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Nonprofit Law/Donations from Restaurant Fundraiser

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QUESTION: Hi, I am a board member/officer of a local soccer club in NC and we are classified as a 501c3 (public charity) and I am looking for some advice regarding donations.  A group of boys on a team are trying to raise money to help offset costs to attend a soccer based international tour/cultural exchange this summer.  A fast food establishment has agreed to hold a fundraiser by donating a portion of sales and have asked for our documentation (FEIN/non-profit verification on letterhead) in which we can provide.  

My question is more to do with the dispersement of what is received from the fast food establishment to the boys on the team.  What is required? I assume the restaurant would cut us a check and we would in turn cut equal checks to the individual families?  The team also has a 'team' bank account'.  Would you advise we cut one check to the team account?  When filing our tax return, I assume we would recognize the funds received and paid out?
Thank you for your time.

ANSWER: I am assuming that neither the boys nor members of their family are working at that fast food establishment.  If my assumption is not correct, let me know and I will respond further.

The donation from that establishment would be going into the general fund of your organization and you could use the funds as you would for any other donations. You could not discriminate against persons who did not take part in the fundraiser.  You could not grant the funds, therefore, only to the "team" that helped with the fundraiser or the families of those particular team members.  

You could only cut checks to families of the soccer club if the amounts represented a refund of fees that they already paid and not that it would result in some profit to any of them. In your form 990 or 990-EZ, the donation would be recorded as contributions. If the funds are used to refund fees then that would be a  negative income item (against fees previously collected and recorded as such).

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: Thanks Harvey.  You are correct, no association with the fast food establishment.  

Payment/checks going to 'all' players/families would help offset expenses incurred.

Answer
You are welcome.

A 501(c)(3) organization may not pay for or reimburse families with any expenses they incur. 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-tege/eotopich02.pdf the IRS refers extensively to the regular business expense rules and applies them to 501(c)(3) organizations. On page 32 we see "Reimbursements are
technically covered by Regs. 1.62-2.  However, for administrative purposes, all TE/GE [Tax Exempt & Government Entities Division] administrative personnel will treat reimbursements of a business
expense the same as if the expense were paid directly by the employer, as long as the employee complies with the substantiation rules..."
See also:
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 ex-
pense is one that is common and accepted in
your industry. A necessary expense is one that
is helpful and appropriate for your trade or busi-
ness. An expense does not have to be indispen-
sable to be considered necessary.
--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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