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Nonprofit Law/501c3 booster club

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QUESTION: Thank you for all the information on your site in regards to Gymnastics Booster Clubs - it has been very helpful!!  I am in the process of putting together a draft budget for our Board to approve. Our team competes Level 3 thru elite. We want to include programs that will benefit "all" our competitive gymnasts (for example, the booster club would like to purchase the warm-up leotards for all the girls from Level 3 thru elite); but we would also like to include programs that would support a specific Level of gymnast (for example, paying for training camps for all the Level 8, 9 and 10 gymnasts; another to support our elite gymnasts such as purchasing team apparel for them that is not provided to once they begin competing at the national/international level). Is this allocation of dollars OK as long as we don't exclude anyone that meets the requirements of the "class of athletes" we are looking to support and provide for? If yes, if we don't spend all the monies in one year, can we keep it in the same program for future year's use for the same purpose and maybe add to it, if needed?

ANSWER: You are welcome.

The IRS has no objection to a 501(c)(3) booster organization funding differently by class of athlete, as long as the class that is getting more consists of only one or two youth.  You may keep money in the same program for the next year for the same purpose.

There is no restriction for one or two years of accumulation of
funds.  However, if you do it for many years and keep large amounts, then the IRS would
want to see a purpose for the accumulation. On page 126 of the
book "With Charity for All", author Ken Stern, former CEO of
National Public Radio wrote that "the standard benchmark for
charities: having an endowment and operating reserves at least
equal to the annual budget".  Therefore, I could not see any
problem maintaining at least that amount.

A 501(c)(3) organization that is not a private foundation may
accumulate funds for one or two years or so, as long as it
maintains substantial exempt activities, commensurate with its
financial resources. Exempt activities are those that are related
to the organization's purposes, not just activities to gain
funds. In other words they must be either religious, charitable
or educational activities. If it wants to accumulate funds longer
than a year or two, it must have a reason why it needs to save
up, i.e. for the purchase of a building. The test is that
accumulations of earnings and profits are necessary for the
reasonably anticipated needs of the organization.
http://goo.gl/Sc1Fl  page  12 (that document is a IRS National
Office Technical Advice Memorandum which cites to Presbyterian
and Reformed Publishing Co. v. Commissioner, 743 F.2d 148 (3rd
Cir. 1984), a U.S. Court of Appeals decision.

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: Wow! Thanks for responding so quickly!

A few follow ups...

The "Elite Class" would be a small group at this point so the program for them seems OK.

Since our "Level 8 ,9, 10 Class" is a much larger group - does that mean we can't pay for the training camps for them? We have about 140 gymnasts total and this group makes up more than 1/2 of the total. The lower level classes just don't have or need this type of training yet.

For the accumulation of funds - I was thinking how the competitive leotards are purchased; usually every other year for certain classes of gymnasts. Are we better off just making a new program each year?

And lastly, if we don't spend all the money earmarked for a specific program - can these funds then just go back to general purpose?

Thanks so much!!

ANSWER: The larger group the better.  The problem is if there is a very small groups.  The IRS does not grant exemption to an organization nor does it allow an organization to maintain exemption if it gives funding
to individuals or to a small group named during solicitations nor does it allow donors for such purposes to deduct their donations from their federal income taxes. My conclusion is based upon the following letter in which the IRS indicates that it treats "small groups" like individuals in the exempt organization context. http://www.irs.gov/pub/irs-lafa/den0543r.pdf

I do not see anything close to a problem with purchasing competitive leotards every other year for certain classes of gymnasts.

By earmarked, it appears that you are referring to the Board decision on where certain funds would be going.  The Board certainly can later change the designation of certain funds that are not used for the original purpose.

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: One more on the competitive leotards/warm up leotards - In most cases, the gym purchases the leotards from a vendor and then sends them to another company to customize with the gym logo, etc.

Can we purchase the leotards from the gym (check made out to the gym for the purchase of X leotards with a supporting receipt for what the check was for) since they are technically from their store or would this pose a problem?

I would imagine that many athletic booster clubs run into this problem since the gym logo is owned by the gym.

Answer
There is no good reason why the booster organization should allow the for-profit gym to make any profit on the sale of those items especially because they are getting free publicity (with their logo). If the team can not get for less otherwise, then it is fine for them to go through the for-profit gym.

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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