Nonprofit Law/Donations to a specific team
I’m the treasurer of a 501c3 youth soccer club that has both recreational and competitive teams. For the competitive teams, the club collects dues from each player at the beginning of each year and uses those funds to pay for the costs associated with operating the club. Certain team costs (referee fees, tournament fees, etc) are paid directly by the team using a team account administered by the team manager as the club does not control when, where, or who teams play, what tournaments they play in, etc. It is left up to the team coach and manager to budget, collect, and disburse those funds. Each team generally opens their own bank account by applying for a “banking purposes only” tax ID number using their team name (i.e. SC United 00/01 Boys). That account is then used each year until that team folds or gets too old to participate.
I have been approached on several occasions by teams asking that we take in a large contribution (say $2,500) so the donor can take a tax deduction under our 501c3 (i.e. they want to make the check payable to the club rather than the team since we are listed as a 501c3 with the IRS). I have not granted any of these requests previously but am revisiting it just to make sure.
While it is clear that a donation for a specific individual is not tax deductible, is it acceptable for our organization to receive donations for a specific team and then turn those funds over to the team as long as it is for the entire team’s benefit rather than one specific individual on that team?
As long as a team (what the IRS would refer to as a "project") is monitored by the 501(c)(3) organization to make sure that the activities of that team are only activities that would be approved for a 501(c)(3) organization, then the 501(c)(3) organization may accept a donation that is directed, as to use, by the donor,
In Winn v. Commissioner, 595 F.2d 1060 (5th Cir. 1979), at issue
was a contribution in response to an appeal by a church to assist
a certain person in her church missionary work. Central to the
court's finding was that even though the contribution was made
payable to a fund named for the individual, an officer of the
church took the funds donated and dealt with them as the church
wished. That is, possession of the contribution by a church
official was held to be one of the elements establishing control
by the donee.
"We also note that a donor can earmark a contribution given to a
qualified organization for specific purposes without losing the
right to claim a charitable deduction..Such a contribution still
would be to or for the use of a charitable entity despite the fact
that the donor controlled which of the qualified entity's
charitable purposes would receive the exclusive benefit of the
Proof that the church in Benoit sponsored `Sara Barry Days' for
the express purposes of collecting funds for this part of its work,
that an officer of that church took the funds donated and dealt
with them as the church wished, and that the funds went to the
support of the work the church intended is sufficient to
establish that the funds were donated for the use of the Benoit
Presbyterian church." 595 F.2d at 1065.
cited on page 7 of a IRS Private Leter Ruling in the year 2005 at
From page 8 of that www.irs.gov/pub/irs-wd/0530016.pdf
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The Taxpayer must ensure that it maintains its discretion and
control over all contributions. Accordingly, the Taxpayer may
endeavor to honor donors' wishes that designate the use of donated
funds. The Taxpayer, though, must maintain control over
the ultimate determination of how all donated funds are allocated.
Donors should be made aware that, although Taxpayer will make every
effort to honor their contribution designation, contributions
become the property of Taxpayer, and the Taxpayer has the
discretion to determine how best to use all contributions to carry
out the it's functions and 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.