We are a gymnastics booster club that recently incorporated and filed for 501(c)(3) exemption. Couple questions I was hoping you could help us with...
1) Is it OK that all our programs benefit our members and not the general public? We used to host a large meet with the gym which reached thousands of gymnasts from all over the country, but the for profit gym wants to take it back and then make a donation to the booster club for volunteering to help run the meet? Can we accept their donation?
2)Can the gym write a check to the booster club ( I guess like a donation?) and we in turn use this money to enroll the gymnasts into their competitive meets for the year? I know that we cannot exclude anyone but if the gym informs us of injuries and those girls that will not be able to compete, is it OK to only enter those girls that will be competing as long as we keep a record of why the others were not enrolled for valid reasons such as injury?
3) Can you refund someone who donated to us?
Thanks for your assistance!
1. A 501(c)(3) booster organization may be established but must not simply benefit its own members (those who pay dues or agree to work for the organization). Such an operation would be what the IRS calls a cooperative. A cooperative is not qualified as a 501(c)(3) organization. A 501(c)(3) booster organization is to be a charitable, not a cooperative, organization. A charitable organization, like the Red Cross, does not require beneficiaries to work for the Red Cross in order to receive benefits.
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
If your 501(c)(3) organization has had the rights to a large meet with a reach all over the country, those rights have substantial value and the 501(c)(3) organization may not give that to a for-profit entity unless it receives at least, in return, what it is worth.
Further, when payments are made to receive something in exchange, the transaction is in the nature of a contract, and the payments are considered earned, not a donation. Therefore, if your members agree to work for the for-profit entity, you would be obtaining taxable income from work.
2. Your guess that it is a donation is incorrect. Again, if your 501(c)(3) organization works for a for-profit gym it would be receiving taxable income under that oral or written contract.
3. A 501(c)(3) organization may refund donations. If the donation was made in a previous tax year then there are special requirements and, if you are referring to such donations, let me know and I will reply further.
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.
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. For me to consider your individual situation and how the law applies, I would need to gather more information.