
How to Donate Donations — Rules for Allocating Funds of Tax-Exempt Organizations
This topic often brings me a great deal of heartache.
One of the things I love about my job is that I get to help parents raise money
for afterschool programs, and if there is an unambiguous good that a human can
do in the world, I can’t help but feel that is on the list somewhere. What
stinks about this topic is it’s the one where I almost always have to be the
bad guy. Tax-exempt organizations, booster clubs included, are required by the
IRS to focus on the mission they were organized to support.
Here’s the situation: Tragedy has struck in your local
community. Someone has died in a terrible accident, or a local church caught
fire and burned down, or a kid needs some help to pay for school lunches—something
along those lines. Your booster club wants to help. Maybe you raised more money
than you usually do, and you don’t need all of it. Maybe you just have a big
heart and want to pitch in. Regardless, the question is, “Can we give booster
club funds to a charitable cause that is unrelated to us?” Sadly, the answer is
almost always “no”.
It's about your primary exempt purpose.
This gets into some of the core philosophy of why and
how we let nonprofit organizations be exempt from paying federal income tax.
Put simply, the exemption exists because the organization performs a function
that the government would like to support, but for some reason—time, money,
personnel, political gridlock, etc.—it can’t. In exchange for the nonprofit
following a restrictive set of rules and committing itself to take on a
specific purpose that the government wants to support, the nonprofit is
permitted to bring in income that it does not have to pay taxes on.
In short, a booster club recognized as tax exempt by
the IRS has been recognized for a specific purpose, which is whatever
the purpose statement sent to the IRS on your application for tax exemption
said. (For Parent Booster USA members, this is generally going to be the
purpose statement in your profile.) You have to spend the organization’s money
in line with that purpose, and you can’t spend money outside of that purpose
(except for very narrow exceptions, generally in very small amounts). The
stated purpose of most booster clubs is to support a specific school program,
or sometimes the school itself. You aren’t going to be allowed to give money to
a cause separate from that, even if the cause itself is another nonprofit,
tax-exempt entity.
Is there nothing we can do to change that?
The one thing you can do is change your purpose
statement to include whatever it is you want to do, and then file with both the
state and the IRS to notify them of that change and give the IRS a chance to
object to it (which I have never seen happen). This is not a complicated
process, but it does take time. Depending on what you normally have to file, it
may also take money. It’s generally only a useful option if you are planning to
expand your regular operations to whatever the new purpose is, rather than for
a one-off donation.
Well, that’s all a bit of a downer.
There is some good news! Organizations can donate to
other similar organizations. For example, a high school band booster could
donate to the middle school band, or a football booster club could donate to
their hometown rival team—or even to a team from another sport entirely!
How do we do it?
It all comes back down to the purpose statement. When
setting up your organization or making changes to your organizing documents,
create a broad purpose statement.
DO:
Indicate the activity you will be supporting.
“We raise
funds for and support the football team in Jackson, Wyoming.”
DON’T:
Limit yourself by being too specific.
“We raise
funds for the boys 11-12 panther football team at Jackson High School.”
Your purpose statement tells the IRS and your state
what you are doing and why you are tax exempt. Because of the importance of
your purpose statement, it is always a good idea to go broad and allow yourself
space to act in your community.
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.