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Nonprofit Law/Non Profit Gymnastics Booster Club Fund Distribution

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Question
Can a non profit 501 C3 gymnastics booster club have fundraising events that distribute profit according to participation? What if a fundraiser was hosted last year and no funds have been distributed yet, can those funds go only to the families that were present last year? Is it true that the NCAA could decline scholarship to gymnast if fundraising was distributed on a participation level? I have been expressing my feeling of the above things as being not allowable, but another mom has opposite feelings and thinks these things can be done. She says that I over analyze and that all the big gyms are doing this so it must be ok. She has even told me she will contact the NCAA and ask them. I told her please do.

Answer
My summary of IRS regulations relating to 501c3 booster organizations is at:
http://goo.gl/ULw6f6
and you may be interested to read that as it explains that the IRS does not allow 501(c)(3) organizations to distribute funds on the basis of participation.  Specifically, in August, 2013 the U.S. Tax Court supported the revocation of 501(c)(3) organization status of a formerly exempt organization and noted that a parent's fundraising was earmarked to reduce what otherwise could be a $1,400 payment the parent would have to pay out of his/her pocket. The direct linkage of a parent's fundraising resulted with paying expenses for that parent's child and was a very specific benefit obtained by the insider.  While the parent may not have been paid cash, the parent nevertheless ended up escaping having to write a check for the amount of the benefit.
Families who did not fundraise did not receive any benefits from the purported a 501(c)(3) organization.  http://goo.gl/F2dZws

I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. The NCAA rules are something else and I suggest you check with them as to their own policies.

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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