IS YOUR BOOSTER GROUP TRULY TAX–EXEMPT?
By Nancy Kirchner, CPA – Tax Manager
A U.S. Tax Court ruling last month could have a large impact on the tax-exempt status of
booster clubs and similar type groups across the U.S. after the court upheld the
revocation of the exempt status of a parent run booster club that supported gymnastics.
In Capital Gymnastics Booster Club v. Commissioner [T.C. Mem. 2013-193 (Aug.16,
2013] the decision to revoke the exempt status was upheld because it was determined
that the Booster Club was not operated exclusively for exempt purposes within the
meaning of IRC sec 501(c)(3).
Typically booster clubs are tax-exempt organizations formed by parents to provide
support to students in the classroom or for specific extracurricular activities. The groups
often solicit parent contributions and raise outside funds by sponsoring auctions,
holding car washes or selling gift wrap or candy. The money is then used to defray costs
of extras such as buying equipment or funding trips to competitions or events.
Many of these booster clubs are organized as tax-exempt 501(c)(3) charities, a category
that also includes a huge number of schools, religious groups and health-care groups.
However, to be tax-exempt, booster clubs and similar groups have to meet the same
requirements as other charities. That means a group must serve the public interest, and
its earnings can't benefit only a few people. That second requirement—known in tax law
as "private inurement" is where the Capital Gymnastics Booster Club ran into trouble.
The court ruled that almost all of the petitioner's fundraising proceeds were earmarked
to benefit those individuals who fundraised. "That dollar-for-dollar arrangement
constituted inurement and private benefit in violation of section 501(c)(3) because the
methodology furthers private interests rather than the team or the organization as a
Although the decision applies only to this club, experts say the IRS will take it seriously
when reviewing other groups.
Source: T.C. Memo. 2013-193 Capital Gymnastics Booster Club, Inc., Petitioner v.
Commissioner of Internal Revenue, Respondent (click here for pdf)
If you have any questions regarding the article above or any other issue affecting your not-for-profit organization please contact your Blue & Co. advisor or e-mail us at firstname.lastname@example.org or call us at 800-717-BLUE
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