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Nonprofit Law/booster club confusion

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QUESTION: I am involved in a Gymnastics Booster Club that is recovering from poor management.  The previous treasurer did not file taxes for 2-4 years and the present officers are currently working with an accountant and the IRS to file and negotiate their way through the mess the mismanagement created.  To date the IRS has worked with the group well, but there is still one year that the current treasurers and accountant are working through.  

At this point, should the Booster Club stop fund raising until the tax issues are resolved?  Should we disclose this situation to the parents (most of whom are unaware of the situation.)  The Club has held funds in reserve in case the penalties are not all waived.  The current officers are keeping accurate records and trying to work their way out.  The previous officers have walked away from the mess created and have not been held accountable for the problems.

Also, a family involved in this mess has now begun individual fund raising outside the Club.  Can they be members of the Booster Club and engage in individual fund raising outside the club.

Your input would be greatly appreciated!

Sincerely
Jen

ANSWER: I am assuming that your Booster group presently holds status with the IRS as a 501(c)(3) organization and, if so, it may still raise funds, unless the IRS has expressed concerns about the fund-raising practices of the organization. My summary of IRS regulations relating to 501c3 booster organizations is at http://goo.gl/RO1ez -- you may be interested to read that as I del with many fund-raising issues there.

An individual may raise funds for their own families use when that activity is not part of the operation of the organization, unless the membership agreement between the membership and the organization prohibits such business activities or solicitation of funds, but the families should be advised that any such private sales activities are taxable to the family as any other family business and that they may not indicate than any donations to them are are deductible as charitable contributions for federal income tax purposes and they may not use the name of the 501(c)(3) organization implying that the funds are going to that organization.

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.    



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

QUESTION: Thank you for your rapid response.  We appreciate it!  

Yes, we do hold a 501(c)(3) status.  I do not believe the IRS has raised concerns, but we are still working through the issue.  The taxes were not filed by a previous treasurer and the records were very sparse.  We have provided to the accountant and the IRS all we could find.  The officers of the club at the time (President, VP, treasurer, secretary) have all walked away and are not participating in the resolution of the problem.  The previous president has stated it's not his problem...it was the treasurer.

Are the current officers at personal risk as we work through this?  They were not on the board at the time of the mismanagement.

In terms of individual fund raising, can we revise our membership agreement to state that individual fund raising in a choice that opts the member out of the club?  I do not want to use discriminatory language, but we would like to word the agreement in such a way that it makes individual fund raising outside the group unacceptable and strongly discouraged.  We now have a splinter group (former officer) who is raising individually and wants the benefit of booster funds, too.

Thank you again for your time.  I will read the regulations you included also.  Your expertise is very valued!
Jen

Answer
Managers and board members of 501(c)(3) organizations are not personally liable to the IRS for any penalties because of the problems that developed before their took their positions.

You can certainly revise your membership agreement to prohibit certain activities.  I do not know of any laws that might protect an individual members under discrimination laws, as such state and federal laws only protect against certain actions based upon religion, national origin, race and a few other categories.  Therefore, I do not advise you use, as you did, the phrase "discriminatory" as that is a loaded word.  

However, the key issue is how you are going to enforce the provision, as the word "fund-raising" is vague.  I would think that you would need to put into the agreement something like that the family agrees not to make any personal appeals for funds for the family member's activities in gymnastics.

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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