Parent Booster USA today released a white paper to help school booster clubs determine if their fundraising activities are legal. Every school booster club from the PTO to the band boosters to the cheerleaders to sports teams sells products to raise funds. However, the Internal Revenue Service has questioned whether fundraising activities that provide “credit” to volunteers who participate qualify as charitable, tax-exempt activities.
It’s often expensive to send your child on a band tour, participate in the show choir, or compete with the gymnastics team. To help cover these costs, booster clubs often provide credit to volunteers who sell products or participate in other fundraising activities. After all, shouldn’t those students and parents who participate be rewarded for their efforts? Not so, according to the IRS. IRS rules for nonprofit, charities provide that ALL proceeds must be used for the tax-exempt purposes of the organization. If any funds are used to pay the personal expenses of participants, tax-exemption may be revoked.
The IRS calls fundraising programs in which participants receive credit using individual fundraising accounts “cooperative fundraising,” and has said too much of this type of activity may disqualify a booster club from tax-exempt status.
“The IRS rules in this area are very confusing,” noted Sandra Pfau Englund, an attorney, founder of Pfau Englund Nonprofit Law, P.C. and author of the recent white paper. “The most recent IRS writing I can find on this subject is from 1993, and even it doesn’t provide clear, hard and fast rules.”
Ms. Englund's white paper includes a flow chart to help booster clubs determine if their fundraising activities are likely to pass muster with the IRS. It offers three key conclusions about cooperative fundraising and when it may, and may not, be allowed. The white paper, The Legality of School Booster Clubs Engaging in Cooperative Fundraising Activities, is available to download free-of-charge.
Parent Booster USA is a national nonprofit organization that provides federal 501(c)(3) tax exempt status to its members under an IRS group letter ruling. PBUSA also provides guidance and assistance to help school support organizations operate effectively.