Nonprofit Law/Booster Club & Home Gymnastics Meet
The previous board of the booster club at my children's gym was somewhat errant in their decision-making, and the new board is trying to right the ship. At hand is the home gymnastics meet which the gym runs and profits from, and which the booster club has traditionally been very active in working. The gym does allow the club to sell concessions as a fundraiser; the club also works the admissions table but splits the proceeds with the gym. The Booster Club has also been responsible for securing (either by funding or by a "donation" to the club) a caterer for a hospitality room for judges and coaches, as well as providing labor to set up and tear down equipment and bleachers. The lines between profit and non-profit have become blurred, and need to be more clearly defined. Many of your posts have been helpful with other questions & problems (a hard copy of your brief will be going into the Club President's guide book), but we would appreciate some additional guidance in this case. Thank you in advance.
It appears that your 501(c)(3) organization has a joint venture with the for-profit gym.
See Google Books version of "Joint Ventures Involving Tax-exempt
Organizations" by Michael L. Sanders.
On page 14-15
--- Start of Excerpt ---
The IRS guidelines for determining whether a tax-exempt
organization jeopardizes its exempt status by participating in a
joint venture are contained in Rev. Rul. 98-15. The IRS
acknowledges that an exempt organization's participation in a joint
venture does not necessitate a per se denial of tax-exempt status."
However, the IRS has stated that any partnership or other joint
venture arrangement between an IRC §501(c)(3) organization and one
or more for-profit entities requires "close scrutiny" to determine
whether the potential conflict between the exempt organization's
duty to operate exclusively for exempt purposes and any duty it may
have to advance private interests, places the organization's exempt
status in question. Thus, the initial focus is on whether the
organization is serving a charitable purpose. Once charitability
has been established, the venture arrangement itself is examined to
determine whether the arrangement permits the exempt organization
to act exclusively in furtherance of the purposes for which
exemption was granted, and not for the benefit of for-profit
parties to the venture....
Notwithstanding an established charitable purpose, conflicts with
an organization's charitable goals can arise when an exempt
organization participates in a joint venture, because the
organizational documents could impose certain obligations upon the
joint venture entity that would benefit the for-profit partici-
pants to the detriment of the nonprofit. Those obligations include
an assumption of liabilities by the general partner or managing
member, which exposes the general partner's or managing member's
personal assets to partnership debts and liabilities, as well as a
basic profit orientation in furtherance of the interests of the
investors. Thus, it is important that the venture be structured so
as to give the exempt organization effective control over daily
activities. Day-to-day control demonstrates to the IRS that the
exempt organization can ensure that the joint venture is serving a
charitable purpose; lack of control suggests the possibility of
private benefit, With respect to an LLC, this means that except in
rare circumstances the charitable organization should always be a
managing member, although not necessarily the only managing member.
---End of Excerpt---
(on my Google Drive)
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.