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QUESTION: I am a new to a school booster club with non profit status. They have not been following their bylaws for voting and budgets for a couple years now ( thus the reason I am getting involved) and they pay for the Athletic directors phone bill. (one she uses just for school calls) I am wondering if this kind of expense, although small is allowed.   By what I read, that would be a no as it is a benefit to her job, which is not the job of the club, but rather a job for the school...  Also, are there any concerns  that they have not completed an actual budget or had a board of directors. Just a treasurer and Athletic director running the show for the past few years.

ANSWER:  A 501(c)(3) organization booster organization is supposed to be charitable, not for the benefit only of the members.  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.

As a charitable organization that is set up to foster youth activities, it may fund as long as the funding is used in pursuance of the charitable purposes for which the organization was established, whether for youth sporting activities, youth music activities, youth cheer groups or others.  

Giving grants to the coaches to relieve the school system from paying expenses that it would normally be paying, for example a business phone, is acceptable (or to an athletic director).

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 ex-
pense is one that is common and accepted in
your industry. A necessary expense is one that
is helpful and appropriate for your trade or busi-
ness. An expense does not have to be indispen-
sable to be considered necessary.
--end of excerpt  ---

There are many small nonprofit organizations that do not have active Boards, but still the Board is responsible for whatever is going on with the organization's funds unless it gave the power to another group of people.

Chapter 55A of the North Carolina Code, the North Carolina
Nonprofit Corporation Act, on the law.onecle.com site is available
at http://law.justia.com/codes/north-carolina/2014/chapter-55a
and specifically 55A-8-01 provides:
--- Start of excerpt ---
(a) Except as provided in subsection (c) of this section, each corporation shall have a board of directors.
(b) All corporate powers shall be exercised by or under the authority of, and the affairs of the corporation managed under the direction of, its board of directors, except as otherwise provided in the articles of incorporation.
(c) A corporation may dispense with or limit the authority of a board of directors by describing in its articles of incorporation who will perform some or all of the duties of a board of directors; but no such limitation upon the authority which the board of directors would otherwise have shall be effective against other persons without actual knowledge of such limitation.
(d) To the extent the articles of incorporation vests authority of the board of directors in an individual or group other than the board of directors, the individual or group in the exercise of such authority shall be deemed to be acting as the board of directors for all purposes of this Chapter
--- End of excerpt ---

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. For me to consider your individual situation and how the law applies, I would need to gather more information.

---------- FOLLOW-UP ----------

QUESTION: Thank you for all the very helpful information    Is there a limit to the amount of the coaches grants.  Is it allowable to to cover the cost for the assistant coaches if fhe school system only pays for one and we have 3?

Answer
Yes. That is allowable. Actually the IRS looks favorably at organizations that lessen the burdens of governmental agencies. See the IRS internal publication at https://www.irs.gov/pub/irs-tege/eotopicl84.pdf

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. For me to consider your individual situation and how the law applies, I would need to gather more information.

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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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