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Nonprofit Law/Scrip and individual fundraising accounts


QUESTION: As a member of a 501c3 booster organization, I have concerns about our individual fundraising accounts.  I have read answers you have provided to others as well as imformation on other websites.  I recently came across a booster website noting that proceeds from scrip sales are permitted to go to individual accounts because those proceeds are rebates rather than earnings and are therefore permitted by the IRS.  This group also states they have verification of that position from an attorney.

I would like to know your thoughts on this.  Scrip is a big part of what goes into our individual accounts and it would be a relief if the position taken by this other group would turn out to be appropriate.

Thank in advance for your time.

ANSWER: Have them send me the written legal opinion letter from the attorney and I will comment further, but, note that, 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.

It appears from what you have written that the individual family, representing that they are selling for a 501(c)(3) organization,  is selling store credit to persons at a certain price and getting, from the store, an amount put into the 501(c)(3) organization.  If the work of the family results in the amount going into the individual accounts the problem is still the same as in the about Tax Court case. 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.

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QUESTION: In relation to this issue, I found some information related to IRS Private Letter Ruling 118535-09 which concludes that "earnings" from scrip fundraising is a rebate, or price adjustment, to the purchaser of the scrip.  The purchaser is therefore entitled to receive the rebate, which would not be included in their gross income, or donate the rebate to the nonprofit, which may be tax deductible to the purchaser.  As a result, it would seem that an individual fundraising account that holds rebates received by the purchaser of scrip is entirely appropriate.

A scrip company also has some info on their website regarding this issue at:

What are your thoughts?

ANSWER: Your original question was about fundraising for a 501(c)(3) organization by a family.  If that family purchases script from the 501(c)(3) organization at face value, as in the Private Letter Ruling, then there is no gross income to the family.  But then there is no "fundraising" benefit to the family, so you were not asking about the same fact pattern as in that Private Letter Ruling.

Your fact pattern, if I understand it correctly, is, as I explained in my first answer to you.  If my explanation of the existing fact pattern is incorrect, then please correct the fact pattern.  A family is not simply buying scrip from the 501(c)(3) organization at face value. After you give me confirmation of the fact pattern then I will reply further.  Otherwise, it appears that the family is not purchasing script from the 501(c)(3) organization at face value but is selling scrip to third parties and, during the sales presentation, is informing the potential buyers that the sale is by the 501(c)(3) organization.  The agents of the 501(c)(3) organization sell the scrip supposedly for the 501(c)(3) organization but with an agreement by the 501(c)(3) organization that, by the sales the individual family will be receiving some benefits from the 501(c)(3) organization. The Private Letter Ruling does not at all refer to the Tax issues involved in "Sales" by the family, but only about "purchases" by a family, referred to as "Taxpayer".

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: Members purchase the scrip from the booster club. The member completes a form in their name only and submits the form and a check to the booster club and the booster club gives the member the scrip.  Members may or may not be selling scrip to third parties and how is the booster club to know if that is occurring?  What is our responsibility there?

Maybe this is a strecth, but can a member buy scrip then turn and sell it to a third party at face value with the understanding that the sale is occurring between the member, as a private individual rather than a representative of the booster club, and the third party?

Members purchase the scrip from the booster organization.  If those members sell the scrip to third parties and make a profit that profit is taxable as ordinary business just like for any other sales.  There is no charitable donation deduction by the 3rd party purchaser from the member as it is an ordinary sale by a private party.  The member may not use the name of the booster organization as the seller. The booster organization reports their sales of scrip to the members as unrelated business income that is generally taxable to the booster organization.

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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