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Nonprofit Law/Booster Club Tax Exemption in Jeopardy?


QUESTION: I recently became involved with the band booster organization for our local high school.  We are a registered 501(c)(3) nonprofit.

I became involved in more of the details of the boosters because of my lack of confidence on how the organization was being operated.  I have issues with various aspects of the organization, but fundraising is a concern for me based on some IRS findings internet research and previous questions you have answered here.

Our bylaws state that all parents with a student in the band are automatically members of the boosters.  Our bylaws also state that all students/parents must pay an annual fee that is credited to the student's individual account.

We have several fundraising activities during the year: scrip, hoagies, candy, etc.  For the majority of our fundraisers, students that fundraiser have a percent of the total credited to their student account.  I would estimate the average credit to be 5% of the total raised! with the remainder used to pay vendors.  There are only a couple of fundraisers for which net proceeds are deposited to the general fund.  The students do not have control over their student accounts,  our bylaws state that student accounts may be used for band expenses or band related activities.  What we appear to be doing is cooperative fundraising which jeopardized our exempt status.

I have some concern that these student accounts would be considered private inurement, but that seems to depend on whether or not parents are considered "insiders."  I'm not sure how that is determined.  Even if there is not inurement, we could be treading into private benefit territory which could also jeopardize our exempt status if the private benefit is insubstantial to the organization, which does not appear to be the case for our group.

I'm guessing we are in the same boat as other booster organizations, and if we are in the wrong, what can we do to correct this going forward and what would we do with current student account balances?

ANSWER: I have suggested to 501(c)(3) booster organizations that have not been operating properly that they start, from now on, to operate correctly.  I do not suggest that the 5% amounts be taken from the individual accounts and put into the general fund because then the organization would be breaching a contract it has with the students.  But that part is up to the organization.  

Even the 5% benefit, though, to the individuals is not allowed for 501(c)(3) organizations. My summary of IRS regulations relating to 501c3 booster organizations is at: and you may be interested to read that.

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: Thanks for the prompt reply.  It seems we have some issues to work through.  I failed to mention that our bylaws state that if the members don't pay the annual fee that the band students could be excluded from booster sponsored activities.  It appears we have an issue here as we'll with respect to exempt status, correct?

A proper booster organization does not have control over the high school band.  Therefore, if the high school agrees to exclude someone on the basis of the booster organization informing them that a student did not comply with the fundraising requirements of the booster organization, then the high school is engaged in conspiracy to evade federal income taxes.

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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