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Nonprofit Law/501C3 Booster Club question

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QUESTION: Hello,

We are a Gymnastics Booster Club consideting switching to a 501c3, at the moment we are not.  Currently we keep individual accounts for each gymnast.  Each gymnasts parents pay into their account monthly, Individual expenses (meet fees, coaches meet fees, etc) related to competition come from each account.  We also fundraise and distribute funds evenly among all the gymnasts and it goes into their individual account.  If we switch to 501c3 can we still use individual accounts?

Thank You for your time!

ANSWER: That is fine as long as your group does not require equally situated gymnasts to join your group and raise funds. Otherwise such an operation would be what the IRS calls a cooperative.  A cooperative is not qualified as a 501(c)(3) organization.  A 501(c)(3) booster organization is to be a charitable, not a
cooperative, organization. A charitable organization, like the Red Cross, does not require beneficiaries to work for the Red Cross in order to receive benefits.

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.  http://goo.gl/QS9wCH

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.

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

QUESTION: With individual accounts could we distribute fundraising monies into each account (for example if we raised $3000 and we have 30 kids, distribute $100 into each account) and from there the individual expenses would be paid so it would reduce the cost each child would pay for expenses?

ANSWER: Yes, that is allowed as long as you follow the caveats that I mentioned earlier.  I am also assuming that the booster organization does not allow the families to take funds from those individual accounts.

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: Yes, As long as we do not require them to join.

I think these are my last questions

If they do not join we will still need to process their competition fees for them.  So we will need to pay coaches and their meet fees, etc.  Would we collect fees from them to cover those costs but keep their accounts separate from the booster club organization?

Families who are part of the booster club would not be allowed to take funds from their account even upon leaving the booster club.  Would we be able to roll monies over from year to year in each individual account which would then reduce those individual costs for the next year?

Thank You so much for your time!

Answer
For those families who do not join your organization may collect fees from them to cover those costs but keep their accounts separate from the booster club organization, but the main point is that, if you grant the workers (fundraisers) $100, you would also need to grant the non-workers $100.

You may roll over funds in the individual accounts to later years.

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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