Nonprofit Law/what can be reimbursed
QUESTION: My sons select baseball team is a 501c3 and the parents have been "working" at college concessions to earn money. We are trying to determine what the money can be used for besides team fees. Some parents don't have a lot of money and wanted to use some of the money they earned to cover cleats, a new bat, etc. Also, the team needs an Ipad to keep score since the software they use no longer supports anything but the ios system and we had parents use their phones last year. Would any of these items be reimbursable?
ANSWER: I don't know why you had "working" with the quotes. Such work is taxable unless the parents have no control over the income.
Note at www.irs.gov/pub/irs-wd/0005006.pdf :
---Start of Excerpt--
The assignment of income doctrine, first articulated in Lucas v. Earl, 281 U.S. 111 (1930), holds that a taxpayer who possesses a current or future right to receive income cannot shift the tax on
such income by transferring the right to receive income to another taxpayer. Thus, income is taxable to the taxpayer who earns and controls it. Id. The choice of the proper taxpayer revolves around the question of which person or entity in fact controls the earning of income rather than who ultimately receives the income.
See Vercio v. Commissioner, 73 T.C. 1246 (1980).
---End of Excerpt--
It appears from what you wrote, the parents have the right to assign their income to the team particularly for their sons team fees and, therefore, that would be taxable to them as employment income.
The team could lose its 501(c)(3) status. 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
Going on to your specific question, you used the work "reimbursable", but it appears that you are asking, instead, whether a parent who worked and assigned income to the team may control the use of the funds so that it could direct the team to purchase cleats or a new bat. That is different than a reimbursement, which is when a parent pays for something and the team pays the parent back in cash (or a check). Let me know which is the situation. After you give me that information I will reply further.
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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QUESTION: When the parents work the concessions the arena sends a check to the organization. All team fees have to be paid up front and at the end of the year they will reimburse parents what they paid up front or if you got a sponsor to cover the team fees. The uniform store the teams use require the parents to pay for items they get for their son and were wondering if they can get that money back since it is required to have the items to play (such as cleats, bats and so on). The requirements for baseball bats just changed since its by age and all required new bats to meet the specified bat requirements.
That plan, whereby the parents work and get money in that amount from the club is similar to what the U.S. Tax Court addressed as a cooperative organization. A cooperative is not qualified as a 501(c)(3) organization. A 501(c)(3) booster organization is to be a charitable, not a
cooperative, organization. A charitable organization, like the Red Cross, does not require beneficiaries to work for the Red Cross in order to receive benefits.
Therefore, whether the parents get reimbursed for team fees or bats, the operation is not in conformance with 501(c)(3) organization requirements and is not allowed for 501(c)(3) organizations.
Harvey Mechanic, Attorney at Law -
P.S. This resppnse is intended to be a general statement of law, should not be relied upon as legal Mechanic advice and does not create an attorney/client relationship.