"Bill lentz" <hwlentz[at]comcast.net> wrote in message
news:r2kgk49mhu8td83c6lvaelnt3pt958aak9[at]4ax.com...
- quote -

request for a contribution of one's "fair share", either through
volunteering time, donating money or soliciting contributions, that would
pass muster. You can't make people do fund-raising or reward them when they
do (see below) but you can try to make them feel guilty when they don't. If
they've agreed to pay a fee in return for their child's participation, then
working off the fee sure looks it's a prohibited "private benefit" to the
family and/or income to the worker.

- quote -

When the 501(c)(3) community youth choir that I was Exec. Dir. of applied
for tax-exempt status ten+ years ago, the IRS required that the Board of
Directors pass this resolution:

"Resolved that... the corporation will not participate in any fund-raising
program whereby there is a direct benefit to a student or parent who raises
the funds, including fund-raising activities where students or parents will
receive a credit or points for the fund-raising participation which may be
used to offset organizational paid expenses for their own benefit. Further
resolved, that the corporation will support all students even if they or
their parents do not participate in fund-raising activities."

We always interpreted this to mean that the type of travel account you refer
to here, while very common with youth arts organizations, is in fact not
permitted. The rationale is that money donated to a 501(c)(3) must be used
to further the exempt purpose of the organization (a public benefit), and
must not be given in support of a specific individual (a private benefit).
Our community-based organization charged tuition, and tuition payments were
never charitable contributions (they were a fee for services). That was
true even if they were "donated" by someone, if the "donor" specified the
money was to be used to pay Susie's tuition.

I've posed the specific question about travel accounts to a few IRS folks
over the years, and while none of the answers are authoritative, they all
agreed that it was fine for the money to go into a general travel account
that was used for the trip, even if only a portion of the group actually got
to travel, but that it was not OK for it to go into an individual's travel
account, even if it reverted to the organization when unused.

Note that I always framed the question with regard to a 501(c)(3)
specifically. Not all booster organizations are 501(c)(3)'s - I know the
band association at my local high school is a 501(c)(4). I don't know
whether travel accounts would be OK for other 501(c)(x) organizations. It
may be that since contributions to them are not deductible, the constraints
are different.

Pub 4221-PC (for 501(c)(3) public charities) puts it this way: "A public
charity is prohibited from allowing more than an insubstantial accrual of
private benefit to individuals or organizations. This restriction is to
ensure that a tax-exempt organization serves a public interest, not a
private one. If a private benefit is more than incidental, it could
jeopardize the organization's tax-exempt status."

While a private benefit has to be "insubstantial", if it involves insiders
(those on the board, etc.) there is a strict prohibition, so one must be
especially careful about such things when insiders have children in the
organization.

Whit Matteson

- quote -

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"Stuart Bronstein" <spamtrap[at]lexregia.com> wrote in message
news:Xns9B78B7F89A9DDavocatstuyahoofr[at]130.133.1.4...
- quote -


good post. However, since members in fact own a part of the Mutual Benefit
Nonprofit Corporation (i.e. thay are entitled to remaining assets upon
dissolution) they are in fact "owners", at least to that degree. The fact
they are called members in the code do not make them any less owners to that
extent.

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"Gil Faver" <rowdy'sboss[at]xxyz.com> wrote:
- quote -

Actually, no. Nonprofit mutual benefit corporations in California have
boards of directors, and may have members. Board members are selected
by the members if there are any, and generally by the board if there
are none.

California Corporations Code §7411, talking specifically about
nonprofit mutual benefit corporations says, "Except as provided in
subdivision (b), no corporation shall make any distribution except upon
dissolution."

When the nonprofit is dissolved, assets remaining after payment of all
debts can be distributed among the members. But they are technically
not owner, and the Attorney General exercises the oversight of the
corporation that owners usually have.

Stu

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"Stuart Bronstein" <spamtrap[at]lexregia.com> wrote in message
news:Xns9B78851C9E3DDavocatstuyahoofr[at]130.133.1.4...
- quote -

I take it you are speaking of 501 nonprofits? For example, mutual benefit
nonprofit corporations under California law do, in fact, have owners.

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"rick++" <rick303[at]hotmail.com> wrote:

- quote -

Nonprofits don't have investors, they have donors. To the extent they
have an "owner" it is legally the state. And it is there job to make
sure the nonprofit uses its money for its exempt purpose and not for
the personal benefit of anyone else.

I do not know if there is a threshhold below which the state doesn't
bother to check. But the IRS is also interested in that issue, and
often comes to check the nonprofit's books within five years after
incorporation.

Stu

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I'm a member of non-profit sports club
in California that has been penalized several
times for not filing its annual non-profit cash-flow
report. The State is interesting making sure all
the cash flow is going to operating the organization
and not into any investor's pocket. I haven't heard
of an exact threshhold, but it seems the State
cross-references bank accounts with annual
disbursements of $10K or higher. I come to this
number because I aware of clubs with small cash
flows that dont get penalty letters.

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"Paul Thomas, CPA" <paulthomascpapc[at]bellsouth.net> wrote:
- quote -

Seems to me that the parents are being relieved of a financial
obligation in exchange for their services.

- quote -

I don't have a problem with that. It's just that when the parents
contribute services in exchange for debt relief, it would be taxable.

Stu

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On Dec 17, 11:02*am, rdad...[at]panix.com (Dick Adams) wrote:
- quote -

The IRS has started taking a very active, even aggressive, approach to
monitoring not-for-profit organizations over the last five years or so
and their current work plans include widespread audits of supporting
organizations (509 a 3) as part of their review of donor-advised
funds. See Notice 2007-21. Many audits and compliance checks for tax-
exempt and governmental entities quickly become employment tax audits
(because IRS auditors are comfortable with those issues and there's
always $$ on the table), so I'm not surprised to see a focus on
activities that may be interpreted as taxable income to an
individual.

The fines in this case are similar to the outcome seen when cell
phones come up (since no one seems to manage the documentation
required for listed property when it comes to cell phones) in that the
employer/sponsor/organization ponies up the employment taxes as part
of a settlement to keep the IRS from going after the employee/
volunteer/student. What would be petty for one person is not
insignificant across large organizations.

The recent practice in the IRS Exempt Organizations division within
the IRS has been to select 400-500 of a particular type of
organization or activity for focused compliance checks. Based on the
compliance checks, a round of audits starts. They've gone through tax-
exempt debt, executive comp, colleges & universities, hospital charity
care, and now it's time for supporting orgs.

Now, was it just bad luck for the Lexington baseball boosters that
they made the list? Employees of the IRS Exempt Organizations
division have commented that many audits of individual non-profits are
triggered by letters or calls from disgruntled former employees,
members, or constituents. And the arrangement described does sound
like barter income.

-Crystal

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"Dick Adams" <rdadams[at]panix.com> wrote in message
news:gibba5$662$1[at]reader1.panix.com...
- quote -

perhaps the best thing to do is have the kids do the boostering, and thank
their parents for all else they do for their kids.

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Bill lentz <hwlentz[at]comcast.net> wrote:

- quote -

It reads to me like a personal barter arrangement whereby a
parent gets discounts as a result of the donation of their
labor.

The IRS may be right, but this is really petty. Worse than
that it's an attack against educational enrichment. I suspect
it may have been prompted by parents who were unable to
contribute labor having to pay full fees. How much could a
family be saving? Maybe $100 to $1000 a year? Would it be
worth the time of an IRS auditor to audit all of these
families? I doubt it.

The simple way around it is for the booster club to discount
fees for everyone to the point that the fee is nominal and
then cover the fees for those who contributed labor

Dick

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"Bill lentz" <hwlentz[at]comcast.net> wrote
- quote -




Is this payroll related? In that the parents "work" to receive a monetary
benefit.

Or is it that the activities of the not-for-profit go to selected
individuals - who happen to work at the various activities.

Had a couple of parents met up and washed cars for money, that's a trade or
business activity which gives rise to taxable income. The net profits they
can spend on their kids band uniforms and band travel costs. That they do
the same activity under the umbrella of the non-profit shouldn't change
that.

So what it looks like it'll come down to, is that the profits from the
non-profit fundraising can't go to off-set the personal expenses of selected
individuals, namely those who work the fundraiser.

Interesting topic though.

Does anyone know if this is local to the Kentucky area (is that the
Cincinnati district?) or is it more wide spread. I haven't heard of
anything like this in these parts, but I can see an under-worked auditor
pulling this stunt.






--
Paul A. Thomas, CPA
Watkinsville, Georgia

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A friend of mine who is a High School music teacher mentioned this
issue to me a few months ago, but I hadn't heard anything credible
until I came across the following:

http://www.kentucky.com/142/story/628251.html

In summary, the IRS has fined some booster organizations that normally
charge various participation fees when the org. lets the child's
parents "work off" the fee by working car washes, bingo events,
working the concession stand, etc. The article is short on details
regarding the IRS rationale for such fines and I'm wondering if anyone
here can shed light on a possible basis for such fines and audits.

In addition, my friend wondered whether her organization's practice
could present similar issues. Every couple of years, the organization
takes an overseas trip, performing at various venues during the trip.
The students fund raise in anticipation of these trips and funds that
they raise (for example if they sell $500 worth of candy with profits
of $200) are credited to an account (for that individual) that then is
applied to the cost of the trip. If for some reason the individual
student doesn't go on the trip, then the funds that student raised
revert to the organization (I think at some point in the past they
could be applied to the cost of the trip for a sibling, but I don't
know if that is still the case.)

Thoughts?

Thanks

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