Legal question about profit vs non-profit for a fundraiser

[princessesintraining]

I went back through our booster meeting minutes to clarify our status. I do have to correct that as of last year, we were NOT a non profit, but the booster group was advised by their attorney to try and apply for that status. I don't know if our team will have any changes for the upcoming year if our status does change. Our new guidelines don't come out till June or July. This was our first year doing a competitive team, so I don't know if this is standard or not.

Sorry for providing the wrong information.

 

[HopperFan]

Thanks! I had no idea this might be illegal. Looks like we will have to explore other avenues. Most of the donations were going to be from parents--would it still be illegal if we supply all the prizes?

In thinking about my own question, I am assuming the answer would be yes, as we would be selling tickets for it and therefore it would be an illegal activity?

Now if you are talking about lots of prizes/gift baskets and organizing it that way - look in to Silent Auction or Chinese Auction. Have been involved in MANY of these and they do not (in the two states/jurisdictions I've been in) require the licensing and paperwork involved in a Raffle. We have done them at big events - dance, dinner, fair etc and have done them where they are located in a lobby or safe location etc for a period of time. You get more participation the more traffic for a silent but a chinese could be sold to be placed in each prizes' container. You just have to figure out your logistics.

Again you must know what your group is permitted to do to be legal. But after doing this for 30 years I can tell you that it is an extreme amount of work and many groups have just said enough. It's easier for each kid to pay their way.

 

[HopperFan]

I would suggest that you NEVER accept a position on the board unless you get allot of clarifying information. the way you've described it-it's not a non profit (esp. b/c of the equipment purchases for the private gym) AND unless the organizers got things set up correctly they may be under the impression that the gym is dealing w/ tax and liability issues while the gym KNOWS making the team separate from the gym protects the gym. I would want to know what the team is set up under-b/c if it's separate from the gym is it covered for insurance (if one of the kiddos is injured), workman's comp (coach injured), who "employs" the coaches-gym, team, boosters (cuz there's tax reporting, social security, uib.....all the stuff those that employ others have to deal with). if all of this liability is being umbrella'd under the booster's club-I hope for their sake they have great insurance and business/tax advice.

Last stint was on an executive board representing two teams, for 10 years, non-profit. Well versed on all compliance and rules to point incoming Presidents often asked for my input on some matters. Had many battles around the table with those trying to do things that were not in compliance. I completely agree with you - NEVER accept a position unless you are fully informed because you become liable. Non-profit has very strict rules and then each individual group has even more specific rules.

If a group does not know if they are non-profit then they are not because the obligations are considerable if you are.

 

[verleniahall]

As the frg leader for my husbands unit, i have to follow strict guidelines as well - one of them, as a PP mentioned, is the fact that "raffles" are illegal as they are a form of gambling, BUT i can do an "opportunity drawing" - the way that this is different is that everyone gets an "opportunity" to win by giving them a free ticket. then they can purchase more opportunities at a set cost. we sold opportunities to pie the commander and made 100 dollars

 

[hearingaidmom]

Google: capital gymnastics booster club tax court

 

[teller80]

Google: capital gymnastics booster club tax court

That was interesting, I enjoyed reading about the case. thanks for sharing.

 

[DizMe]

That was great information regarding the capital gymnastics booster club. The article I read about it suggested it might be better to forget the non-profit route with a group like ours (just a bunch of parents in a small gym), as the profit and therefore the tax would be minimal. Apparently, donations from businesses are still possible as they can write them off as a business expense rather than a donation. Our total number of kids on team is around 20, with several sets of siblings so we aren't looking at a large group of parents raising a ton of money.

I appreciate the advice about switching from 'raffle' to silent auction, Chinese auction, or opportunity drawing. I learned that our raffles have actually been Chinese auctions (didn't know that term and had to look it up), where people buy tickets and put them in a can next to the basket(s) they would like to win. I don't see how this gets around the law about raffles, though?

We haven't had much luck with silent auctions. We've typically done that with the large ticket items (like a biplane ride or a nice piece of jewelry), but people don't like to bid much on them and we make more on the baskets.

 

[kymom99]

That was great information regarding the capital gymnastics booster club. The article I read about it suggested it might be better to forget the non-profit route with a group like ours (just a bunch of parents in a small gym), as the profit and therefore the tax would be minimal. Apparently, donations from businesses are still possible as they can write them off as a business expense rather than a donation. Our total number of kids on team is around 20, with several sets of siblings so we aren't looking at a large group of parents raising a ton of money.

I appreciate the advice about switching from 'raffle' to silent auction, Chinese auction, or opportunity drawing. I learned that our raffles have actually been Chinese auctions (didn't know that term and had to look it up), where people buy tickets and put them in a can next to the basket(s) they would like to win. I don't see how this gets around the law about raffles, though?

We haven't had much luck with silent auctions. We've typically done that with the large ticket items (like a biplane ride or a nice piece of jewelry), but people don't like to bid much on them and we make more on the baskets.

That is what we do here at school to raise money. We also did this with cub scouts. That way we didn't need a gaming license.

 

[Gr8dan2]

Yikes! I don't know the answers to some of the questions posed here; as a team parent, I am required to belong to the booster club. We parents do pay individually for the team costs, which is completely separate from their gymnastics tuition (financially, team is kept completely separate from the regular gym). The parent group wanted to hold a fundraiser to offset some of those costs. In particular, the expense for sending girls to regionals or nationals is very high, as the coaches have to be paid for their time and travel costs. There is a parent board, including a president, treasurer and secretary. Everything is carefully logged but I don't know how the decisions are made, what role the gym plays in the decisions on how the money is spent, or many of the other details regarding funds. I just go to the monthly meeting and volunteer my time, baked goods, and was going to donate for the raffle. We also run the snack bar at the gym, and the hours you put in there are worth a certain amount that can be subtracted from your team dues. In addition, the booster group has provided money for new equipment (mats, balance beam, and such). I assume that money is taxed since it is turned over to the gym and careful records are kept. Every gym we have gone to for meets has run the same type of fundraisers, so it didn't occur to me that it wasn't legal. This has been an eye-opener!

Be careful! If you are or become a 501c3, paying for the coaches to travel is good way to be in violation of federal law. You can't benefit the for profit gym with your non-profit booster activities-- which relieving them of paying for their coaches to travel would certainly be a benefit to them. Providing the equipment to the for profit gym would also be a violation of law. I've seen gyms do this before , but it's generally to benefit the kids' travel especially where there are kids who need assistance to be able to travel and couldn't pay out of pocket. But this sounds like a bit of a cluster to be honest. My sister's daughter is on a gymnastics team and it's super expensive to participate, can't imagine having to fundraise to buy the gym more stuff or pay their coaches. Sounds like you are getting hosed.

 

[DizMe]

Be careful! If you are or become a 501c3, paying for the coaches to travel is good way to be in violation of federal law. You can't benefit the for profit gym with your non-profit booster activities-- which relieving them of paying for their coaches to travel would certainly be a benefit to them. Providing the equipment to the for profit gym would also be a violation of law. I've seen gyms do this before , but it's generally to benefit the kids' travel especially where there are kids who need assistance to be able to travel and couldn't pay out of pocket. But this sounds like a bit of a cluster to be honest. My sister's daughter is on a gymnastics team and it's super expensive to participate, can't imagine having to fundraise to buy the gym more stuff or pay their coaches. Sounds like you are getting hosed.

I don't think it's a matter of getting hosed so much as it's a small town with a small gym and we just don't have the means to do what the large gyms do, though we do have to compete against them. Our tuition is a lot smaller as a result, and most of the gym's funds come from the rec classes (non-team). Since our gym is small, we can't host meets so all of our meets are away. Our coaches do this as a second job because they can't live on the income they get from coaching alone. The booster club doesn't pay the coaches for their regular time, but helps pay their travel costs for meets, which may include some of their pay for being there outside of the meet (say, if they have to stay a day and a half)--I'm not really sure about that. Every parent is encouraged to help in some capacity but if that's not possible or the parent doesn't do it, then they pay a higher amount in fees since there is nothing deducted for working hours to offset the cost. I have 3 girls on team and spend roughly $10,000 a year on gymnastics fees, which includes both team and regular tuition costs. My cost in tuition for all 3 is about $460/month, which sounds high but is about what most gyms charge for one. However, our gym could not stay in existence if it charged what city gyms do. The parent booster club is really more about trying to keep the gym running so our kids can participate in gymnastics. I'm dismayed to read how this may put us at risk for liabilities etc.

We don't pretend to be an Olympic training ground, but our kids (mostly girls--our boys team currently has 3 members) do very well and love the sport. It's pretty cool to watch your kids handspring across the floor or do a backflip on the balance beam

 

[barkley]

That was great information regarding the capital gymnastics booster club. The article I read about it suggested it might be better to forget the non-profit route with a group like ours (just a bunch of parents in a small gym), as the profit and therefore the tax would be minimal. Apparently, donations from businesses are still possible as they can write them off as a business expense rather than a donation. Our total number of kids on team is around 20, with several sets of siblings so we aren't looking at a large group of parents raising a ton of money.

I appreciate the advice about switching from 'raffle' to silent auction, Chinese auction, or opportunity drawing. I learned that our raffles have actually been Chinese auctions (didn't know that term and had to look it up), where people buy tickets and put them in a can next to the basket(s) they would like to win. I don't see how this gets around the law about raffles, though?

We haven't had much luck with silent auctions. We've typically done that with the large ticket items (like a biplane ride or a nice piece of jewelry), but people don't like to bid much on them and we make more on the baskets.

w/ silent auctions the group I served on the board for, the most ardently bid upon (raised way more than we anticipated/cost us ZERO) items were 'honey-do gift certificates'. some of the men who were involved with the group got together and made up some gift certificates for set amounts of hours they would do certain 'honey-do's'. the certificates outlined things they would do like-weeding a garden, helping w/yard or garage cleaning, washing windows, loading and hauling stuff to the dump (a couple of the guys had pick up trucks and trailers-gift certificate did not include cost of dumping), putting up/taking down storm windows, cleaning roof gutters....things like that. the first time it was offered up the bidding was crazy, and w/subsequent events people would always ask ahead of time if these certificates would be available. started out with a couple of guys offering one up for about 4 hours, then as time went on more guys signed on and we were able to offer multiple types (including a highly coveted one that was for 5 guys-total of 6 hours-allot can get accomplished with that much help).

 

[DizMe]

w/ silent auctions the group I served on the board for, the most ardently bid upon (raised way more than we anticipated/cost us ZERO) items were 'honey-do gift certificates'. some of the men who were involved with the group got together and made up some gift certificates for set amounts of hours they would do certain 'honey-do's'. the certificates outlined things they would do like-weeding a garden, helping w/yard or garage cleaning, washing windows, loading and hauling stuff to the dump (a couple of the guys had pick up trucks and trailers-gift certificate did not include cost of dumping), putting up/taking down storm windows, cleaning roof gutters....things like that. the first time it was offered up the bidding was crazy, and w/subsequent events people would always ask ahead of time if these certificates would be available. started out with a couple of guys offering one up for about 4 hours, then as time went on more guys signed on and we were able to offer multiple types (including a highly coveted one that was for 5 guys-total of 6 hours-allot can get accomplished with that much help).

Now THAT is a fantastic idea!!!!!! Thank you!!!!

 

[smiths02]

Google: capital gymnastics booster club tax court

Interesting case. I don't have any background interpreting laws or court cases, but it is interesting because the parents who raised funds directly benefited.
For my son's school, when we do a fundraiser, no money is put into his "account"--all the money just goes to the school. However, when we do a fundraiser for Scouts, some of the money does go into his "account" that helps us offset costs, so we directly benefit, but Scouts as a whole is a non-profit, so I suppose that changes things a little.

 

[DizMe]

Interesting case. I don't have any background interpreting laws or court cases, but it is interesting because the parents who raised funds directly benefited.
For my son's school, when we do a fundraiser, no money is put into his "account"--all the money just goes to the school. However, when we do a fundraiser for Scouts, some of the money does go into his "account" that helps us offset costs, so we directly benefit, but Scouts as a whole is a non-profit, so I suppose that changes things a little.

It's tricky, isn't it?? I got from the article that it was not legal to earmark money earned through a non-profit fundraiser to any individual, so it doesn't sound like what the Scout troop is doing in that regard is allowed.

 

[smiths02]

It's tricky, isn't it?? I got from the article that it was not legal to earmark money earned through a non-profit fundraiser to any individual, so it doesn't sound like what the Scout troop is doing in that regard is allowed.

It's not the troop, it is the whole Council that does it. It seems like most fundraisers have some go to Scouts, some to the troop, and some the account of the kid. Maybe the direct benefit to the kid is considered a "meager" amount?

 

[supersnoop]

It's not the troop, it is the whole Council that does it. It seems like most fundraisers have some go to Scouts, some to the troop, and some the account of the kid. Maybe the direct benefit to the kid is considered a "meager" amount?

If the scout earns the money directly, then it can be allocated to the individual, but it is NOT tax deductible by the person contributing. That's the basis of the problem, is that the organization represents itself as a charity where contributions are tax-deductible, but because of the structure, they are not.

In the scout case, the scout has essentially bartered his work for payment towards scout programs. I have to guess that, since it goes directly to scouts, that it bypasses income tax for the scout, the same way if someone pays medical bills or tuition.

 

[supersnoop]

I don't think it's a matter of getting hosed so much as it's a small town with a small gym and we just don't have the means to do what the large gyms do, though we do have to compete against them. Our tuition is a lot smaller as a result, and most of the gym's funds come from the rec classes (non-team). Since our gym is small, we can't host meets so all of our meets are away. Our coaches do this as a second job because they can't live on the income they get from coaching alone. The booster club doesn't pay the coaches for their regular time, but helps pay their travel costs for meets, which may include some of their pay for being there outside of the meet (say, if they have to stay a day and a half)--I'm not really sure about that. Every parent is encouraged to help in some capacity but if that's not possible or the parent doesn't do it, then they pay a higher amount in fees since there is nothing deducted for working hours to offset the cost. I have 3 girls on team and spend roughly $10,000 a year on gymnastics fees, which includes both team and regular tuition costs. My cost in tuition for all 3 is about $460/month, which sounds high but is about what most gyms charge for one. However, our gym could not stay in existence if it charged what city gyms do. The parent booster club is really more about trying to keep the gym running so our kids can participate in gymnastics. I'm dismayed to read how this may put us at risk for liabilities etc.

We don't pretend to be an Olympic training ground, but our kids (mostly girls--our boys team currently has 3 members) do very well and love the sport. It's pretty cool to watch your kids handspring across the floor or do a backflip on the balance beam

Disclaimer: I am not a lawyer.
You've got two problems from a non-profit perspective. First, the booster club is paying money that benefits the private business when it pays travel expenses. Those would either be paid by the company or by the parents, so the booster club is benefiting a private group. Second, since the child (or parent) has to earn the benefit from the booster club, it is benefiting an individual. Both are contrary to the purpose of a charity. I believe the technical terms are "unjust enrichment" and "private inurement."

Now, that doesn't prohibit them from fundraising. It just prohibits them from representing the booster club as a charity, or contributions as tax-deductible.

 

[DizMe]

Disclaimer: I am not a lawyer.
You've got two problems from a non-profit perspective. First, the booster club is paying money that benefits the private business when it pays travel expenses. Those would either be paid by the company or by the parents, so the booster club is benefiting a private group. Second, since the child (or parent) has to earn the benefit from the booster club, it is benefiting an individual. Both are contrary to the purpose of a charity. I believe the technical terms are "unjust enrichment" and "private inurement."

Now, that doesn't prohibit them from fundraising. It just prohibits them from representing the booster club as a charity, or contributions as tax-deductible.

Thank you. Yes, I understood that part. We're not a non-profit and as far as I know have not told anyone donating that their contribution was tax deductible; I only asked about it because I was getting a coffee at Starbucks the other day and told the barista about our Showcase event and asked if they ever donated to things like that. That's when he told me they do it all the time for non-profits and just to bring in my tax form (or something like that). I didn't know whether or not we were non-profit (turns out we're not) so I asked around and then came here. Usually the donations are made by parents and friends; I had the bright idea of seeing if Starbucks could donate and if I'm understanding it correctly, businesses CAN donate items to groups like ours but they may not list it as a charitable donation. It can be written as a business expense, though. I didn't go beyond that Starbucks and am not sure if businesses would care to make donations if it wasn't to a non-profit, but I decided to stay out of it.

 

[verleniahall]

... I appreciate the advice about switching from 'raffle' to silent auction, Chinese auction, or opportunity drawing. I learned that our raffles have actually been Chinese auctions (didn't know that term and had to look it up), where people buy tickets and put them in a can next to the basket(s) they would like to win. I don't see how this gets around the law about raffles, though? ....

Could they do the same as an opportunity drawing where they get 1 free ticket and the rest they purchase??

I hope that your event goes well

 

[barkley]

Could they do the same as an opportunity drawing where they get 1 free ticket and the rest they purchase??

I hope that your event goes well

in California (where the o/p lives) anything that requires a person to make a purchase to participate in the raffle falls under gaming laws. this includes getting one free w/the purchase of others OR (as some groups try doing only to find it's illegal)-selling tickets to some type of event or fundraiser and saying that their ticket stubb then goes into a drawing. 'no purchase is necessary' means no cost to participate otherwise it's gaming.