Nonprofit Law/donations

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QUESTION: I am a member of a sorority which has established a non profit organization to help with fundraising activities such as scholarships. Members of the sorority are automatic members of the foundation. A debutante ball is planned to take place and the girls are asked to raise money by requests for ads, donation and sponsorships using the foundations name in order to raise money for scholarships. The girls are all under the age of eighteen. Is this legal?

ANSWER: I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations.  A sorority is not qualified to be such a 501(c)(3) organization. It appears you are going to be a social club and social clubs do not qualify for 501(c)(3) organization status.  IRC 501(c)(7) exempts from federal income tax, clubs "organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder."
http://www.irs.gov/irm/part7/irm_07-025-007.html

Even though yours is not a 501(c)(3) organization I will inform you that it appears that your organization is going to allow girls to raise money for their own deb ball and, if they do not then they would not get the benefits.  That is called by the IRS Private Inurement and is not allowed.  Such inurement is discussed in a recent U.S. Tax Court case at http://goo.gl/QS9wCH

As for the age of the girls, that is not an issue, as throughout the United States children raise funds through and for private 501(c)(3) booster organizations.

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.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: Is there any type of paperwork or form that should be signed by the minors while engaged in this activity?

If the funds raised are pooled and then distributed according to a scale of participation among the girls does that change the status from being an private inurement to generic?

Answer
As I informed you earlier, I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. Your first question is  are controlled by state law and states may differ somewhat with how they would treat such issues. Even though this forum is not for such state law issues, I do advise that, if minors are involved, if you want some protection for the organization, you would have not only the minors sign but also one of the parents.

As for your question about scaling, that does not change my earlier answer. That scaling still involves grants based on factors other than charitable need or other bona fide factors acceptable for grant-makers of 501(c)(3) organizations.

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.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.

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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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