Forming a 501(c)(3) Booster Club

Forming a Booster ClubSection 501(c)(3) of the Internal Revenue Code allows for tax exemption for organizations organized and operated to foster national or international amateur sports competition so long as no part of the net earnings inure to the benefit of any private shareholder or individual. In cases of athletic or other types of parent run and organized booster clubs, it is the last part of this provision that can prove problematic.

Avoiding Private Inurement.  A parent run booster club must be organized so that it benefits the entire class of athletes or participants and does not benefit certain individuals over others. One way to ensure that this private benefit does not occur is to distribute the money raised from fundraising events equally among participants. Additionally, a booster club must take care to ensure that money is not given directly to a participant and/or his parents, but rather used to offset the cost of his participation in the program.

Cooperative Fundraising. Booster clubs must take care to avoid adopting the “work and pay or don’t play” method of funding their activities. In this method, there is some sort of point system used where participants are given credits for the amount of time they or their parents spend fundraising; the more fundraising activities you participate in, the more funding you will receive. The IRS views this method as private benefit and will not grant tax-exempt status to organizations that use it. However, there are certain cases where cooperative fundraising will not preclude a booster club receiving tax-exempt status. Where cooperative fundraising is allowed, it must only account for a small amount of the organization’s activities. Additionally, funds may not be given directly to participants, but rather must be applied directly towards the cost of participation. If the participant decides not to participate in the activity for which funds are raised, the funds must revert to a general fund for the use of all participants.

Private Facility Inurement. In the case of booster clubs that conduct their activities at a private facility, the organization must take precautions regarding any private benefit flowing from the organization to the for profit facility. The organization must ensure that the owners of the private facility do not exercise influence over the operations of the booster club. If this occurs, the IRS may take the position that the booster club serves the purpose of promoting private business interests. Also, if the organization purchases any equipment for use at the private facility in which their sponsored teams train, if more than insubstantial in nature, the IRS is likely to conclude that a substantial purpose of the organization is supporting a commercial enterprise.

Organizations that support public school programs, however, are subject to an element of public control in that participants are selected based on the objective and nondiscriminatory criteria set by the schools and the funds raised are turned over to the public facility which then exercises discretion over expenditures to benefit all participants or, if the booster club maintains control over the funds, they are limited in the type of expenditures they may make. This public control often negates the elements of private benefit and inurement that can occur in the private arena.

Conclusion. In order to ensure that a booster club is operated exclusively for charitable purposes, it should follow a few basic guidelines: (1) participants must be selected based on objective and nondiscriminatory criteria; (2) all selected participants must be allowed to participate in club activities regardless of parent participation in fundraising; (3) cooperative fundraising must only account for a small amount of the clubs activities and students must not exercise control over funds raised for their benefit; and (4) when the club uses a for profit facility, the clubs activities must not support the for profit organization.

Ellis Carter is a nonprofit lawyer licensed to practice in Washington and Arizona. Ellis advises tax-exempt clients on federal tax matters nationwide.

60 Responses to Forming a 501(c)(3) Booster Club

  1. I am on the Board of directors for a non profit arts guild with a large gymnastics program and a group of gymnastics parents want to turn their booster club into a 501c(3). The arts guild runs and pays for the instructors and the facility. we are concerned that there will be a conflict of intrest when it comes to fund raising and that funds that would normally be allocated to the entire program will be funnelled into a special interest. Do you have any suggestions or comments on this type of situation?

  2. I really don’t have any great advice for you here. Its a valid concern. If the participants control the separate booster club it will be tough to influence the use of funds. I would try to impress upon them the cost and ongoing expense of maintaining a separate organization and encourage them to continue to work within the organization.

  3. So just for clarification, the coach of an Ohio 501(c)(3) softball team, can not place the stipulation on team members that each player must bring in $600 in sponsorship money or they will not receive a portion of their hotel stay paid for during tournament week? My understanding of what is stated above, is all funds collected must be equally disbursed among all players.

  4. We are debating if it is necessary to have non profit status. Several factors to consider.
    We were approached about a planned gift from a trust. To receive it, do we need 501 c 3? We have been reporting state non profit but not federal. What steps do we need to take to gain status if we choose to do so?
    If we were to receive a substantial gift, is there a limit that we can take on to maintain. Certain status?
    Sure there will be more to come. Thank you!

  5. I was asked to take over as Treasurer of a 501C3 gymnastics booster club over a year ago. It has and had been operating for years without a board, only a Treasurer. The gym advises all team members they must pay a membership fee to the booster club each year. All meet expenses, coach expenses for meets, gymnast banquet, sometimes help for kids who qualify to regionals, is paid for with the funds. Even the owner is a coach and gets paid by booster club for coach expenses at meets, but he is not 1099’d by booster club because he has you write the check to his credit card company or the gym. He advised in writing this is the process. Each gymnast is set up with an individual account. They have to pay the fee first and then the fee amount collected is moved to the general fund. Each gymnast then can either pay costs for their level or fundraise money and keep it in their individual account. If you don’t fundraise your account, you are required to deposit the money into the booster club to your individual account. Cash is allowed to be withdrawn at any time if you donated personal money to your account. Fundraised money can be used to pay your gym registration fee, booster club fee, competition costs, gymnast equipment, hotel costs for meets, mileage, etc. The treasurer calculates the amount due for each meet and then the owners wife sends an email advising how much money you need to have in your account to cover it or the season. Fundraising is put 100% into the individuals account that fundraised it, none of it goes into the general fund unless that gymnast leaves the gym. Personal money is returned. I found out the reason there is no Board is because the gym owner and his wife completely control the booster club and tell the treasurer what to do and reach out to parents to tell them how much money to keep in their accounts or if they are negative, etc. There is nobody to report any issues to because the gym owner and wife control everything or throw your child out of the gym if you do not comply. I guess that is what happened to past members and the initial board years ago. They also have families work home meets and then pay some of them cash and others put the money into that individuals accounts. I’m really concerned about all of this as I have been Treasurer over a year and had no idea of all of these legal issues as I was never told anything other than being asked if I would take over as treasurer. Not sure what to do. Also, most family members do not realize this is an issue or know any part of it because when you join the gym it is explained you need to pay the fee and then everything comes out of your account with the booster club. So, alot of innocent families and there is no general fund balance to cover fines if the IRS steps in.

  6. Thanks for answer and info. How does one determine whether a booster club is needing a 501 c 3 status? Our club supports the athletic teams at the high school. The coaches submit requests for needed items such uniforms and supplies. We fundraise for the money through raffles and memberships making about $12-$15k annually.

  7. One benefit of forming a separate entity is some liability protection for the school. Otherwise, if the school is willing to sponsor your activities and the parents are okay with this, you may not need to form a separate 501(c)(3).

  8. I am on the Board of a non-profit gymnastics team parents club that has recently filed an application for 501(c)(3) status. I do not believe that our current practices fall in line with what is required to be eligible for tax exempt status. The club requires members (parents) to participate in two fundraisers each season in order to partake in the distribution of funds raised. This would go towards their gymnast’s meet fees. Here is the thinking from someone in our group that believes we can maintain our policy and still be eligible for tax exempt status: In order to partake in the distribution of funds, one must be a member of the club. And in order to maintain membership with the club, one must meet certain requirements, such as participating in two fundraisers per meet season. Would our club still be eligible for tax exempt status with this policy in place? Thank you.

  9. My daughter plays on our town travel softball team. The parents were discussing forming a booster club for the benefit of the program. Currently any funds raised are shared with the other programs that use the local PAL facilities since we are using their 501(c)3 status. The funds raised would be used to offset registration costs, uniform costs, equipment, travel to out of state tournaments, end of season awards banquet. Most booster clubs seem to be affiliated with a school. Is it more difficult to form a club that is not connected to a school or other organization?

  10. We are restarting a booster club that has not really run for the last several years. A former member has evidently been acting as treasurer (she works at a local bank) and writing checks, filing reports, etc. The new teachers realized they needed an active booster club so we are restarting. We found the old bylaws from 2007. My question is, are we legally obligated to follow the old bylaws or can we start from scratch.

  11. Hello, I am looking into beginning a booster club at a middle school for volleyball so the girls can get the proper equipment to get better. I am sure that the school already has a booster club for basketball but nothing for volleyball. I am trying to figure out how would I go about starting a booster club? Any suggestions or advice would be a wonderful.

  12. my children participate in a youth football and cheer organization that charges a participation fee. after paying that fee, the organization charges a mandatory fundraiser fee and has sent emails stating that if that isnt paid then the children cant participate. isnt this against 5013c rules?

  13. Greetings. I have a 501c4 non-profit Rugby Club organization that teaches and promotes rugby in the greater Houston area. We are looking to change our status to a 501c3 for increased donation capabilities but have heard that a 501c3 can not purchase gear. We need gear in the form of training equipment used at practices. Is this a true statement?

  14. You are thinking of this languge in 501(c)(3) of the Internal Revenue Code –
    “Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment) . . .”

    We have had success in forming the entity for an educational purpose rather than to foster national and international sports competition to avoid this prohibition.

  15. This is not really illegal but they destroy the ability of donors to deduct their gifts if the “gifts” are mandatory. They should raise the participation cost to be more transparent and preserve donor’s tax deductions.

  16. For a high school football booster club, would paying all or part of coaches’ stipends be considered as net earnings inuring to the benefit of an individual?

  17. We are thinking of forming a 501c3 booster club for a dance team. I have read that we are able to raise funds for uniforms, competition fees and travel as long as we distribute these funds equally among members and maintain our status. If the dance teachers have already paid out these fees, can we reimburse the dance facility? Or would we have to make payments directly to the competition to be in full compliance?

  18. We are establishing an athletic booster club for our middle school that would benefit all sports. There are no requirements to participate but donations of $50+ allow members to attend school athletic events (normally $4) for free. I’m not sure if we’ll reach the $10,000 threshold that would require us to complete IRS Form 8718 (User Fee for Tax-exempt Organization Determination Letter Request) and pay the required fee of $850 to obtain 501C3 tax exempt status. Any suggestions?

  19. I have a question…. My Daughter & Niece are both in gymnastics at different gyms. They both run booster clubs that have a 501c3. My nieces gym has the following rules for the booster club..

    They work events such as concerts. The “payout” is based on who works the concert. BUT, they payout 10% off to all of the gymnastics girls. Their logic is, they are still contributing to everyone, but the people who work the concerts are getting more of a benefit of the funds than the people who do not work them. Is this legal under a 501c3? Does the “profit” need to be distributed EQUALLY between all the girls? I have found conflicting data..

  20. The user fee is $850 if you anticipate you will normally have revenue of 10k or more. If you aren’t fairly confident your revenue will amount o 10k on average in the first three years, submit a budget that reflects less than 10k a year and pay the lower fee.

  21. I need clarify my previous post. I meant do Booster Clubs have to file any type of tax form each year with the IRS?

  22. My child participates in a Band where the yearly band fees are $500. Students can earn “points” through participating in fundraising that goes towards their individual student account. One “point” is worth $2.00.

    Example, the Booster Club has a coupon book fundraiser. For each coupon book a student sells for $25.00 the student receives 5 points which equates to $10. the remaining $15 of the book goes towards cost of book and whatever is left goes into the Band Booster general account. A student then can use “points” towards their band fees

    Would this activity be considered a private benefit for students that fund raise?

    All students are not required to fund raise but are strongly encourage to do so.

    Do you think this is in violation of IRS rules and risks the Club’s tax exempt status?

  23. Hello. Our parent association is a 501c3; we are a gymnastics booster club. The board is instituting a new participation policy and budget as follows:
    Only members in “good standing” are eligible to receive financial benefits from fundraisers.
    To be “in good standing” families must volunteer a minimum of 10 hours throughout the course of the year or pay a flat fee of $500. Families who do not reach the 10 hour minimum of volunteering will be billed $25 per half hour at the end of the season.
    With regard to fundraisers the board is considering having all families responsible to sell the same amount of items and if they don’t sell them they would be responsible to purchase them.
    The proposed budget accounts for one major fundraiser and plans for distributing funds from this fundraiser to teams 7 through 9 (numbers represent skill levels), expenses for athletes who qualify for a regional competition (may be none, 1 or more), and some fees associated with the state competition in which all teams participate (skill levels 3 through 9.) Money from any additional fundraisers will be distributed equally to each member family (not team) in good standing. These funds are given to the gym which then applies the money to any outstanding fees or regular tuition. This is done on an individual/family basis.
    Is this proposal compliant with 501c3 rules?

  24. All 501(c)(3)s will have to file a form 990 each year whether or not they have any revenue. Failure to do so for three consecutive years will result in loss of exemption. If revenues are under $50,000, the organization can file the extremely simple Form 990-N online.

  25. We are part of a high school band program that currently has an active booster club which is a 501c3. We are in discussion currently on whether to continue our fundraising efforts through this or to go directly to the school and work our events and fundraising through a school account specifically set up for the band. There is a division between parents, some feeling there are significant benefits and protections from the 501c3 and others feeling that the additional procedures and structure in place make it too cumbersome to work through. They believe there is still sufficient protection through the school and they school can also give tax-deductible receipts for contributions. Would you be able to give your perspective on maintaining our 501c3 versus not? Thank you!

  26. Its unclear whether the parents are concerned about protection for themselves or the school. It may be somewhat more protective for the school to have the booster club operate as a separate (c)(3); however, the parents serving as directors and officers of the (c)(3) booster club are exposed to greater liability than if they just operated through a separate separate account.

  27. My kids cheer team has a booster club, they are a non profit (501c3) I’m not 100% on
    What kind tho I want to say 501c7 because we didn’t have the funds to set to up a 501c3
    Any way, I was wondering since we take money for competition fees and in turn
    Write a check for the coach to register the team for the competitions, could we use say
    Square up to accept those competition fees? So say the comp. Fee is 75.00 and the fee to
    Swipe my card via square up is 2.7%. How would that work legally so the club still gets the full 75$. I mean i can set it up so it adds the 2.7% that square charges to swipe in as a tax, but is it that legal.

  28. Adina,

    If this is just a case of the club pooling funds for competition and then remitting them as one lump sum, I supposed you would just tell folks using a credit card they have to pay 2.7% more to cover card processing. I don’t see any problem with that.

    Best,

    Ellis

  29. Are fees allowed to be charged to students in a high school band program by the band boosters to cover the cost of the school’s band program? The band boosters is a 501(c)(3) organization. Any student can be part of the band program regardless of the ability to pay the fee, and there is no requirement to fundraise the fee if unable to pay.

  30. It sounds like they are charging fees but allowing those with a hardship not to pay. I don’t see a problem with this arrangement from a 501(c)(3) standpoint.

  31. Hi!

    Our booster club is a 501c3. The gym is a profit gym. The gym is asking the booster club to pay half of the money for new equipment. This equipment would be used not only by the team, but also by rec classes and other teams.

    Are we allowed to give money? After reading everything, my understanding is that we can not give money to the gym for this due to it being a profit gym and it being used by more than just the team.

    Am I correct?

  32. Can a 501 3(c) recognized charity purchase ticket to an event such as a fund raising golf tournament done by another 501 3c organization without putting its status at risk?

  33. You are rightly concerned that a grant to a for-profit company would amount to private inurement/benefit which could lead to loss of exemption for your booster club. Don’t do it.

    You could, however, purchase the equipment, retain ownership, and lease it to the gym for fair market value.

  34. Thank you for this forum. Very helpful. Is a mandatory fee required by a 501(c)(3) private secondary school to fund improvements to its educational program and campus facilities tax-deductible? Thank you.

  35. We are a band booster club operating under the school tax exemption. We have our own bank account that the school does not have anything at all to do with other than the funds being used to help our band. All financial decisions are made by the parent group and band director. Does the IRS allow us to operate under the school umbrella yet still maintain control of the funds?

  36. I’m sorry I am not fully following your answer, maybe I wasn’t clear enough. Thank you, by the way for this forum, it is very helpful information.
    We have a very small gym that is for profit but has a non profit booster club for the team members. Our team makes up 75% of the income coming into the gym. The Booster club would like to purchase a piece of equipment, that we believe will help with the safety in training our kids, for the gym and lease it back to the for profit gym. The question is, do we need to lease it back at full market value or can we pro-rate the cost to reflect the 75-25 split use?

    Thanks again for your expertise and advise.

  37. We are forming a 501c(3) booster club for a gymnastics team currently and want to set it up correctly. We were planning on raising funds to cover team costs to compete (leotards, warm-ups, as well as expenses to provide coaches at meets) through sponsorships and asking parents to give a fair share donation. We were not going to make the participating on the team contingent upon parents making the fair share donation. In this case, would the fair share donations made by parents be tax deductible?

    Also, gymnasts will be responsible to cover their own meet fees as not all gymnasts will compete in all meets. Can the club collect these fees and pay them to the meet host without running afoul of our tax exempt status? Thanks for your help.

  38. We have a parent booster that is a 501 c3 at my daughters cheer gym. My first ? Is, parents do fundraising (working concerts, games etc) and earn $ that gets put into their personal booster account and are using those funds to pay booster fees. Is it ok for individual fundraising to occur that benefits individuals and not the whole group? Second ? If they are allowed to do individual fundraising, can those individuals have booster fundraising funds applies to the for profit gym tuition, and other stuff the for profit gym charges us?

  39. Individual fundraising accounts that benefit the individual team member based on their fundraising success are not legal. Fundraising dollars should be used to benefit the team as a whole.

  40. So long as the parent donations are suggested donations but are not required then they should be deductible. If they are required, then there is a quid pro quo and they would not qualify as gifts.

    Fundraising should be for the benefit of the team not the individual players so meet fees for the team are valid charitable expenditures.

  41. Can you provide insight on what I need to include in my articles of incorporation to then be used as the organizing documents for 501c3 status?

    We are starting a multisport youth athletic group that will have many teams of various sports. We will do fundraisers that benefit the whole group. We would like to be able to accept donations that are tax deductible for the giver. I believe I need specific wording for:
    a purpose
    something about politics
    and dissolution

    I’m at a loss! IRS forms are so confusing! I’m in Wisconsin if it matters, though I don’t think it does. I’m going to file to be a nonprofit corporation.

  42. Our booster club was started in 1979, under the school districts tax id. Our district has new auditors that have stated that we MUST close the booster account and deposit the funds into the general activity fund for the school district…and they want it done ASAP. While I realize that using the district’s tax id is not technically legal, would’t applying for our own, which I understand is almost instant, and changing it, be a solution?

  43. If you apply for your own tax id you are creating a taxable entity known as an unincorporated association. If it does not file for exemption, then it will be taxable. If it does apply for tax exemption, the IRS will expect 990s to be filed. If they aren’t filed for three years then the exemption will be revoked. The new 1023 EZ is an easier path to exemption for certain very small organizations such as this with revenues under $50,000.

  44. In order to ensure that a booster club is operated exclusively for charitable purposes, it should follow a few basic guidelines: (1) participants must be selected based on objective and nondiscriminatory criteria; (2) all selected participants must be allowed to participate in club activities regardless of parent participation in fundraising; (3) cooperative fundraising must only account for a small amount of the clubs activities and students must not exercise control over funds raised for their benefit; and (4) when the club uses a for profit facility, the clubs activities must not support the for profit organization.

  45. I don’t see how you are operating under the school’s tax exemption. If you were a single member LLC and the school were the sole member, you could be considered a division of the school. If you merely created an EIN number and opened a separate bank account you are not part of the school you are a separate unincorporated association.

  46. I am involved with a high school band booster 501c3 organization. They ask the parents to give a donation. They let the parents know the per student cost of jazz band, marching band and the other programs, and they give a donation letter in return stating that no goods or services were received. No child is denied participation if their parents do not make a donation. Is it in compliance with IRS regulations to have the parents receive a 100% donation when their child is in a program with a benefit that can be reasonably estimated? In the past, they charged fees, but let a child participate even if they could not pay the fee and the general fundraising events/and sales went to pay for those that could not pay the fees. It seems as though the parents are receiving a benefit for their donation. I appreciate your comments. also, one of the general donation programs is escript. i recently heard that the IRS is considering script programs as UBIT–do you have any information on this? thank you

  47. A question like this is highly dependent on the facts and circumstances of the situation and falls on a continuum of risk. If the IRS could prove the parents have a reasonable expectation of their child receiving services in exchange for their donation then they may challenge the charitable deduction. The nonprofit could also be fined per transaction for failing to notify the parents that a portion of the contribution is not deductible and value of the services received. If there is pattern of virtually every kids parent’s donating and be accepted into the program, the IRS would have a good case.The penalty for failing to make the required disclosure for a quid pro quo contribution is $10 per violation, capped at $5,000 per particular fundraising event or mailing

  48. Thank you for your comment. Would you agree that the risk would be reduced if there was a stated fee by program and the 501 c 3 had fundraisers and accepted community donations for the “scholarships” that are necessary in order to cover the students/parents that are not able (or willing) to pay the fee? I know that the parents are told that if enough funds are not paid in, the programs will not continue–so I believe that constitutes and expectation that their child is receiving services for their “donation”.

    I assume you have not heard of the IRS classifying Script program revenue as UBIT.

    thank you

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