Nonprofit Law/High School Choir Booster Club
Our Choir Booster Club has raised several thousand dollars over the past year in support of our high school choir. Most of the funds raised were raised through student-led activities [car washes, candy sales, talent shows, etc.] During the school year the students (children) incur numerous expenses related to their choir participation [cost of yearly choir shirt, fees for regional (required) tournaments, travel and lodging expenses associated with annual choir trip, expenses related to the purchase of sheet music, etc.]. The Booster Club has the funds available to pay some or all of these expenses for the students. Is it allowable for the Booster Club to pay for the students' choir related expenses? For example, instead of charging the student $15 for the years' choir shirt, the Booster Club buys all the shirts and gives them to all choir students or the Booster Club pays for the fees necessary to attend the regional choir tournament instead of requiring each student to do so. If this activity is allowable, does the Booster Club need to 1099 each student who receives such a benefit?
Thank you for your time.
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 ---
It appears to me that all of the items that you mentioned are appropriate as long booster organization does not prohibit grants to individuals. Otherwise, IRS regulations allow grants to individuals.
Revenue Ruling 56-304 has:
--- Start of Excerpt ---
Organizations privately established and funded as charitable
foundations which are organized and actively operated to carry on
one or more of the purposes specified in section 501(c)(3) of the
Internal Revenue Code of 1954, and which otherwise meet the
requirements for exemption from Federal income tax are not
precluded from making distributions of their funds to individuals,
provided such distributions are made on a true charitable basis in
furtherance of the purposes for which they are organized.
However, organizations of this character which make such
distributions should maintain adequate records and case histories
to show the name and address of each recipient of aid; the amount
distributed to each; the purpose for which the aid was given; the
manner in which the recipient was selected and the relationship,
if any, between the recipient and (1) members, officers, or
trustees of the organization, (2) a grantor or substantial
contributor to the organization or a member of the family of
either, and (3) a corporation controlled by a grantor or
substantial contributor, in order that any or all distributions
made to individuals can be substantiated upon request by the
Internal Revenue Service.
---End of Excerpt---
(cited with approval in IRS instructions for Form 1023 Application
for Exemption on pdf page 23 middle column) at:
The Internal Revenue Code at section 102(a) provides that gifts are not income. "Gross income does not include the value of property acquired by gift..."
The organization would not file a 1099-Misc, therefore, for gifts giving to students. Note, though, that the organization must not condition the gifts on the basis of the student's work. 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 discusses such issues.
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.