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Nonprofit Law/Non profit giving free race registration to fundraisers

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Question
Hi,

I volunteer with the non-profit Vibha (http://www.vibha.org). Our focus is on underprivileged children.

I have a question about fund raising.

We have an annual race (5K/10K/Half Marathon). This year, we are thinking about introducing a concept where a runner can sign up to raise some amount of money and enter the race for free. Basically, a runner can approach his friends/family and ask them to support his/her run. If they reach a specific target, their registration fee to the race is waived.

We are debating if this is acceptable, i.e. can we give a free entry to a race to somebody who goes out and raises funds for us?

There are models like Team In Training where a fundraiser is provided training/air fare/hotel etc. in exchange for going out and raising funds. I am thinking that our model is the same.

Can somebody please throw some light on this issue?

Thank you so much,
-raja.

Answer
If the entry fee is substantial and, in exchange for certain fundraising, then that may be compensation that is taxable. "It is also possible that amounts credited to a participant's account due to fundraising would constitute income from services, and could result in employment taxes." http://goo.gl/3Dx9o

But the amount of the entry fee may be so small that there would be no tax consequences as to employment taxes.

See also http://pages.citebite.com/r8v8l8p8pdin
which is a newspaper story describing a situation when the State
determined that organizations that promised "volunteers" gifts over
the value of $50 per quarter were subject to state wage regulations
for employees. That was an Oregon case but other state laws are
similar. That case was about a sports foundation's "volunteers"
being promised a season pass if they work roughly two dozen days
helping put on races at the ski area.

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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