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Nonprofit Law/Pass-through of money earmarked for Student Accounts


QUESTION: We have a fairly new Band Booster and we are trying to make sure everything we do is as uncomplicated as possible and of course- legal.

Last year, the Band Director wanted to take kids on an optional, school based field-trip we call "Tour." The students needed to raise funds individually to pay for their trip expenses. We knew as a nonprofit that we are not allowed to participate in Individual Fundraising or have student accounts. So the Band Director formed her own Tour Committee separate from the boosters organization to run the individual fundraisers and student accounts.

However, the booster was collecting the monies for the Tour and called it a "Pass-through." If the money is still intended to benefit individuals and the families writing the checks to the booster assume that their payment is credited to their student, is that a legal "pass-through"?

ANSWER:  It appears that the 501(c)(3) booster organization received funds from the Band Director's Tour Committee and that Committee did not use the EIN of the booster organization.  You were legally obligated under a contract with that Committee to forward the funds to the Tour operators. Therefore, that is classified as permitted as a pass-through.

As to pass-through funds, see the Google Book Version of "Not-For-
Profit Accounting Made Easy"  By Warren Ruppel.

Starting at the bottom of that page 81 for a few pages you can read
the recommended treatment of pass-throughs. Mr. Ruppel advises to
follow the recommendations of The Financial Accounting Standards
Board, Statement 136, entitled "Transfers of Assets to a Not-for-
Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others".  A good description is also available

-- From Mr. Ruppel --

After the issuance of SFAS 116, some not-for-profit organizations
that raise funds for other not-for-profit organizations questioned
whether certain provisions of SFAS 116 would prevent these
organizations from recording contribution revenue (and a
corresponding expense) because they passed the funds that they
raised through to the other organizations. Indeed, SFAS 116 states
that it does not apply to . . transfers of assets in which the
reporting entity acts as an agent, trustee, or intermediary, rather
than as a donor or a donee." In other words, under this language,
if a not-for-profit organization is an agent or an intermediary, it
is not a donor or a donee, meaning that it does not have
contribution revenue to record. The issue involved some of the not-
for-profit organization acting as an agent or intermediary and
should record a liability (instead of contribution revenue) because
it owes the $1,000 to the university.

With two exceptions, which are described below, recipient
organization that acccepts assets from a donor and agrees to use
those assets on behalf of, or transfer those assets to, a specified
beneficiary is not a donee. In these situations, the recipient
organization should record an asset and a liability for cash and
financial assets that it receives, measured at the fair value of
the assets. When nonfinancial assets are received in this type of
transaction, recording an asset and a liability by the recipient is
permitted, but not required. Whatever policy is adopted for
nonfinancial assets should be disclosed and consistently applied.
The two exceptions to the above rules are described below. In these
instances, the recipient organization would account for the
transfer of assets as a donee (i.e., would record the receipt of
assets as contribution revenue, instead of as a liability)-
Subsequent transfers to the assets to the ultimate beneficiary
would then be accounted for as expenses (decreases in net assets)
instead of a reduction to a liability.
---End of Excerpt---

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 creatte an attorney/client relationship.    

[an error occurred while processing this directive]---------- FOLLOW-UP ----------

QUESTION: The booster was actually receiving funds from parents and families as part of the fundraisers and payments. We were not receiving funds from the Tour Committee. Parents and families wrote checks to the booster. Does that make a difference?

ANSWER: That does not make a difference. Note that the payments by the parents and families are not donations that are deductible as charitable contributions for federal income tax purposes.

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.    

---------- FOLLOW-UP ----------

QUESTION: Does it matter that funds are earmarked for Individual Student Accounts?

You would treat the payments just like tuition charges if you are not obligated to pass the funds onto particular named third parties (tour operators) known at the time that you receive the funds and to a known amount to each third party.

Harvey Mechanic, Attorney at LLaw -

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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