Nonprofit Law/booster club fundraising
Thank you for taking the time to answer my question. My daughter is a gymnast. Our gym has an ever changing booster club. Very recently, a handbook was sent out stating that to be gymnast on the competition team each family must participate in two fundraisers. This is not including the mandatory fees for the competition meets (which are, of course, mandatory to compete.) The booster club insits that they are NOT part of the gym. They, however, do handle all the administrative competition fees and fund dispersements. The booster club states that every parent is automatically a member of the booster club just by joining the gym. My question is, if this non-profit booster club is NOT part of the gym, can they dictate MANDATORY fundraiser participation? I pay my fees for competition and do NOT wish to fundraise.
My summary of IRS regulations relating to 501(c)(3) booster organizations is at http://goo.gl/IdQwML
and you should first to read that. The for-profit gym is engaging in conspiracy with the 501(c)(3) booster organization to evade federal income taxes if it tries to require fundraising work for a 501(c)(3) organization as a condition for membership on a team. That is because both parties, the purported 501(c)(3) organization and the for-profit gym, would be acting together in a way that gives tax benefits that are not proper. I do not believe that the gym owner can require a family to join or work for an associated booster club, for there is no good reason for the gym owner to require such. It appears that the only reason is that his gym is going to benefit from prohibited inurement which would bring
the gym owner into conspiracy with the booster club to evade federal tax regulations.
Internal Revenue Code section 501(c)(3) which is available at http://goo.gl/7lFll
(on page 2, first column) provides, in part, that the 501(c)(3) organization must be one of "Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable ...or educational purposes ... no part of the net earnings of which inures to the benefit of any private shareholder or individual".
The term "private shareholder or individual" is defined in regulations 26 C.F.R. 1.501(a)-1(c) "The words `private shareholder or individual' in section 501 refer to persons having a personal and private interest in the activities of the organization." http://goo.gl/GtQpz
on the right column of page 2
How does the private gym owner know that the family is not fundraising for the booster organzation? Only from the booster organization and, why would the booster organization share that information with the for-profit gym if they want to follow IRS regulations that does not allow them to discriminate against families that are not members or who do not fundraise "enough"? There is no reason other to help the for-profit gym and, even if that does not result in prohibited inurement, it results in excessive private benefit. It appears that the for-profit gym has too much influence over the activities of the 501(c)(3) organization. See http://www.irs.gov/pub/irs-tege/eotopica93.pdf
starting on pages 11 "Private Facility Owners" which discusses prohibited private benefit and excessive control of the booster organization by such private facility owners.
It would be an additional tax evasion issue if the for-profit gym wanted this arrangement because they think that then they are allowed to exclude the payments from the 501(c)(3) organization from income. Some for profit entities believe, in error, that they do not need to treat most grants from 501(c)(3) organizations as income but they can treat them as gifts. The Internal Revenue Code at section 102(a) provides that gifts are not income. "Gross income does not include the value of property acquired by gift..." http://codes.lp.findlaw.com/uscode/26/A/1/B/III/102
A 501(c)(3) booster organization may not discriminate in making grants against families that do not fundraise for them.
You are welcome.
Attorney at Law
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.