Legal question about profit vs non-profit for a fundraiser

[DizMe]

My 3 girls are on a competitive gymnastics team. The gym where they train is for-profit. There is a team parent organization that will be hosting a showcase to help raise money to pay for meet fees and coaches' travel expenses, which are not covered by the gym. We plan to have a raffle. I asked at a few businesses about donations and they said they would if we were a non-profit organization. I don't know whether we are or not, nor does anyone I've asked, so I thought I would post here and see if anyone has the legal scoop on this. Thank you!

 

[HM]

The parent organization....did someone set it up as a legal entity, or is it just a group of parents that work together. Your president or treasurer will know.

 

[rockawaybeachgirl]

'Not for Profit" is a designation assigned by the IRS. To be one, you would have had to first (1) register the organization (the parent organization) as a Corporation or something similar and then (2) fill out A LOT of paperwork with the IRS supporting your purpose etc. They are asking because it affects their ability to 'write off' the donation. I would highly doubt that you are a NFP, but if the organization filed a tax return for 2014 it would be indicated on that.

 

[teller80]

will be hosting a showcase to help raise money to pay for meet fees and coaches' travel expenses, which are not covered by the gym.

I know if doesn't answer what you asked, but I'm curious as to if the coaches are paid or if they are volunteers? If they're paid, I would think their compensation would include travel fees. (I can't imagine a for-profit gym would use volunteers). Would the money go directly to the coach or to the gym? If you raise extra money, what will the gym do with it? And I would think that the gym would cover meet fees, is that not typically the case?

 

[supersnoop]

This is a very complicated topic, and, unfortunately, most organizations do it wrong and get away with it.

For one, in order to be an non-profit, the organization must file and be approved by the IRS under article 501(c)(3). That comes with many restrictions and requirements. A 501(c)(3) organization is a charity owned by the public. Officers must be elected by the members and membership must be open to the public. Funds cannot be used for private benefit. The money cannot be dedicated for use to a specific child based on their involvement, and it cannot be used to benefit the for-profit organization. Also, in most states, raffles are illegal or severely restricted.

 

[Narnia_girl]

I work for a local not-for-profit and as indicated above, we are held to some strict guidelines. If the parent organization is set up as a not-for-profit, they should have a treasurer and their finances should be available for public inspection (they file a 990). Also, at least in my city, we file an application with the city to run a raffle, pay a small fee for the permit, and must be approved by the city council. One of the questions on the application is how long have we been in existence.

 

[DizMe]

Thank you all for your responses. I still don't know, but my guess is that we do not qualify for non-profit status. We do have elected officers and the membership is open to the public, but as far as I know, there has been no filing of paperwork or registration as a corporation or whatever entity we would have to be to claim non-profit status. The coaches are paid by the gym, but the gym has very little extra money and the parents have been working to keep things afloat for the team by paying for the coaches' team expenses, meet fees, etc. I see that most likely we would not be able to solicit donations as a non-profit organization. Thanks again for your help on this.

 

[barkley]

CAUTION!!!!!!!!

I see that you live in California-in California raffles are for the most part ILLEGAL b/c they fall under the designation of a lottery (gambling). there's only a VERY NARROW type of tax exempt charitable non profit (registered w/the state attorney general's office) that qualifies to hold them-and that is after a year of being designated and established.

PLEASE BE VERY CAUTIOUS-I served on a non profit board in California and saw how ardently well meaning people were shut down in these efforts by local and state authorities, their groups received horrendous publicity-and some were prosecuted (it's a penal code violation).

the California attorney general's website explains all of this.

 

[HopperFan]

Given your explanation of your group and the fact that no one has the documentation to show it (that would be something important and obvious) I would say you are not.

I will also chime in that raffles can be very dangerous and highly regulated depending not just on your state but your local jurisdiction. Be very careful.

 

[elaine amj]

Its regulated where I live too. But everyone does it - most without a permit. 50-50 raffles, draws, the works. Seriously - it's nuts requiring a small group doing a 50-50 raffle with maybe 30 ppl in the room to get a permit. I do avoid organizing them myself though.

 

[DizMe]

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?

 

[Alesia]

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?

Correct.

 

[barkley]

just curious-how does this work? is the gym separate from the team or do parents pay the gym directly for their kids to be on the team, and the gym pays the coaches, covers insurance and such? if the gym is the umbrella organization that employs everyone and facilitates entering the kids into competitions then I think any money collected and turned over to them for travel expenses and fees would end up being taxable to them-which they may not be too keen on. if the group is separate then they could go the non profit route (but I don't think they would meet the tight criteria for raffles even after a year b/c it's not a charitable organization) so they might at least qualify to be tax exempt for anything they collect through fundraising (yup, fundraising is taxable).

I think you need to research how everything is set up-and if it's not set up right I would suggest avoiding being involved in the organizing. even with a totally legal set up I still as a board member had to carry a rider on my homeowner's insurance b/c of the liability. it only takes one lawsuit by a disgruntled former team member/parent or them making a complaint to the local authorities or the tax board.

 

[princessesintraining]

My daughter is on a local gym team. I'm pretty sure our gym boosters is a non profit. The boosters offer buyout for parents that don't want to be involved in fundraising to cover coaches expenses and other gym team costs. Each individual covers heir our costs for meets, camps, tuition, and competition wear. Our boosters have done a few raffles for people not interested in a buyout. Everyone on tea, is required to do one booster fundraiser whether you did the buyout or not. This year we held a reverse raffle at a local firehall. Raffles in our state are pretty common, so I can't help you with that part.

 

[teller80]

fundraising to cover coaches expenses and other gym team costs. .

My kids weren't involved in sports other than recreationally for a few years so I don't know anything about the topic. Is this typical in all sports, to cover coaches expenses, or is it unique to gymnastics? My son was into scouting and band, and in those organizations everyone paid their own way (except the band director, but I think the school reimbursed him for his expenses).

 

[supersnoop]

My daughter is on a local gym team. I'm pretty sure our gym boosters is a non profit. The boosters offer buyout for parents that don't want to be involved in fundraising to cover coaches expenses and other gym team costs. Each individual covers heir our costs for meets, camps, tuition, and competition wear. Our boosters have done a few raffles for people not interested in a buyout. Everyone on tea, is required to do one booster fundraiser whether you did the buyout or not. This year we held a reverse raffle at a local firehall. Raffles in our state are pretty common, so I can't help you with that part.

Pretty much everything you described is a blatant violation of the 501(c)(3) law; buyouts, requirements, individual responsibilities. I've seen numerous booster clubs set up the same way, and only a few have been caught. Despite is being common, it is still illegal.

 

[DizMe]

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!

 

[barkley]

Pretty much everything you described is a blatant violation of the 501(c)(3) law; buyouts, requirements, individual responsibilities. I've seen numerous booster clubs set up the same way, and only a few have been caught. Despite is being common, it is still illegal.

and as I said before, it only takes 1 ticked off parent to raise a stink. it get's really specific w/booster clubs that support private facilities-the irs has taken a strong stand on funds raised where the private facility exercises ANY influence over the booster club's operations (so much as determining which meets/costs need to be covered) b/c then it's not a non profit-it's promoting a private business/supporting a commercial enterprise-which is not a non profit. might not be common for these types of organizations to get caught-but those I know who did and had to deal w/ irs, state, law enforcement (fiduciary responsibilities) and personal lawsuits would say once is more than enough.

 

[barkley]

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!

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.

 

[supersnoop]

and as I said before, it only takes 1 ticked off parent to raise a stink. it get's really specific w/booster clubs that support private facilities-the irs has taken a strong stand on funds raised where the private facility exercises ANY influence over the booster club's operations (so much as determining which meets/costs need to be covered) b/c then it's not a non profit-it's promoting a private business/supporting a commercial enterprise-which is not a non profit. might not be common for these types of organizations to get caught-but those I know who did and had to deal w/ irs, state, law enforcement (fiduciary responsibilities) and personal lawsuits would say once is more than enough.

To be clear, that one parent might not go into it ticked off. I've tried to help a couple of organizations get into compliance only to be told that they didn't want to do things that way. Most parents want to use a booster club as a way 1) for their children to earn money for their trip, and 2) to write off expenses related to their child's involvement in the activity. Those are outright tax evasion. When you tell parents what is actually required, they start complaining that they'll put in more than they get out. You know, the definition of "charity." Charity is putting in your time, effort, and money to help a larger portion of society, not to save you money. Most booster clubs either don't realize that or ignore it when raising money.

Now, there's nothing wrong with raising money or earning towards a goal, but it's sip,y not tax deductible in most cases. So, back to the OP, as long as people realize that their donations are not tax deductible and the organization pays taxes on income, it's all legal. Except for the raffle; that's going to be illegal gambling in California and everyone selling tickets could face misdemeanor charges.