Capital Gymnastics Booster Club Inc. v. Commissioner; T.C. Memo. 2013-193, Filed August 26, 2013
“In March 1987 Capital Gymnastics was organized in Virginia as a nonstock corporation for the purpose of “fostering national and international sports competition, within the meaning of Section 501(c)(3)”. In June 1988 the IRS granted Capital Gymnastics’ request for recognition of tax-exempt status.
Capital Gymnastics is a booster club, not a training facility, and it owns no facilities or equipment. As of June 2003 its only asset was a bank account with a $27,192 balance. …
By the fiscal year ended June 30, 2003 (“FY 2003″), Capital Gymnastics had approximately 240 member families. However, Capital Gymnastics is a booster club, not a training facility, and it owns no facilities or equipment. As of June 2003 its only asset was a bank account with a $27,192 balance.”
“The parties have stipulated that “Capital Gymnastics’ primary function was to raise funds”. A parent could simply pay his child’s assessment in cash; but Capital Gymnastics also gave member-parents the option to voluntarily fundraise to offset the assessment amount. Capital Gymnastics’ fundraisers included selling wrapping paper, discount cards, cookie dough, candles, ornaments, and “scrip.”
The Tax Court agreed with the commissioner. “The Commissioner “does not quarrel” that Capital Gymnastics’ mission of fostering amateur sports competition is a qualifying purpose within the meaning of section 501(c)(3) or that the amateur athletes associated with Capital Gymnastics are members of a charitable class. The Commissioner also accepts that fundraising by a booster club is a permissible activity under section 501(c)(3). The Commissioner objects, however, that “almost all of petitioner’s fundraised proceeds are earmarked to benefit those individuals who fundraised”. The Commissioner contends that this dollar-for-dollar arrangement constitutes 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 whole.”
Comment: This decision may have far reaching consequences. 501(c)(3) organizations that compensate those who assist with fundraising activities by reducing fees or other payments may risk losing their tax exempt status. Schools that provide tuition relief for parents who assist with fundraising may be particularly vulnerable. Additionally, those who work as fundraisers in exchange for reduced tuition or fees will be required to report taxable income.