Expert: Harvey Mechanic - 10/10/2007

Question
My daughter is on a dance team, we want to start a booster club in order to do some fundraising.  Is it necessary to establish ourselves as a non for profit in order to accomplish this task.  Our fundraising will be set up so the funds can go to individual accounts of the girls who participate in the fundraising event.  I am just wanting to make sure that the paperwork will be worth it.  We are in Illinois.  thank you

Answer
No. Your plan would not fit into the defination of a 501(c)(3) organization nonprofit. The main principle of funding by a IRS 501(c)(3) nonprofit booster club is that the booster club may not discriminate in making grants to youth or college students on the basis of their family's membership in or funding to the club, or the family's fund-raising or time put into club activities. A good discussion of that instruction is found at:
http://jkn.com/View?j=842129.169787694498

However, I do not know about the statement, "...the IRS still will overlook individual fundraisers (i.e., each girl selling cookie dough) in which the girl keeps her own money earned." I would consider that a private business as the funds do not go into the booster club's bank account.  All funds solicited on behalf of the booster club in fundraisers (sales) must go into the general fund of the booster club and not directly into individual accounts of the booster club fundraiser.

If the 501(c)(3) organization has "individual accounts" make  sure that the people know that funds that are earmarked by relatives who are giving their own funds to the 501(c)(3) organization and which are going into the family's individual account are not deductible donations. The funding from the parents and other family members for the individual account are considered pass-through funding and not grants by the organization when given for the use of the particular family member. These would be treated like tuition payments by family members to a university for the use of the family member.

If you want more details, I suggest you read my summary of some booster club rules that you find at
http://viewer.zoho.com/embed.jsp?f=aDebbe

Harvey Mechanic
Attorney At Law
Harvey108@hotmail.com