Follow the money. It’s the rule investigators use to sniff out corruption. It’s also why athletic booster clubs face intense scrutiny by the Internal Revenue Service (IRS), the Department of Education (DOE), and amateur athletic regulating bodies. It costs $35,000-50,000 a year to train Olympic-level figure skaters. Parents shell-out $2000/year or more to have their junior-level gymnasts compete. The cost to equip a high school football player? From $800-1000/per player. (The helmet and shoulder pads alone often run $500/player.) It’s all that money, and how it’s raised, that can get athletic boosters into the penalty box…unless you know the rules of this money game.
Booster clubs and the IRS
Athletic booster clubs supporting national and international competition were first eligible for IRS 501(c)(3) tax-exempt status, making their income free from federal income tax, in 1976. Sports boosters supporting local and regional competitions became eligible for tax-exempt status in 1982. Just ten (10) years later, however, the IRS published Athletic Booster Clubs: Are They Exempt?, suggesting that athletic boosters either didn’t understand the rules of tax-exempt status, or weren’t playing fair. This article lays out the ground rules for operating an athletic booster club. It defines what’s foul play in the booster club game, including boosters that require their members to volunteer, or clubs that limit their support to the athletes who participate in fundraising.
Some booster parents argue that it’s only fair to restrict the money raised to the people that raise it. Why should freeloaders share in the fundraising rewards? This argument sounds reasonable. But upon further review of the IRS rules, you’ll find that booster clubs are given tax-exempt status because the money raised supports a “public purpose”, like amateur sports competition. To support amateur sports competition means that you must support all athletes on the competition team, regardless if they are members of the booster club, or if they help fundraise. It may help to think about another tax-exempt organization, like National Public Radio (NPR). Everyone can listen, but only a small percentage make donations to support NPR.
It’s been 25 years since the IRS published the rule book on athletic booster clubs. The rules must be widely known and followed by now? Nope. In a 2013 U.S. Tax Court case, a gymnastics booster club was stripped of its 501(c)(3) status because it used the tax-free funds raised to support only the gymnasts and their parents who participated in fundraising. A quick google search reveals many other clubs that publicly advertise that they aren’t following the rules. For example, a prominent Colorado Springs gymnastics booster club states on its website that “active members” must complete 25 hours of volunteer service in the Bingo fundraiser or pay $20/hour for hours not worked. If you opt-out of fundraising, you “agree” to waive financial benefits resulting from the booster club’s Bingo operation, which according to the club’s 2016 IRS Form 990 tax return, grossed the club over $1,000,000.Booster clubs and Title IX
If the IRS rules aren’t taxing enough, athletic booster clubs and the schools they support must beware the impact of booster funds on their schools’ compliance with Title IX. Title IX is a federal law that prohibits discrimination based on gender in federally funded educational programs or activities. This means that schools must make sure that male and female athletes have:
- Equal quality and quantity of equipment and supplies
- Fairness in scheduling games and practices
- Equal financial support for travel and expenses
- Fairness in assigning and paying quality coaches
- Equal facilities (locker rooms, fields, and arenas)
Booster clubs are not directly subject to Title IX, but booster club donations can tip a school’s balance of providing equal opportunities for boys and girls. For example, if the boy’s baseball boosters provide donations to the school resulting in the boy’s equipment and supplies, locker rooms and other facilities to be superior to what is available for the girl’s softball team, a Title IX complaint may be made to the DOE Office of Civil Rights to resolve the inequality. As a result, boosters and the schools they support must work together to decide the amount, and type, of donations a school accepts.
Amateur athletic rules
Amateur athletic regulating bodies, such as the University Interscholastic League (UIL) in Texas, have rules to ensure student athletes’ priority remains education. These rules require, for example, that students not be paid or otherwise compensated for participating on a sports team. Athletic boosters, therefore, should not provide gifts or rewards to student athletes without the school’s consent to make sure they don’t violate amateur athletic rules.
5 Tips to Keep Out of the Penalty Box
This playbook is so jam-packed, how do you keep track of all the rules? A good place to start is with these 5 tips developed by Parent Booster USA to keep your booster club out of the penalty box:
- Talk. Talk to school representatives. Ask what’s on the school’s wish list. This helps the school meet its obligation to be fair and equal in providing athletic activities and facilities for boys and girls.
- Ask. Ask the athletic director, coach or other school representative to attend your meetings. To prevent a conflict of interest arising between the booster club raising and granting the money, and the school receiving the money, school representatives should serve as non-voting, advisory members of booster clubs.
- Grant. The best practice is for booster clubs to grant funds for designated purposes to the school. The school may then use its normal contracting and purchasing procedures to buy the designated equipment or contract for the services funded.
- Use. Use booster funds to support the entire competition team. Focus on paying for transportation expenses or making a grant for equipment that the entire team uses. Never “credit” booster funds to athletes based on the amount of funds raised or volunteer hours worked.
- File. Make sure your booster club is structured appropriately, including applying for IRS 501(c)(3) tax-exempt status, and registering to fundraise in states that require it. Most states also require you to obtain a license before holding a raffle or other game of chance. Don’t forget to file your IRS annual 990-series tax return to keep your tax-exempt status, and annual state registration renewals to keep your state corporate and charity (fundraising) status in good standing.
We teach our kids to play by the rules of the game. We also teach them that sometimes life doesn’t seem fair. To the parents who slave over fundraisers every weekend, and chaperone the field trips, it may not seem fair that the kids whose parents don’t help benefit from your hard work. The rule of this game, however, is to make sure all student athletes have an opportunity to improve their skills and compete.
Questions? Reach out and ask. Parent Booster USA is always on your team.
The only organization of its kind in the US, Parent Booster USA is about helping school support organizations (parent teacher organizations, high school booster clubs and other school fundraising groups) handle the state and federal government paperwork required of fundraising groups.
Founded in 2004 by an attorney skilled in nonprofit and tax law, Parent Booster USA has more than 5,000 member organizations in 50 states and DC with a 95% annual renewal rate. We provide peace of mind for parent volunteers, school administrators and school district leadership.