Originally posted: March 18, 2020
We have updated this blog to include new questions and answers from our weekly live forums.
School booster clubs are being hit with the need to cancel events, return donations, and otherwise deal with the impact of school closures and social distancing restrictions during the COVID-19 health emergency. To help you manage these issues, Parent Booster USA (PBUSA) is providing some answers to frequently asked questions, and other tools. Please let us know as other questions arise. We will continue to provide as many additional resources as we can.
Generally, if your event is planned using school facilities, you likely will need to cancel while the school is closed. If your event is planned for an off-site venue, you should follow the directions of your school, and local, state and federal government and health authorities.
Many events will need to be cancelled while schools are closed, and government officials are recommending or requiring social distancing precautions. If your contract does not include a provision allowing for cancellation due to the current circumstances, the vendor may be able to enforce the penalty provisions. Try to work with the vendor to mitigate the situation. Some ideas include: (1) agreeing to reschedule for a later date, (2) agreeing to a “credit” for amounts paid to be used at a later date, a (3) a reduction in the cancellation penalties so that each party, the vendor and the booster, each share in the hardship.
Should a vendor send your organization a notice and bill for cancellation fees, you may consider waiting to pay the fees. In most cases there is time to negotiate with the vendor and attempt to come to a reasonable agreement. If the vendor hires an attorney and you receive a “lawyer’s letter”, it is still o.k. to try to negotiate with the attorney yourself or hire your own attorney to negotiate for you. Once there are attorneys involved, however, you should communicate through the attorneys rather than directly with the vendor. Should you receive a notice from a court, you may still attempt to negotiate through the date stated to appear in court. The bottom line is that you are generally in a better position to talk and negotiate before any fees or penalties are paid.
We recommend that organizations be as flexible and reasonable as possible. Consider contacting all the donors, whether individuals, corporate or private foundations, advise them of your situation, and offer to refund the donations. If your organization can still use the donations for a future event, you may consider asking the donors if they are willing to let your organization keep the donation for the future event or need.
To the extent that we all can be kind, reasonable and flexible, we can weather the current situation together.
Federal law and IRS rules require that nonprofit organizations tax-exempt under Section 501(c)(3) of the Internal Revenue Code, which includes most school booster clubs, use funds raised “exclusively” to support the organizations approved tax-exempt mission. In the case of a marching band, this means funds raised are to support the arts, namely the band. The funds raised may not be used to benefit individuals. This is because the funds raised by the organization are exempted from paying federal income tax. Exempt, tax-free dollars must be used to support a “public” purpose, and not to benefit individuals.
Frequently booster clubs host banquets and recognition events. These events may be considered to support the organization's tax-exempt purpose by, for example, promoting participation and encouraging camaraderie. The amount spent on such events, however, including any amount spent on gifts to seniors should be very minimal in comparison to how much is spent on promoting the tax-exempt mission.
Federal law requires that all funds raised by a nonprofit, 501(c)(3) tax-exempt organization be used exclusively for the tax-exempt purpose of the organization. The IRS has specifically said that 501(c)(3) organizations may not use the funds raised to benefit individuals. As a result, if your organization provides a $100 gift card to each senior to use as desired, this is using your organization’s funds to directly provide a financial benefit to the seniors.
We recommend that organizations, instead, seek out alternative options to celebrate your seniors. Some organizations, for example, are purchasing yard signs for the seniors. Others may hold online events that include prize giveaways each hour. Using the funds in this way is more in keeping with IRS 501(c)(3) rules against providing a direct financial benefit to individuals.
Based on federal law and IRS rules that prohibit using a 501(c)(3) organization’s funds to provide direct financial benefit to the members of the organization, PBUSA generally recommends that gifts to members be avoided. In addition, federal law and IRS rules provide that a donation is tax-deductible only to the extent that the donor does not receive any significant benefit in return for the donation. The value of any benefit the donor receives must be deducted from the amount of the donation.
For example, if a donor makes a $500 cash donation to your organization, and in return your organization buys $250 in gift cards from the donor, the donor may deduct only $250 as a donation. The same is true of equipment, items or other property that you might buy from a sponsor.
These types of solicitations are OK, provided the donors understand that gifts or payments made are not tax-deductible. It should be understood that the gifts are voluntary, are not required to participate in the band program or related to favoritism in any way, and that the gifts are not tax-deductible contributions to the band program itself.
Officer elections should be handled as described in your organization’s bylaws to the extent possible. Therefore, if your bylaws require an election to take place at the April meeting, consider holding the meeting virtually. Most state statutes provide that a virtual meeting, during which all participants can hear one another and participate in the discussion, may legally be considered the equivalent to an in-person meeting. For an election, you also will need an electronic or other method to submit and authenticate votes. You may also want to take a look at PBUSA’s other resources relating to how to manage a booster club virtually.
Yes, nonprofit organizations may make refunds of payments made for services or expenses for cancelled events. Note, however, that if a payment is a donation for which a deduction was taken on the donor’s tax return, the donor must amend his/her return if a refund of the donation is received.
Nominations and elections should be handled in accordance with your organization’s bylaws. If the bylaws do not require that elections be held on a certain date, delaying the election is fine. If the bylaws require the election to be held during a certain month, you should first vote to amend the bylaws prior to moving the election.
First, you should review the terms of your contract. Many contracts include a “force majeure” clause, also known as an impossibility clause, that allows one or both parties to cancel an event due to “acts of God” or events that could not be controlled. This often includes epidemics/pandemics. The contract should state what happens when the event is canceled, such as whether all or a portion of the amounts paid are refunded. Asking that the terms of the contract be followed is generally your first step.
If the contract is silent on how payments are handled due to a cancellation, it makes sense to be reasonable when negotiating a settlement. Accepting a partial refund, with the remainder credited toward a future event is a fairly common settlement.
We do not. We recommend checking a variety of services, including looking at the service fees per transaction charged, and whether the vendor provides any software or hardware with their service. You might check out My School Bucks, a PBUSA sponsor and a service targeted directly to the needs of schools and their support organizations.
We are not aware of any IRS or state rules or laws that limit the amount of donations that you may accept, or the amount of funds that may be retained and rolled over from year to year. The IRS may raise questions if funds are never used, and an excess amount appears to be saved for no specific purpose. However, many nonprofits have reserve accounts to fund operations in future years, fund capital projects, and the like.
If you have additional questions related to COVID-19, school closures and the like, please email us at firstname.lastname@example.org. We will respond as quickly as we can, and provide updates to this blog as questions come in. Parent Booster USA provides information and resources to help schools and volunteers set up and manage booster clubs and parent teacher organizations. Our resources are for educational purposes. Please consult an attorney or other professional if you need help with your organization’s specific facts and circumstances.
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 4,000 member organizations in 48 states with a 95% annual renewal rate. We provide peace of mind for parent volunteers, school administrators and school district leadership.