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Nonprofit Law/Allocated donations


QUESTION: Hi Harvey,
Thanks again for all your time and expertise. You have been a great deal of help to me in understanding Non Profit laws.  I am pretty certain this is not allowable but I am having a hard time explaining it to a parent.  We are a non profit 501(c)3 dance parent foundation.  We raise funds to offset competitions for all of our dancers. I have a parent who is determined to find a way to raise money through the foundation for her own specific child's competition fees.  In the past we have held a dance competition and sold ad spots to local businesses as a fundraiser. This year we set out to do the same but recently had to cancel the competition. I had a parent hand me a check today for an ad spot. She said she cleared it with the business, as she is a friend I believe, to simply hang a flier in the studio and email the parents the ad since there is no dance program this year. Couple things I am uncomfortable with; this to me looks like individual fundraising as she wants these funds allocated specifically for her child. It also simply looks like she is being paid to do a friend a favor,but presenting it as a fundraiser for our team.  Is she allowed to do this?  Is raising funds in this manner allowable under our 501(c)3?  Is there a way to accept donations for her daughter, if so how and are they tax deductible?

ANSWER: A 501(c)(3) organization may not raise funds for one person and exclude others similarly situated.  See pdf page 13 of under the heading
"Charitable Class
--start of excerpt  ---
The group of individuals that may properly receive
assistance from a charitable organization is called a charitable
class. A charitable class must be large or sufficiently indefinite
enough that the community as a whole, rather than a pre-selected
group of people, benefits when a charity provides assistance.
--end of excerpt  ---
More details are found starting at pdf page 6 of

Further,  As to charitable deductions, see IRS Publication 526 "Charitable
Donations"  which is available at
on page 6 where the IRS lists as not deductible "Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person."
---End of Excerpt ---

The "dance parent foundation" appears to be what is called by the IRS a "booster organization", meaning that they do not control or run the dance competition.  It is run by some other entity.  If you want to follow up with me, confirm that the organization is, in fact, a booster organization. My summary of IRS regulations relating to 501(c)(3) booster organizations is at: and you may be interested to read that.

You are welcome.

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: Yes it would be considered a booster organization. We are a 501(c)(3) who dance at a for profit studio. Al classes and teachers are supplied and organized by the for profit studio. The sole purpose of this parent booster organization is to raise money to offset costs for competitions outside of the dance studio.  We use fundraised money to help cover the overall cost of the participation of all our dancers in these competition. The costs are entry fees in competition and teacher fees (they are not paid by the studio to attend these competitions but rather paid by the parents), plus reimbursement for travel expenses for our teachers. The mom supplied the follow as supporting her individual fundraising claim )specifically from "however" on. She said since this is a small portion of the fundraising the group does it is ok :
Booster clubs must take care to avoid adopting the “work and pay or don’t play” method of funding their activities. In this method, there is some sort of point system used where participants are given credits for the amount of time they or their parents spend fundraising; the more fundraising activities you participate in, the more funding you will receive. The IRS views this method as private benefit and will not grant tax-exempt status to organizations that use it. However, there are certain cases where cooperative fundraising will not preclude a booster club receiving tax-exempt status. Where cooperative fundraising is allowed, it must only account for a small amount of the organization’s activities. Additionally, funds may not be given directly to participants, but rather must be applied directly towards the cost of participation. If the participant decides not to participate in the activity for which funds are raised, the funds must revert to a general fund for the use of all participants.

Read more:

 Note that the blog article you cited to was published in January of 2012.  However, after that time, the case which everyone is now looking at for guidance was decided by the U.S. Tax Court (August of 2013) and that decision is available at

In that decision we see on page 3, "For the reasons explained below, we find that Capital Gymnastics’ earnings inured to the benefit of some of its athletes’ parents in violation of section 501(c)(3)"

The blog also has "funds may not be given directly to participants, but rather must be applied directly towards the cost of participation".  That would be correct if the writer meant that "funds may not be given directly to participants, but rather must be applied directly towards the cost of participation of all of the participants".  The Capital Gymnastics case confirms that understanding would be the only acceptable one now, "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".

Also I can address the blog's statement, "Where cooperative fundraising is allowed, it must only account for a small amount of the organization’s activities".  That would be correct if it was determined to be "private benefit", but not, as the court in Capital Gymnastics pointed out, it would be private "inurement".  Inurement refers to insiders of the nonprofit.   Inurement benefits to insiders) is discussed by the IRS at and specifically note, on the bottom of page 10, "even a minimal amount of inurement can result in disqualification for exempt status, whereas private benefit must be substantial in order to jeopardize exempt status."

The second last comment to that blog article, the one dated last month, on July 17, 2014 at 4:37 pm, is by the author of the blog and it seems that he has changed his opinion compared to what he wrote in the blog article. His comment is "Individual fundraising accounts that benefit the individual team member based on their fundraising success are not legal. Fundraising dollars should be used to benefit the team as a whole."  I am surprised that he does not edit his blog article to reflect that change.

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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