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Nonprofit Law/Bank account for youth sports team a part of a larger 501c3

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QUESTION: What is the the cleanest best way from a tax perspective and personal perspective for a volunteer to open an account for a team within that youth sports organization?
Do all fees get paid to the organization that holds the 501c3 status and then all expenses are paid out by that entity thereby eliminating the need for a team account?
If a team account is required by the 501c3, should it be under the EIN of the 501c3 in order that the individual does not have to obtain their own EIN?
If a personal volunteer is required to file a fictitious business license and get an EIN, is that individual then responsible for tax reporting?

What is the best way for a 501c3 to instruct its volunteer members to open an account or should all monies go through the tax exempt organization?

ANSWER: You wrote that the team is "within" a youth sports organization (yso).  The yso's board of directors may pass a resolution allowing the establishment of an account that would allow the team leaders to be signers on the account. That account would have the same EIN (Employer Identification Number - or Taxpayer Id number) of the yso and, at the end of the year, the yso would need to include that account in the yso's consolidated financial statement and any applicable tax returns.  That is the easiest method, generally.

If the yso does not agree to set-up that I described above which I believe is less burdensome on the yso, nonetheless the yso may agree that the fees of the team would go into its bank account "and then all expenses are paid out by that entity".

My answer to your third questions is yes).  As for your 4th question about a fictitious business license, because the team is a division of the yso and its funds and going into and out of a bank account of the yso, then, if there is an application for the fictitious business license, it would necessarily be a filing of the yso.  Whoever signs the fictitious name application on behalf of the yso is not responsible for the tax reporting of the yso. If the individual you referred to does not want to surrender the fictitious name to the yso, then the individual would need to have some written agreement as to when the trade name would be assigned from the yso to either the team or to the individual.

 Whoever is already the responsible person of the yso would remain the responsible person.  From the IRS:
--- Start of Excerpt ---
"responsible party" is the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly,
to control, manage or direct the entity and the disposition of its funds and assets.
---End of Excerpt---
http://goo.gl/3TJBB (4th paragraph).

The only entity, in the set-ups that I described above as to the funds, is, according to the way the IRS and the States refer to "entity" is the yso.

As to your last question, I strongly advise that, all funds of a 501(c)(3) organization go through a bank account of that organization (and that bank account would necessarily have the same EIN as that yso).

If the yso does not agree to the above, then get back to me and I would then go into less "clean" alternatives, but, if you do have some follow-up, please advise me whether any persons who are not relatives of the youth on the team would want tax deductions for their donations and also advise me whether the team or its players or family members of the players will be engaged in any activities involving sales of goods or services which they do not want to be treated like sales of a regular for-profit organization.  

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: The YSO treasurer has decided that the YSO will have some money for a team come through the yso and will instruct volunteer team treasurers to open personal accounts to manage the remainder of the fees which include tournament registration fees and coach expenses.  What are the issues with doing something this way?  Is there a legal ramification to the YSO if the teams money is being spent through a volunteers personal bank account?

Answer
The team treasurer may have to explain to the IRS some time later, if audited, as to the reason for the payments. The YSO would also need to keep records as to its grants to the individual, as it will appear to be a grant to an individual (the "Volunteer"):

Revenue Ruling 56-304 has:
--- Start of Excerpt ---
Organizations privately established and funded as charitable
foundations which are organized and actively operated to carry on
one or more of the purposes specified in section 501(c)(3) of the
Internal Revenue Code of 1954, and which otherwise meet the
requirements for exemption from Federal income tax are not
precluded from making distributions of their funds to individuals,
provided such distributions are made on a true charitable basis in
furtherance of the purposes for which they are organized.

However, organizations of this character which make such
distributions should maintain adequate records and case histories
to show the name and address of each recipient of aid; the amount
distributed to each; the purpose for which the aid was given; the
manner in which the recipient was selected and the relationship,
if any, between the recipient and (1) members, officers, or
trustees of the organization, (2) a grantor or substantial
contributor to the organization or a member of the family of
either, and (3) a corporation controlled by a grantor or
substantial contributor, in order that any or all distributions
made to individuals can be substantiated upon request by the
Internal Revenue Service.
---End of Excerpt---
http://www.irs.gov/pub/irs-tege/rr56_304.pdf
(cited with approval in IRS instructions for Form 1023 Application
for Exemption on pdf page 23 middle column) at:
http://www.irs.gov/pub/irs-pdf/i1023.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.  

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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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