Some booster clubs create individual fundraising accounts to give credit to those who participate in fundraising activities. It is often asked whether such accounts are legal under IRS charity rules and if so, whether the individuals may control how the funds in their accounts are used.
The IRS has a strict rule against private inurnment – the transfer of any of an organization’s assets to, or for the benefit of, an individual for a nonexempt purpose. Therefore, individuals may not control any fundraising accounts set-up in their name, nor may they withdraw funds from the “accounts” to use as they wish. The tax-exempt organization must at all times determine how its funds, even funds credited to an individual with respect to their fundraising efforts, are used. And, all funds must be used for the organization’s tax-exempt purposes.
The IRS also prohibits earmarking of contributions. You cannot make a tax-deductible contribution to a tax-exempt organization and earmark or designate the funds donated for the support of a specific individual. If you could, parents could make tax-deductible contributions that they earmarked to pay for specific expenses of their own child.
1. Individuals understand that the money raised is really the property of the tax-exempt organization; the tax-exempt organization must control the funds and determine what portion, if any, of the amounts raised may be credited to the individuals;
2. All amounts raised are used for the tax-exempt purposes of the organization; the organization, and not the individuals, must determine how the funds are used; and,
3. Individuals may not withdraw funds to use as they wish; individuals who leave the organization cannot take amounts credited to their name with them; the funds stay with the organization to be used for the organization’s tax-exempt purposes.
The Washington State Booster Club Association
“Providing Booster Club – Guidance – Education – Training & Support”
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