Can we fund raise and then distribute the proceeds?

Liberty Bell
Creative Commons License photo credit: bigbirdz

Hi Carol.
I love your website and appreciate the time you give to help us as homeschooling groups. 
Here is my question:
I am organizing a history tour of the East Coast for some homeschooling families.  We would like to do some fundraising to help us with the cost of the tour (most businesses require an EIN # to participate with their fundraiser programs).  Is it okay for me to apply for an EIN #, have the families fundraise and then distribute the funds to them?
Thank you for your help!
Blessings,
Joan

 

Joan,

Thank you for your kind words.  I’m glad the website is helpful.

I was thinking about your question all day (that’s why I didn’t reply sooner) and I hope I am clear in my answer.

I am assuming you would declare your group as a nonprofit on your EIN application. If so, it would not be appropriate to distribute your fund raising proceeds to each family. I’ve covered that in several blog posts on fund raising. http://homeschoolcpa.com/the-irs-and-fund-raising/

If instead you were a partnership, then it would be appropriate to distribute the “profits” of a fund raiser, that’s what a partnership does. Each partner would include these payments from the partnership on their income tax returns. Unfortunately, I’m not sure you want to set up a partnership for a single fund raiser.

You can hold a fund raiser as an individual family, but the “profits” must be declared as income (probably business income) on your personal tax return.

You see, just because something is called a fund raiser does not mean it is tax free income.  Usually fund raisers are held by churches, schools and charities (Boy Scouts, etc).  These organizations all have tax exempt status with the IRS and their states, so they don’t pay taxes on the “profits” from your fund raisers. A group of parents who gather together to do a fund raiser will not have the benefit of tax exempt status and so the proceeds of any fund raising is considered taxable income.

So my bottom line is this: yes, you can apply for an EIN, but you’ll have to decide what kind of business you are and all of the members will pay taxes on the proceeds of the fund raiser. This is probably not what you wanted to hear…

Carol Topp, CPA

P.S. I hope you have a  great trip!

 

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