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Nonprofit Law/Gymnastics booster club operating as a 501c3

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Question
I serve on a booster club for my daughters competitive ggymnastics team. We operate as a 501c3. We recently read the case involving capital gymnastics. Although we differ from them in many ways I want to ensure that we are operating within the guidelines of our status. We have removed the gym owner from our board, we will no longer use funds to buy equipment and we do NOT maintain individual accounts for our members. But we do require team members to join our booster club. We hold two fund raisers a year, the first fundraiser is operating the concession stand at our home meet, participation is voluntary. Our second large fundraiser is a raffle. Each of our members are required to either sell tickets or they can choose to make a donation instead. If a family can not do either we have scholarshiped a participant but it is done on a case by case basis. All proceeds of this fundraiser are deposited in one account and then the money raised is used for the teams following compettItion season to pay for the coaches expense, team meet fees, etc. Any funds remaining at the end of the season are rolled over to the following season. Funds are never disbursed into individual accounts or returned, they are always used to benefit the entire team. My question is can we continue to make membership mandatory and participation in our raffle mandatory? Thank you!

Answer
If by "donation" in lieu or selling raffle tickets you mean that the organization is giving the parents a donation receipt, your organization is in violation of IRS regulations for 501(c)(3) organizations because that is not a donation.  It is actually fees required to be given to the organization in lieu of working for the organization.  Anyway, your organization is in violation as we see in the Capital Gymnastics case -- 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

The key problem is that your organization will not be giving benefits to youth unless they give to your group or work for your group. Therefore, your group may not continue to make membership mandatory nor require participation in the raffle mandatory.

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.

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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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