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Nonprofit Law/Gymnastic Booster Club

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QUESTION: Hi Mr. Mechanic:

Thank you in advance for your help.  We are a 501 c3 gymnastics booster club.  Are there any guidelines the IRS refers to on how to spend our fundraising money?  We know it can't be spent on equipment or training coaches for the for-profit gym we are affiliated with and we also know it can't be spent on awards banquets.  I think I have read it has to be charitable and educational.  Can we use the money to pay for attire and membership fees for the gymnasts?  Thank you for your help!

ANSWER: 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

The IRS has written that one who controls is also an insider. "The first key is that inurement applies to those who are 'inside,' or in control, of the organization..." http://goo.gl/eTn8K

For booster organizations the IRS has taken a position that goods or money that go to athletes must be for the gymnastic activity and not even to a small degree for personal benefits. Therefore, attire that is not used other than in the practice of the sport may be provided by the booster organization, but then, at the end of the season, it would need to get back the attire.  As to membership fees, it appears that you are referring to paying for tuition or fees that a for-profit gym would charge for anyone who wants to be trained.  As long as the beneficiaries are youth, then the grants for fees are allowed as long as the booster organization is not controlled 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.

A 501(c)(3) organization may give to a for-profit entity, for example by paying fees for youth gymnastic activities, but only under a contract for services to the charitable beneficiaries.  For example a 501(c)(3) private school may contract with a for-profit bus company to provide transportation for students.

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.

You are welcome.

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. For me to consider your individual situation and how the law applies, I would need to gather more information.



---------- FOLLOW-UP ----------

QUESTION: Thank you for your quick response.  Sorry for the confusion on membership fees.  The membership fees I am referring to are fees from USAG, which is the head gymnastics organization and runs the whole competitive program for the US.  Every year, gymnasts have to pay a membershio fee and the booster club would like to pay for that fee, if it is possible.

ANSWER: It is fine to pay such USAG fees as those appear to be required for the youth to compete. The IRS rule for what nonprofits may spend money on is similar to the standard that the IRS uses when determining what is a valid business expense for an ordinary business. For example, at http://www.irs.gov/pub/irs-pdf/p535.pdf "Business Expenses"
on page 3, under "What Can I Deduct":
--start of excerpt  ---
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
--end of excerpt  ---

It is just like a scholarship fund, which may pay for a student's tuition or even required books.

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. For me to consider your individual situation and how the law applies, I would need to gather more information.

---------- FOLLOW-UP ----------

QUESTION: Can the booster club pay for the gymnasts to go to training camps?  These are camps that are held outside of the for-profit gym they practice at.  It is to help them improve their gymnastics skill.

Thank you!

Answer
Yes.

The IRS has taken a position that "[a]n organization may
be educational within the meaning of IRC 501(c)(3) if it teaches
sports to youth or by being affiliated with an exempt educational
organization. Such educational organizations may also provide
facilities and equipment."
www.irs.gov/pub/irs-tege/eotopice87.pdf

That IRS internal memorandum refers to Rev. Rul. 80-215 which is
at: http://www.irs.gov/pub/irs-tege/rr80-215.pdf
In that Revenue Ruling's "Law and Analysis" area we see the
description of the general law
---Start of Excerpt--
Section 501 (c) (3) of the Code provides for the exemption from
federal income tax of organizations organized and operated
exclusively for charitable purposes.

Section 1.501 (c) (3)-1(d) (2) of the Income Tax Regulations
provides that the term "charitable" is used in section 501(c) (3)
of the Code in its generally accepted legal sense and includes the
advancement of education and the promotion of social welfare by
organizations designed to combat juvenile delinquency.

Trusts created for the purpose of promoting sports for children
have been upheld as charitable on the basis of either combatting
juvenile delinquency or advancing education. Restatement (Second)
Trusts (1959), section 374(n); IV Scott on Trusts (3d ed. 1967),
section 374-6A; Bogert, Trusts and Trustees (2d ed. 1964), section
379.
---End of Excerpt--

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. For me to consider your individual situation and how the law applies, I would need to gather more information.

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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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