Nonprofit Law/501 confusion

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QUESTION: We are a gymnastics booster club in MI that just received our 501c3 status.  Our gymnastics Team is run thru a school community ed program which is also a 501. We act as a pass thru for the school through our gym director by collecting all meet expenses, coaching expenses, etc.
1.  Can the gym director require parents that become part of the competitive team to be members of the booster club? If not, how do we collect money from parents to pay meet fees, coaching expenses; OR if they are not members, can we still have them pay the required meet/coaching expenses without receiving any offset from the funds being distributed to members, and not be allowed to participate in any member events (ie banquet, parties, team building).
2. Can we charge a membership or maintenance fee which helps offset our expenses (paper, toner, pens, supplies, etc)?
3. Can the gym director require parents to volunteer to put in a required amount of hours at the home meet we host and if they dont, make them pay a fee OR can we tell them that if they work we will pay their meet entry fee for that meet.
Can the gym director or the school require us to give them a certain % of money earned at the home meet that we all volunteer at and is mostly organized by the booster club.  Should they entitle this as a facility use fee and invoice us for proper documentation?

ANSWER: 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 as it answers your questions.  But, specifically:

1.  The gym director may require to submit fees through a 3rd party such as the 501(c)(3) booster organization but that does not mean that the parents need to become "members" of the booster organization.
But, in any case, the booster organization may not discriminate in giving grants only to its members and those who sell items for the organization.  Otherwise it is a cooperative organization and not a charity (see my summary).

2. If people want to become members you certainly can charge a fee to be a member and those fees can offset your administrative expenses.

3. The word "volunteer" is not applicable to that situation. "True volunteer firefighters do not receive, or have an expectation of receiving, compensation." page 9 of http://www.irs.gov/pub/irs- tege/win03_fslg_ng.pdf

That means that persons who work for benefits are not volunteers and, in fact, they are working for compensation which is taxable compensation (barter).  Your organization is independent of the gym director unless you have some contract with their group that binds you to give them certain money.

Your organization does not use facilities of the gym.  Therefore, you can not be charged for such.

After you read my summary, if you have any follow-up questions, let me know.

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: We do use the school/gym facility to host our home meet. So if the gym director/school draws up a contract that requires us to give them money for the use and time of the meet, then they legally can require us to, so long as we are not giving money to them to 'better the gym/school' ie money cant be used to buy equipment?  

Since we cant require parents to volunteer/work, how do we encourage them to?  Without them volunteering, we risk not having enough people to run the meet and earn money from it for future expenses?

One thing I forgot,  I find that many 501s are buying discount cards for fundraisers and asking/telling the parents they have to sell a certain number of them or buy them if they dont sell them?  Is EVERYONE just not following the rules as a 501 or is there another way to encourage participation in fundraising as well as volunteering?

ANSWER: A. Earlier you referred to 3 different entities:
1.  The booster organization - a 501(c)(3) organization
2.  The School Community Education Program - another 501(c)(3) organization
3.  The School

The booster organization, by definition, does not engage in any activities except raising funds and dispersing the funds.  It does not contract for the use of the school's facilities.  You wrote, though "We do use the school/gym facility to host our home meet."  It appears that you mean that the School Community Education Program uses the school/gym facility to host their home meet.

If you want me to comment on that issue, please clarify.

B.  You can encourage the parents by informing them that, if the booster organization does not grant enough funds, then the School Community Education Program would be needing to charge fees for participation.

C.  You are correct that most booster organizations are not following the rules.  Until I exposed the practices on this site starting back in 2001 there was little enforcement.  Now, with the U.S. Tax Court case of 2013 that I refer to in my summary ( http://goo.gl/IdQwML ) there is now at least a recognition by more booster organization leaders as to what the law is and some want to comply with the law and, thereby, teach their children to similarly follow the law and not engage in tax evasion by working and getting benefits (barter) and not declaring the income.

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: Sorry, this is so confusing - now you understand our confusion.
The booster club is a 501c3.  We pay tuition to the school community ed which is a 501c3.  The school comm ed has 3 gyms: a rec gym, a school comm ed main gym, and the team gymnastics gym. Our tuition pays for coaches salaries for all gyms. The booster club only is organized to support the Team gym. The school comm ed has A gym director (who is also a coach for the team gym) who the school comm ed basically lets run everything.  The gym director requires the boosters to organize the entire home meet (labeled as the boosters largest fundraiser) which takes place in the school comm ed main gym.  The school comm ed charges the boosters custodial fees.  The gym director in conjunction with the school comm ed also requires us to give them 60% of the profit earned from the home meet.  We write the check to the school comm ed who holds it in an separate "gymnastics account" and then when the gym director needs things bought for the gym, she tells the school comm ed and they write the check to the appropriate business.  The gym director uses the $ boosters gives her for coaches training and gym equipment, gifts for gymnasts who have made exceptional strides each year.  The money that the boosters gives to the school comm ed is used primarily for gym equipment, air conditioning, etc, but not necessarily expenses the boosters believes it should be used for (ie professionally cleaning to keep our girls healthy).
The booster club has been around for about 15 years, but was previously operating under the school comm ed tax id #, but now that we are a 501 we need to operate legally and need to make sure the gym director/school comm ed knows what we can and cant do!
any help you can offer is greatly appreciated to help us keep organized and legal!!

Answer
The tuition that the booster organization would be paying to the school community ed is not the obligation of the booster organization.  The booster organization is giving a grant to the school community ed, just like the Ford Foundation or the Carnegie Foundation gives grants to schools.

By "school comm ed has 3 gyms" I believe that you mean that the school comm ed uses 3 gyms (they do not own them). By "Team gym" it appears that you are referring to a for-profit gym.  Let me know and I will reply further.

In any case, the gym director can not "require the boosters to organize the entire home meet" because the booster organization does not work on producing meets.  It is, by IRS definition, an organization that only raises funds and gives grants. If, the booster organization wants to change their mode of operation, they can notify the IRS to inquire as to how that change of operations would effect the exemption, but producing meets for a for-profit gym is not generally considered simply assistance to youth athletics.  It would be considered to show too much control by the for-profit gym. 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.

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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