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Nonprofit Law/Refunds for estimated fees

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QUESTION: I have read your answers on topics similar to this but I wanted to make sure I am clear on this rule (i do realize this may fall more under state law than nonprofit, but hopefully you can help).  
We are a 501(c)3 sport booster club.  We have a small team of 25 girls.  We do a few small fundraisers a year, but our main source of fundraising is an annual event we hold at our teams gym facility.  
At the beginning of each year we use the previous years expenses and projected fundraisers to come up with a budget for the year.  Because our team expenses far outweigh the amount we fundraise the parents are required to pay a fee to the booster club to cover these estimated costs.  Because this is an estimate we are sometimes off slightly on our numbers either positive or negative(which is where fundraised funds come in to cover the balance).  This particular year our main fundraiser was canceled so our fees for the year (coach expenses and travel) is being covered soley by the fees we collected at the beginning of the year.  When these fee's are announced at the beginning of the year it is given along with an agreement which states any fees collected to cover these costs are non refundable and remain in the general fund.  Because we take in to account what is in the general fund when we calculate next years budget, in theory if we had enough of an overage it likely would decrease the parents fees for next season.  
We have a parent who is claiming we over charged our fees and wants a refund.  There are a couple problems with this claim, 1) this year is far from over (we run July1-June30) so our expenses are not done for the year, 2)her way of calculating what she considers would have been her "portion" of the fees is not the same formula the board uses. She is starting to sound threatening which makes me uncomfortable.  Are we being within reason with our policy on refunds?  Would we be required to refund, basically the balance in our general fund, to the parents at the end of season if we were over on our estimate?  Thanks

ANSWER: You organization is not required to refund the balance from your general fund at the end of the fiscal year to the parents, unless you made some agreement with them to do so. Even though your issue is a question of state law, I will give you some general advice.  The parents payment was not a retail purchase so they are not protected by the State's law regarding those types of refunds. Most states require stores to post their return policies by the cash register or print it on the receipt. Service contracts, (e.g., dating services, wireless phone contracts, etc.) usually give consumers a three day right to cancel but those would not apply to 501(c)(3) organization dues.

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: She is claiming this would constitute a profit to our booster club and therefore not allowed under non-profit law.  Is there any weight in her claim?  Thanks again for your help

Answer
   I am assuming from what you wrote to me that the organization
is not a private foundation (you can confirm that on the IRS
determination letter).

There is no restriction for one or two years of accumulation of
funds.  However, if you do it for many years, then the IRS would
want to see a purpose for the accumulation. On page 126 of the
book "With Charity for All", author Ken Stern, former CEO of
National Public Radio wrote that "the standard benchmark for
charities: having an endowment and operating reserves at least
equal to the annual budget".  Therefore, I could not see any
problem maintaining at least that amount.

A 501(c)(3) organization that is not a private foundation may
accumulate funds for one or two years or so, as long as it
maintains substantial exempt activities, commensurate with its
financial resources. Exempt activities are those that are related
to the organization's purposes, not just activities to gain
funds. In other words they must be either religious, charitable
or educational activities. If it wants to accumulate funds longer
than a year or two, it must have a reason why it needs to save
up, i.e. for the purchase of a building. The test is that
accumulations of earnings and profits are necessary for the
reasonably anticipated needs of the organization.
http://goo.gl/Sc1Fl  page  12 (that document is a IRS National
Office Technical Advice Memorandum which cites to Presbyterian
and Reformed Publishing Co. v. Commissioner, 743 F.2d 148 (3rd
Cir. 1984), a U.S. Court of Appeals decision.

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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