Unexpected closing of schools due to COVID-19 left many booster clubs “holding the bag” of donations intended to fund spring sports seasons or spring events. Booster leaders now wonder what to do with the funds raised. Should they return donations to donors? Give gifts of some type to seniors suffering most from the cancelled season? Use funds for an alternate event or hold them until next school year? Here are some suggestions and answers to the many questions coming in to Parent Booster USA:
Be Open and Clear
Regardless of how your school booster club handles cancelled events and unused donations, establish a clear line of communication with your donors. Let them know the details of your situation. Let them know how much was raised and what amount was already spent. At the same time, communicate your organization's plans for the future. Inform your supporters with open, honest and continuing communication—this is the first step.
Let the Donor Decide
You may want to hold donations intended for a sports season, event or other activity. Especially if this event will not be held this spring. However, consider letting your donors decide if they will like you to return donations. If not, use it for another purpose or next school year. Similarly, If you have specific plans for how the funds may be used to support the organization post COVID-19, let the donors know. Likewise, it is a positive step to give final decision to them on whether they request you return donations.
You may want to advise donors that gifts for which the donor has already taken a deduction on their tax return should not be returned—unless the donor plans to amend their tax return and delete the deduction. See more about managing cancelled events in our blog "...Handling Cancelled Events…”
You Cannot Return Money You Do Not Have
If your organization used some of the funds contributed before the event was cancelled, you cannot return money you no longer have in the bank. Let your donors know the situation and how much—if any—of the contributions may be returned if requested. For example, if you made a non-refundable deposit for an event, or already spent funds printing programs or covering another expense, let the donors know. If the costs equal 20% of the funds raised, let the donors know. You are only able to return 80% of each contribution if this is the case. For this reason, a treasurer keeping detailed records is imperative.
You Cannot Gift Money to Individual Members of the Team or Group
IRS rules require that all funds raised be used to support the tax-exempt purpose or mission of your organization. For example, in the case of sports teams, this means that the money raised is used to promote amateur athletic competition. Wanting to provide gift cards or other items to the senior class because it missed out on its season is understandable. However, it does not promote your tax-exempt purpose. The rationale is that tax-free dollars—income on which you do not have to pay federal income tax—may not be gifted to individuals. Rather, these must be used for the “public purpose” for which the tax exemption is provided by the IRS.
Keep Track of Your Donations, Their Purpose, and When and How They Were Spent
Not only are good financial records a good idea, they are essential to properly reporting your activities on IRS Form 990. In addition, it’s often said that little donors often become bigger donors, so keep track of your supporters. This is essential for a robust fundraising program. As outlined in “School Fundraising: So Much More Than Cookie Dough” the role of a treasurer is integral for legal activity by a nonprofit booster group. Your treasurer ensures a level of trust between the leaders of your booster and the donors who help fund events. Likewise, during tough conversations detailed documentation helps let the donor physically see the numbers. In addition, a financial review aids in this process.
Communicating with your donors, and members, clearly and honestly is the most important step you can take in handling donations. Also, be willing to compromise and be flexible. Even so, make sure you always follow IRS rules.
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.