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Nonprofit Law/walking away from 501c3

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Question
Our 501c3 booster club board members insist on running our club in a non-compliant fashion.  The rest of the members have lost interest and will not fundraise or even attend meetings. Everyone has given up the argument and decided to pay in full for their children's expenses. The club has simply become a free bookkeeping service for the gym, with a selected few individuals benefitting from involvement in the booster club actvities, the three board members included.  The booster club has raised funds and not used them for two years (keeping them as "seed money".)

We are thinkging about forming another booster club that does not file for 501c3 - or a new assocation. Is there such a thing?  The families of the gym want to raise money, don't want to share it, do want to have personal accounts, and are willing to pay taxes on sales and earnings.  

In other words, if we can't change the non-compliant 501c3 to become compliant, can we just find another way to help ourselves?  Booster clubs don't HAVE to be 501c3 do they?

Any ideas would be welcome.

Answer
You may form a nonexempt booster organization, but then any income such as from sales activities would be taxable and any work for benefits would be taxable as employment income.

Such an operation would be what the IRS calls a cooperative.  A
cooperative is not qualified as a 501(c)(3) organization.  A
501(c)(3) booster organization is to be a charitable, not a
cooperative, organization. A charitable organization, like the Red
Cross, does not require beneficiaries to work for the Red Cross in
order to receive benefits.

In denying exemption to a purported 501(c)(3) organization
in 1992 the IRS at http://goo.gl/e9Mkd
on page 6 stated "The reason you were created and your method of
operation indicate that you are made up of a group of parents who
have joined together to work cooperatively to provide funds to pay
for the participation of their children in athletic events. The
expenses incurred by these children would otherwise have been paid
by the parents.  All parents of competitive team members are
automatically members of your organization.  Accordingly, members
expect to receive a benefit in return for their membership.  You
pay no benefits to non-members."

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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