p598.pdf
explains that,  if products or services are not directly related to the charitable, educational, religious or other purpose or function constituting the basis for its exemption (other than for production of income), then the activities are generally taxable.

Their exact wording is found in the middle column of page 3 "Unrelated business income is the income from a trade or business that is regularly carried on by an exempt organization and that is not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity."

The IRS has declared, "Nonprofit organizations that are granted Federal tax exemption based on their mission-related purposes are allowed by the IRS, within certain limits, to generate income
from unrelated business activities."
http://www.irs.gov/pub/irs-soi/97eounrl.pdf on pdf page 1. But, the organization could, if it has more unrelated activities than the IRS's vague "certain limit", be jeopardizing its exemption
depending upon the facts and circumstances.

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: My first question stated we are filed as a Domestic Non-profit Corporation. I'm not sure where I got that. So I'd like to start again.

Our gymnastic booster club has the opportunity to work major city venue events in the concessions. We are paid by the amount of concessions sold and can also keep tips. Any member and or family member can work these events. The money earned goes into your individual booster account and can be used toward competition or coaches fees, leotards, private lessons, even regular gymnastic class fees. My question, is this legal in the eyes of the IRS? The way I read the IRS regulations, it is not, however the board members see no problems.  We have some members who deposit their own money into their individual booster account (money not raised through any fundraising) and we also have a general fund account where the money raised specifically for that is distributed equally to all members of the team. My fear is we are in jeopardy of losing any money earned or deposited if there was an IRS audit.

ANSWER: Ok. Now I need to know whether your booster organization has been organized as a 501(c)(3) organization?  If so, has it has received a determination letter from the IRS that the organization is exempt under section 501(c)(3)?  After you give me that information I will reply further.

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: To my knowledge they are only listed with our state as a non-profit. I find no where that they are a 501(ac)(3) organization. I know they've asked us to find companies to sponsor the team. There was no tax deductible form to give to the companies, just the EIN #. That is the most information I can give without asking and causing suspicion at this time. Several parents are beginning to ask a lot of questions and the board members are not very happy.  Thank You

Answer
You can obtain from the State a copy of their Articles of Incorporation for a small fee and that would let us know whether they are organized as 501(c)(3) organization.  But as it appears that they are organized as a nonprofit public benefit corporation they should not be engaged in activities such as the contract labor.

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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