March 7, 2009
My homeschool group does several fund raisers where we divide the proceeds to each family to reduce the parents’ tuition. We have a shoppers reward program and I track how much of a tuition credit each parent earns by using their shoppers reward card. We also let students or parents work off some tuition by volunteering to work a shift at our city’s major league baseball stadium concessions. The team makes a donation to our homeschool group (a 501c3 organization). I’m having a hard time finding information on the IRS website about these types of fund raisers.
Susan in Ohio (paraphrase from a spoken conversation)
I’m sorry you found it so difficult to find information about fundraisers like your group is running. Sometimes you have to know the correct language to use in a search. Search on the words “Booster Club” to see what the IRS has said.
Here’s a wonderful link from a lawyer, Harvey Mechanic, that volunteers to answer nonprofit questions. He gets a lot of questions about booster clubs and fund raising like this one in particular: AllExperts NonProfit Law:Booster Clubs
To see all the questions and answers go here: AllExperts NonProfit Law
Mr Mechanic frequently refers readers to an IRS document titled Athletic Booster Clubs: Are They Exempt? He summarizes and edits the IRS document here: Summary of IRS Article on Booster Clubs
Here’s the full text at 14 pages: http://www.irs.gov/pub/irs-tege/eotopica93.pdf
I’ve read this document several times. It is a document that the IRS uses to train their employees. While it addresses athletic booster clubs, the principles apply to school booster clubs also, including homeschool groups that do fund raising.
Finally, Mr Mechanic answers a question about fund raising by working concessions at MLB games here: Working Concessions at MLB Games
I hope that helps. Sorry there’s not one paragraph at the IRS website to point you to! This is a collection of laws, rulings and cases over several years.
Carol Topp, CPA
January 14, 2009
I mentioned in a previous post that three booster clubs in KY were being fined by the IRS for their fund raising practices. The issue was that the booster club was giving parents credit for their fund raising efforts.
The IRS and Fundraising
The booster clubs have appealed to their congressmen for help. But it appears the IRS is digging in its heels on this issue. From the Lexington Herald-Leader:
Lois G. Lerner, Director of Exempt Organizations for the IRS, explained in a letter to the booster clubs that any booster club that raises money to benefit an individual student rather than a group is in violation of federal law and stands to lose its tax-exempt status. Lerner said the practice was against federal law.
“The requirement that each parent/member of the club must participate in the fund-raising activities in direct proportion to the benefits they expect to receive toward their children’s expenses directly benefits specific individuals and the parents instead of the class of children as a whole,” she wrote.
Do a Google search on “KY Booster Club IRS” to read more on the story (copyright prohibits a direct link)
So my advice is as before: If your organization is sharing, dividing or distributing fund raising proceeds to individuals or families, stop the practice and leave all fund raising proceeds in the general fund to benefit the group at large.
I’ll keep watching this issue. If the congressmen have any success with the IRS, I’ll let you know via this blog and my monthly newsletter (subscribe here)
Carol Topp, CPA
December 17, 2008
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, read this Cincinnati Enquirer article or 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
October 26, 2008
HomeschoolCPA has been asked this question twice lately,
Can we (an individual homeschool) be allowed to do fund raising similar to youth sports groups, scouts,etc?
What a good question. In general I say, Yes, you can participate in a fund raiser if the fund raising organization allows it. BUT, the profit you make is taxable income and you’ll need to report it on your tax return.
Another homeschooling mom e-mailed me with a similar question:
With 6 children needing school curriculum, we are coming up short in finances. We contacted a calendar company that said it would be permissible for us to sell calendars as a fund raiser for our homeschool. We accepted personal checks made out to our homeschool name (that we registered with the state school board, considered a non-profit private school). We do not have a checking account with our homeschool name on it. Therefore, we have no way to deposit them.
What is your advice to us? The checks amounted to $90. Is this method acceptable to continue as long as we pay taxes on it? Mrs. W.
Here’s what I told Mrs. W to do:
By selling calendars you actually were actually operating a small for-profit business. You are free to use the profit of the small business for anything you wish, in your case homeschool books and supplies. Since you didn’t mention what state you are in I cannot tell if your state requires business registration. Many do not require any type of registration if your are a sole proprietor using your own name. You may have to file a name registration with your Secretary of State to establish your business name.
To deposit these checks you’ll need to open a checking account in the homeschool’s name. You’ll have to get an EIN number from the IRS at www.irs.gov (See the Q&A on my website for details www.HomeschoolCPA.com). You can then spend the money in the checking account on homeschool supplies and close it or keep a small amount in it until next year.
You should report the $90 as income on your tax return as either Other Income on line 21 of the 1040 or on Schedule C Business Income if you have expenses from the sale of the calendars (postage, mileage, etc…)
Quite a mess for a $90 fund raiser, huh? Before you try a fund raiser for you individual family homeschool make sure its worth the effort of getting a business name, EIN, and checking account. Maybe try having a garage sale or sell something to bring in income instead!
Carol Topp, CPA
October 26, 2008
Michelle in CO asked a question about fund raisers in a homeschool group:
We have had fund raisers in the past (butterbraids, a frozen pastry) and have made approx. $1,500 doing that fund raiser. We had a cooking class that prepared hot lunches and the co-op made money on those. We will have less than $100 left in the check book. We have a Fed ID #. What do we do? What about next year? Is fund raising not a good idea for us as you say in your website? We thought about charging more for membership (we charge $35/ yr now) and if people wanted to do individual fund raisers that would be up to each family. What do you think? Thank you so much for your help to the homeschool community and for whatever answers you can give us.
Did I say fund raising is not a good idea on my website? I didn’t mean to. Hopefully I just warned groups that fund raising can be a lot of work. And if you sell products to the public (outside your own membership) you may need to report your “solicitation” to your state. I’m writing an article now on fund raising and I do say this:
Your state may have reporting requirements if you are representing yourself to the public as a nonprofit organization. In my home state of Ohio, we have to file a Charity Registration form if we do fund raising to the public. One year we sold candles door to door and had to file a seven-page financial report with Ohio’s Attorney General Office. That report was such a nuisance (and the fund raiser was so much work) that we no longer do sales to the public. Investigate what your state requires from groups doing fund raisers. This website has nonprofit reporting requirements by state: http://www.hurwitasociates.com/.
In general I encourage groups to get most of their income from membership fees and not depend too much on fund raising. Fund raising can be very successful or turn out very poorly. It is also a lot of work with sometimes only a few people doing all the work.
I’m not sure what you mean by “individual fund raisers.” I do know that it is not proper to “award” a family for raising more money than another family, nor is it proper to set up individual accounts. It’s not right because it is not in keeping with the nonprofit motive or with the idea of a group benefit. In short, individuals are not supposed to benefit; the group is supposed to benefit.
Thank you for your kind words. I hope my website was helpful. I wish you success in Colorado as you serve homeschooling families!
Carol Topp, CPA