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501(c)(3) Group Exemption Letter

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How to Donate Donations — Rules for Allocating Funds of Tax-Exempt Organizations

Drew Englund

Sep 20, 2023

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.

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