The IRS and Fund Raising

The IRS is playing Santa Claus this Christmas!

No, the IRS is not giving out presents this Christmas, but they are like Santa Claus and “making a list, checking it twice, gonna find out who’s naughty and nice...” and they have found some naughty children.

It seems that several booster clubs in KY were audited by the IRS and were fined for their fund raising practices. The issue was that the booster club was giving parents credit for their fund raising efforts. Like a lot of organizations, the parents worked at concessions stands, car washes, candy sales and bongo games. The booster club awarded parents monetary credit for working the fundraisers. The IRS fined one organization $61,000! The group is even facing losing 501c3 tax exempt status. Sounds like the IRS is playing Scrooge and not Santa!

It is a common practice to set up individual accounts and split the fund raising proceeds among the parents that participated in the fund raising effort. If Johnny sold the most candy, he gets the largest share of the fund raising proceeds in his account. The IRS is concerned about private benefits. They expect to see the entire group of students benefit from fund raisers, not individuals.

If your organization is sharing, dividing or distributing fund raising proceeds to individuals or families, you are on the IRS naughty list! You had better restructure your fund raising efforts and get on the IRS nice list.

If you care to read more, do a Google search on : “KY Booster IRS.” The report from the Lexington Herald-Leader at Kentucky.com is most thorough in telling the story about KY’s booster clubs. (copyright prohibits me from a direct link)

Merry Christmas everyone!

Update posted January 14, 2009: Update on the IRS and Booster Club Fundraising

Carol Topp, CPA

Comments

  1. Heather says:

    My co-op is dealing with this issue right now, so I would really like to find out more. I have been searching the IRS website to try to find something to back up this position, but with no luck. Is there a document that I could refer to that might help me explain this issue more clearly to my fellow co-op members? Any help you can give would be greatly appreciated.

  2. Heather,

    I cannot point you to one specific IRS document , but I can help you by recommending that you search on the word “Booster Club.” The IRS website is pretty good if you know the right word to use.

    I also suggest that you read an IRS training document titled Athletic Booster Clubs. Are They Exempt? at http://www.irs.gov/pub/irs-tege/eotopica93.pdf

    I also replied to questions similar to yours from another homeschool parent and I posted my reply in a blog post here:
    IRS’s Word on Fund Raising Do’s and Dont’s

    I hope that helps!

    Carol Topp, CPA

Trackbacks

  1. […] you on the IRS’s naughty or nice list? Find out with Carol at HomeschoolCPA by reading The IRS and Fundraising. Amy at The Eclectic Homeschooler shares her frustration of dealing with a gifted teen in Teens […]

  2. non profit organization fundraising…

    Good post. I am looking into these issues on my blog….

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