Tuesday, April 26, 2016

LEADERSHIP: Youth Fundraising Accounts and the IRS

While I am not a great fan of them, for many years churches have had individual student accounts. Students could participate in a variety of fundraisers and accrue money toward their trips and activities. They may still do that, but there are rules. Find a pdf copy of these rules here.

Your child may be participating in Lutheran Church Youth Ministry fundraisers. They will have the opportunity to raise funds through approved fundraisers to help support youth activities such as mission trips, youth gathering trips, and other approved activities.

All fundraisers are subject to the following guidelines as directed and suggested by the IRS 501(c)(3) and nonprofit law:
  1. Students are only to participate in approved fundraisers.
  2. Payments made by parents will be credited to each individual account. These payments are not tax-deductible.
  3. Straight contributions to Lutheran Church Youth Ministry (which may be tax-deductible) may not be earmarked and credited to support specific students.
  4. Checks returned for non-sufficient funds will be charged an amount equal to the Bank’s returned item fee.
  5. Students and parents understand that the money raised is the property of Lutheran Church and not the student. 
  6. All amounts raised are used for the tax-exempt purposes of Lutheran Church Youth Ministry.
  7. Lutheran Church Youth Ministry, and not the students, must determine how the funds are used…see IRS and nonprofit law recommendations.
  8. Students or parents may not withdraw funds to use as they wish and students may not transfer funds to friends.
  9. Any personal deposits that were made to an individual account will be refunded at the time of closing the account (graduation or no longer in youth ministry). The only exception will be any debts owed to Lutheran Church Youth Ministry and any non-refundable trip expenses (501(c)(3)).
  10. No earned credits or personal deposits can be transferred from one youth group member’s account to another except for transfers between existing accounts of siblings who live in the same household. Transfers will also be permitted between existing accounts of siblings who are leaving the youth group and new accounts of siblings from the same household who are entering the youth group in the following year.
  11. According to IRS 501(c)(3), participation in a fundraising activity is voluntary. Students and parents are not required to participate in a minimum number of fundraising activities or events to receive funds from the general fund. This organization does not engage in a “no work, no play policy”. To demand students work for their funds removes the idea that fundraising is voluntary and now becomes “work” for your share of the funds. 

Crediting of Fundraising Amounts Constitutes Private Benefit

"If a booster club (youth ministry) 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).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." (Forbes, Sept. 15, 2013)

"In order to remain eligible for non-profit status, money raised by the organization must be used for the public good, not to enrich the members personally, either in the aggregate or directly attributable to an individual’s portion of the fundraising. Scouting units are owned by their chartered organizations, and their non-profit status is conferred upon them by the CO, most of which are 501(c)(3) organizations. Private benefit to members in anything more than an insubstantial amount may jeopardize the non-profit status of the parent organization. Initially, the IRS ruled in a case involving sports booster clubs, but have also passed judgment in a similar manner when a ruling in a Scout context was requestedThe same approach applies as well to church youth groups, marching bands and academic clubs." (Bobwhite Blather, Jan 20, 2014)

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