Perhaps the greatest challenge you’ll face as a booster club leader is achieving annual fundraising goals. You’re always seeking new ways to motivate students and parents to participate in fundraising activities. To hold each family accountable for their “fair share” of the overall fundraising goal, many booster clubs have implemented individual student accounts. The trouble is, this violates IRS guidelines for nonprofit organizations.
This excerpt from my book, The Booster Leader, 35 Leadership Essentials for a Thriving Booster Organization, explains why the IRS does not allow nonprofit organizations to operate with individual student accounts. Additionally, you’ll see the severe punishment the IRS dealt to three booster clubs for operating with individual student accounts.
Comply with the IRS
In the late 1990’s a new funding model for booster organizations swept the nation in popularity – individual student accounts. Scout troops, independent athletic teams, and other student support organizations quickly jumped on the bandwagon and implemented student accounts. Based on the premise of individual accountability, student accounts offered several benefits to booster leaders and proactive families alike.
Here’s how it worked. The booster organization divided its annual budgeted income by the number of students in the program. This represented the “fair share” each student was expected to contribute. Students worked fundraising events, sold products, and paid out-of-pocket to reach their fair share. Fundraising proceeds were dispersed into student accounts based on participation. The more that students worked or sold, the more proceeds went into their accounts. Families could also bypass fundraisers altogether and pay the full fair share out-of-pocket.
Booster leaders and instructors benefitted from student accounts. Annual budgets were easier to achieve, as students were held accountable for their fair shares. Students who were not current with their accounts were often denied participation in the program. At the end of the school year, it was common to withhold students’ grades if they had outstanding debts.
Student accounts provided an incentive for proactive families as funds above and beyond the current year’s fair share rolled over to the following year. Funds could also be applied toward the program’s annual trip or other event.
Sounds like a great model, right? Well, don’t jump too soon. Here’s why…
Enter the Internal Revenue Service
The IRS allows booster organizations and other nonprofits to operate tax-exempt under section 501(c)(3). This section establishes stringent guidelines for nonprofits, including, “none of its earnings may inure to any private shareholder or individual.” Inure means “to become beneficial or advantageous.” Therefore, a booster organization may not allocate funding in a manner that would benefit any individual student over the other students in the program. Funding must be distributed equally to all students, regardless of their individual level of participation in fundraising activities. Furthermore, no student may be denied the opportunity to participate in an extracurricular program based on his or her ability to participate in fundraising.
In 2008, three booster organizations near Lexington, Kentucky learned a difficult lesson about student accounts. After a series of tax audits, the IRS fined the Bryan Station Baseball Boosters $61,000. To put this into perspective, their annual budget was $44,000. The Henry Clay Band Boosters were fined $30,000, and the Lafayette High School Band Boosters $9,000. The infraction? These booster organizations dispersed funds into student accounts according to student participation in fundraisers. Therefore, some students received greater benefit than others in the program. Additionally, these fundraising disbursements reduced the annual fees (fair share) required of each student, which could have exposed families to IRS fines because fundraising credits can be considered as income.
As we have seen, the IRS requires booster organizations to distribute funds equally to all students, regardless of their individual participation in fundraising activities. This is just one of many IRS requirements for nonprofit organizations.
Do you know all of the IRS requirements for your booster club? Are you confident that your booster club fully complies with the IRS? How would your booster club fare if you were audited?
To learn all of the IRS’s requirements for booster clubs, check out my book, The Booster Leader, 35 Leadership Essentials for a Thriving Booster Organization. It will equip you to lead with confidence and give you the assurance of complying with all IRS requirements. The Booster Leader is available on Amazon in Kindle and paperback formats.
Question: What does your booster club do to ensure that funds are distributed equally to benefit all students? You can leave a comment by clicking here.