Individual Fund Raising Accounts

Posted on Wednesday, July 16, 2014

Booster clubs everywhere hold fund raisers (scrip sales, candy sales, cookie sales, car washes, etc.) to raise money for students to participate in programs or take trips.  Most often students are given an individual credit towards their balance owed for the amount of money that they individually raise.  The difference must then be paid by the parent.

On June 27, 2011 an IRS directive was issued that changed fund raising for booster clubs. 

A 501(c)(3) organization must not be organized or operated for the benefit of private interests.  According to the IRS directive, booster clubs that offset an individual’s account with fund raising money are providing a private benefit to the individual.

“If a booster club confers a benefit on a participant in return for their fundraising activities, such as by crediting amounts raised by a participant toward that participant’s dues requirement, or by crediting amounts raised against the cost of a trip, the booster club is providing a private benefit to that participant.  Consequently such practices could result in the organization failing to be described in § 501(c)(3).”

The IRS directive goes on to include that “It is also possible that amounts credited to a participant’s account due to fundraising would constitute income from services, and could result in employment taxes.”

Instead of utilizing individual fundraising accounts, organizations should fund raise for the group as a whole.  Funds received should benefit the group, not a specific individual.  Any additional financial assistance needed for students should be given as scholarships by the nonprofit.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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