Nonprofit Law/Fee refund


QUESTION: Hello Mr. Mechanic,

Thank you very much for your time helping non-profits manage the potentially confusing IRS tax code. I am the President of a youth soccer league that serves about 4500 players throughout our county. We run an annual tournament that requires significant volunteer effort. In order to encourage local teams to participate we offer to refund the team's entry fee ($650 this year) if they perform their specified volunteer duties. Would a team, in this case, qualify as a "charitable class", and thereby qualify to receive such a refund in exchange for their efforts? The tournament hosts a little over 100 teams from all over the state, and about 20 local teams provide the volunteer labor to help run the tournament.

Thanks for your help!


ANSWER: The IRS explains at on page 87. "A volunteer is an employee under common law if an entity has the right to direct and control the volunteer's performance, not only as to the results to be accomplished, but also as to the methods by which the results are accomplished."

On page 12 we see:
--- Start of Excerpt ---
All of the following are considered employees for purposes of working condition fringe benefits:  Reg. 1.132-1(b)
 Current employees
 Board of directors of the employer
 Independent contractors
Although not employees for most employment tax purposes, independent contractors are treated as employees for this purpose ..
---End of Excerpt---

As the benefits provided for the work are taxable benefits, your organization may hire such teams but then your organization must treat the compensation as it would for any other compensation.

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.

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

QUESTION: Many thanks for your response. I probably didn't provide enough information for the situation. The money goes to a team account which serves 13-22 players, and which is affiliated with a separate 501(c)(3). Usually there are two to five volunteer adults who do the coaching, organization of the team business and management of team finances. No money goes into an individual's pocket for these volunteer efforts. What my question was pointed at was whether it is OK to refund the fee for teams that volunteer and not for those that don't. That is what I couched my original question in terms of a "charitable class".

Thanks again for your time.


Youth are a charitable class and grants for youth sporting teams are favored, but your organization is making the grant conditioned on the group working for you.  Therefore, my answer stands.  Benefits such as reduction on entry fees are similar to the situation the IRS addressed last year.

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.

If youth work for a school (like a college) and get a reduction in tuition, the value of their work, even if called a scholarship is taxable to them.

"Do not use Form 1099-MISC to report scholarship or fellowship
grants. Scholarship or fellowship grants that are taxable to the
recipient because they are paid for teaching, research, or other
services as a condition for receiving the grant are considered
wages and must be reported on Form W-2. Other taxable scholarship
or fellowship payments (to a degree or nondegree candidate) are not
required to be reported by you to the IRS on any form."

If the team is actually an entity, then we would look at it in a different manner.  We would need to see if the work that the team performs for your organization is what is called unrelated business. IRS Publication 598 "Tax on Unrelated Business Income of Exempt Organizations" at
explains that,  if products or services are not directly related to
the charitable, educational, religious or other purpose or function
constituting the basis for its exemption (other than for production
of income), then the activities are generally taxable.

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.

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. 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 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 "" without the quotes and then add your search terms before hitting enter.


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.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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