Section 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.
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.
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.
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.
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.
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?
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.
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.
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!
You will need to have your 501(c)(3) status in place to receive a charitable gift from a trust if the donor or the donor’s estate desires a charitable tax deduction. Read more about the start-up process here: http://carternonprofitlaw.com/services/flat-fee-nonprofit-start-up-package/ and here: http://charitylawyerblog.com/best-of-charitylawyer/how-to-start-a-non-profit-in-arizona-series/
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.
One question I have. The phrase “it benefits the entire class of athletes or participants”. If you have voluntary membership with dues to join the booster club, that line refers to those athletes that have signed up and paid their yearly dues correct?
Read more: http://charitylawyerblog.com/2012/01/17/forming-a-501c3-booster-club/#ixzz2Qw9cia73
Yes, benefits must inure to the group as a whole not to individual group members.
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).