Nonprofit Law/paying fees

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QUESTION: Hi. I am the treasurer on a newly formed parent organization for a dance school. We are hoping to get non-profit status in the coming months but want to make sure we do things on the up and up leading up to that. Our main goal will be to fundraise to off-set competition costs. In the meantime, the instructor at the studio has had to put in extra choreography time and is wanting the parent group to pay for it...are we allowed to do that? She wants the parents to put the money into the organization account and the organization write one check. I do not want this to jeopardize our chances of becoming a non-profit. Any help would be appreciated! Thank you!

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 to your specific question, a 501(c)(3) organization like a booster organization may make grants to a for-profit studio for the training of youth.

Harvey Mechanic, Attorney at Law -
Harvey108@htmail.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: Thanks so much for the fast response!
One more quick question, are we allowed to reimburse a parent for something they bought for the whole competition team? Example: A parent bought a prop for one of the routines. She bought one for each girl and would rather get one check from the parent organization and have us recoup the money from the other parents.

Thanks!

Answer
Yes. The IRS rule for what nonprofits may spend money on is similar to the standard that the IRS uses when determining what is a valid business expense for an ordinary business. For example, at: http://www.irs.gov/pub/irs-tege/eotopich02.pdf the IRS refers
extensively to the regular business expense rules and applies them to 501(c)(3) organizations. On page 32 we see "Reimbursements are technically covered by Regs. 1.62-2.  However, for administrative purposes, all TE/GE [Tax Exempt & Government Entities Division] administrative personnel will treat reimbursements of a business expense the same as if the expense were paid directly by the employer, as long as the employee complies with the substantiation
rules..."
See page 41 of IRS Publication 535 at http://www.irs.gov/pub/irs-pdf/p535.pdf starting in the first column under the heading "Accountable Plans" which the organization must have.  That section is written for employees but also applies to volunteers. See the section under "Volunteer Officers/Workers" at http://www.irs.gov/charities/article/0,,id=131083,00.html
which is written specifically for Exempt Organizations and refers to that Publication 535.
---Start of Excerpt--
A plan under which an employee or volunteer is reimbursed for
expenses or receives an allowance to cover expenses is an
accountable plan only if:

   *  There is a business connection for the expenses;
   *  The employee/volunteer adequately accounts for these
expenses within a reasonable period of time; and
   *   The employee/volunteer returns any amounts of excess
expenses within a reasonable period of time.
---End of Excerpt--

Details as to the Accountable plan start on page 40  of that
Publication 535.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com

P.S. his 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.  

Nonprofit Law

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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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