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Nonprofit Law/Sport's Club Status


QUESTION: Harvey - My daughter is a teacher and assistant coach for the local high school soccer and softball teams. Each team has a "club type" account at a local bank where money from fund raisers (candles, candy, apparel, etc.) and possibly some parent donations are deposited and then disbursed as needed for year end team parties, trophies and other minor team expenses. My daughter has been told by the bank that if these accounts were for a non-profit organization then they would not be subject to various fees especially when the funds drop below a fairly high account minimum balance. The account balances will usually fluctuate between $0 and $15,000. Is there a simple way to establish these organizations as non-profit entities primarily to avoid these bank fees without having to incur other onerous requirements related to Federal and/or state tax filings, incorporation, establishing a board, etc. as well as any inherent liability other than maintaining good fiduciary controls for the bank accounts? I don't think they need tax exempt status just a simply non-profit designation for banking purposes. Based on my research it looks like she could obtain an EIN from the IRS (for each club?) for a booster club type organization and maybe avoid all the other requirements normally applicable to 501(c) organizations. Thanks for any guidance you can provide in this regard.

ANSWER: I don't know whose Taxpayer Id the present bank accounts have and who that is assigned to, but, in any case, unless the entity qualifies with the IRS as an exempt organization, sales income is taxable.  But, as for your question, there is a simple way to set up a charitable trust for each club and then have the trust obtain from the IRS an EIN. I have done that before. Each bank has their own documentary requirements, so you would need to check with the banks to see what they require to set up an account with the "nonprofit" fee structure.

See the IRS Publication 557 "Tax Exempt Status for Your
Organization" at:
in the right column on page 25 under "Organizations Not
Required to File Form 1023" discusses who does not need
to file and among those is "Any organization (other than
a private foundation) normally having annual gross
receipts of not more than $5,000.  These organizations
are exempt automatically if they meet the requirements of
section 501(c)(3)."

A sample charitable trust document is available in that IRS publication on pages 78-80.

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.    

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QUESTION: Thank you for your prompt response. While the charitable trust seems like something to explore further to what extent do things change when the account balance may be as high as $10,000 to $15,000 over the course of the team's season/year even if for a short time? Typically the team has fundraisers, the monies are deposited in the account and most of it then spent at the team banquet.

By your using the example of fundraisers "candles, candy, apparel", that indicates that you have sales and the income is taxable.  The fact that the profit was spent on team banquet is not relevant as the income is taxable before that expenditure, which is not considered a business expense, but a benefit simply to insiders.

Therefore, if you want to have your sales income not taxed, as long as you comply with fundraising guidelines for 501(c)(3) organizations, you would need to establish a charitable
trust, incorporate under a state's nonprofit corporation law, or set up an unincorporated nonprofit association. Your organizing document would need to state that it is organizing under Internal Revenue Code Section 501(c)(3) and have other required clauses. You would have at least
3 directors, with control of the board not in related persons.

  After the initial set up, you would need to apply for
a EIN (tax id number)
and then you could apply for the IRS exemption
determination letter which could be effective
retroactively to the date of establishment of the
organization. The IRS minimum filing fee for such a
determination letter is $400 and goes up to $850.

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.  

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. 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 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 "" without the quotes and then add your search terms before hitting enter.


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.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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