You are here:

Nonprofit Law/Gymnastics Booster Club questions

Advertisement


Question
Good morning, Mr. Mechanic!

We greatly appreciate that you take the time to work pro bono online and answer questions. So, thank you!!

Our Booster Club has been in existence for many years, but recently our board completely changed hands. I must admit that the previous board members were really not aware of the 501(c)(3) guidelines, whereas our current members are competent women who have read up on it. We still have some questions, but I have a couple for you.

First, you mentioned in a response online that "the funds are in the general fund and are to be used as the Booster club decides". Is this true? We have always paid for coaches expenses and fees with our booster club funds, as well as allocating some money for equipment and travel for the girls who qualify for higher competitions. My first question is this: For equipment, my understanding had been that it must be used for our competitive girls and only then could we buy it tax-free. If we know the equipment will be used for the class gymnasts and even cheerleaders who rent our space, then do we still get the tax-free status, can we still pay for it, or is that a gym owner expense?

Second, here comes the big question. In discussing all the guidelines, our board members are questioning whether being non-profit is the best option for the Booster Club. Could you please explain the pros and cons of the 501(c)(3) versus being a profitable organization?

Thank you so much for you time and assistance.
Karen
Treasurer
MPGA Gymnastics, Memphis, TN

Answer
You are welcome.

1.  "the funds are in the general fund and are to be used as the Booster club decides" is a correct statement, but, of course the use must be in accordance with the charitable purposes of the 501(c)(3) organization.  The IRS rule for what nonprofits may spend money on is similar to
the standard that the IRS uses when determining what is a valid business expense for an ordinary business. For example, at: http://www.irs.gov/pub/irs-tege/eotopich02.pdf the IRS refers extensively to the regular business expense rules and applies them to 501(c)(3) organizations. On page 32 we see "Reimbursements are technically covered by Regs. 1.62-2.  However, for administrative purposes, all TE/GE [Tax Exempt & Government Entities Division]
administrative personnel will treat reimbursements of a business expense the same as if the expense were paid directly by the employer, as long as the employee complies with the substantiation rules..." See also http://www.irs.gov/pub/irs-pdf/p535.pdf "Business Expenses"
on page 3, under "What Can I Deduct"
--start of excerpt  ---
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that
is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
--end of excerpt  ---

As for equipment placed in the facility of a for-profit gym, that would not be a proper expense of the 501(c)(3) organization as it could not practically make sure that the equipment is only being used for charitable purposes.

2. If you want donors to be able to deduct donations and not to have your sales income, if any, taxed you would need to have a qualified 501(c)(3) organization.  But then the organization would need to comply with the IRS regulations for such 501(c)(3) booster organizations.  My summary of IRS regulations relating to 501(c)(3) booster organizations is at: http://goo.gl/IdQwML and you may be interested to read that.

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.

Nonprofit Law

All Answers


Answers by Expert:


Ask Experts

Volunteer


Harvey Mechanic

Expertise

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.


©2016 About.com. All rights reserved.