Competitive, Non-profit Non-tax-exempt Youth Softball Team

[Adom]

Hi, I am starting and coaching a competitive youth softball team that will be participating in local softball tournaments and plan to host several fundraisers to cover as much of the costs of the tournaments as possible. Each player will be required to participate in our fundraising efforts, but the funds raised will apply equally toward the tournaments so that each player will owe the same.(Example: A tournament costs $400 and we have 10 players. We raise $300 in a fundraiser. The remaining $100 due will be divided equally among the players to pay $10 each.)

We have an EIN which we applied for under the "other" category and selected "Sports team(community)", and my question is whether we will be required to file any kind of return with the IRS or have to pay income tax on the funds raised. Is there a limit to the amount of funds we raise? I consider us non-profit since all funds we raise will be expended on softball tournament entry fees and our purpose is not to earn a profit, but I don't know if the IRS will consider us that.

If we apply for 501(c)3 exemption, would we be considered under the Amateur Athletic Organizations provision of 501(c)3 or would we be under social/recreational clubs?

[Cham]

If you want donors to be able to deduct donations and not

to have your sales income, if any, taxed as long as you

comply with fundraising guidelines for 501(c)(3)

organizations, you would need to establish a charitable

trust, incorporate under a state's nonprofit corporation

law, or set up an unincorporated nonprofit association.

Your organizing document would need to state that it is

organizing under Internal Revenue Code Section 501(c)(3).

You would have at least 3 directors, with control of the

board not in related persons.   After the initial set up, you would need to apply for

a EIN(tax id number)http://snipurl.com/gij28

and then you could apply for the IRS exemption

determination letter which could be effective

retroactively to the date of establishment of the

organization. The IRS minimum filing fee for such a

determination letter is $400 and goes up to $850.

www.irs.gov/charities/article/0,,id=232771,00.html See the IRS Publication 557 "Tax Exempt Status for Your

Organization" at: www.irs.gov/pub/irs-pdf/p557.pdf

in the right column on page 22 under "Organizations Not

Required to File Form 1023" discusses who does not need

to file and among those is "Any organization(other than

a private foundation) normally having annual gross

receipts of not more than $5,000.  These organizations

are exempt automatically if they meet the requirements of

section 501(c)(3)."

You must have the required clauses in the organizational

document  See, starting on page 23 of  Publication 557

under "Organizational Test". Samples start on page 69.

Also you must operate as a 501(c)(3) organization(see

that publication 557 for the general rules).

However, as you plan to require players to work, apparently in sales efforts, for most of your funds, you would not be qualified as a 501(c)(3) organization. www.irs.gov/pub/irs-tege/booster_club_field_directive_6-27.pdf

---Start of Excerpt--

If a booster club 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).

---End of Excerpt---

The IRS continued in the next paragraph, "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." Harvey Mechanic, Attorney at Law - [email protected]

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.