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Question
Our gym is setting up a booster club and we are trying to determine how the fundraising earnings can be distributed. I have read conflicting information. Which of these is most accurate?

1. All monies regardless of how it is collected will be distributed equally to each member of the club.

2. All money that is collected as the group (i.e. gymnastics meets, kroger points) will be split evenly, but all funds collected individually, (selling cookies, t-shirt ads) can be attributed to that gymnast account.

Thank you.

Mike Hapgood

Answer
Is your gym a private, for profit entity?  If so, the application for exemption may be scrutinized if the owner has too much influence or control. See http://www.irs.gov/pub/irs-tege/eotopica93.pdf
starting on pages 11 "Private Facility Owners" which discusses
prohibited private benefit and excessive control of the booster
organization by such private facility owners.

But, as to your specific questions.

1. The funds of a 501(c)(3) organization may not be distributed to only members of the booster organization but must fund all those similarly situated in the sport. My summary of IRS regulations relating to 501c3 booster organizations is at http://goo.gl/RO1ez -- you may be interested to read that.

Also the funds should not simply be given to youth without monitoring the use of the funds.   Revenue Ruling 56-304 has:
--- Start of Excerpt ---
Organizations privately established and funded as charitable
foundations which are organized and actively operated to carry on
one or more of the purposes specified in section 501(c)(3) of the
Internal Revenue Code of 1954, and which otherwise meet the
requirements for exemption from Federal income tax are not
precluded from making distributions of their funds to individuals,
provided such distributions are made on a true charitable basis in
furtherance of the purposes for which they are organized.

However, organizations of this character which make such
distributions should maintain adequate records and case histories
to show the name and address of each recipient of aid; the amount
distributed to each; the purpose for which the aid was given; the
manner in which the recipient was selected and the relationship,
if any, between the recipient and (1) members, officers, or
trustees of the organization, (2) a grantor or substantial
contributor to the organization or a member of the family of
either, and (3) a corporation controlled by a grantor or
substantial contributor, in order that any or all distributions
made to individuals can be substantiated upon request by the
Internal Revenue Service.
---End of Excerpt---

If the funds are not given directly to the youth, but, instead are used to pay for gym fees or other fees directly related to the sport, then those would not be "distributions".

2. 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


In June of 2011 the IRS wrote:
---Start of Excerpt--
If a booster club confers a benefit on a participant in return for
their fundraising activities, such as by crediting amounts raised
by a participant toward that participant's dues requirement, or by
crediting amounts raised against the cost of a trip, the booster
club is providing a private benefit to that participant.
Consequently, such practices could result in the organization
failing to be described in 501(c)(3).
---End of Excerpt---
http://goo.gl/3Dx9o

The IRS continued in the next paragraph, "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."

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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