I think this point is key to justifying fundraisers going into scout accounts.
**** Does anyone have more information on this aspect? ****
"However, the IRS still will overlook individual fundraisers (i.e., each girl selling cookie dough) in which the girl keeps her own money earned. This distinction between types of fundraisers may seem obscure, but the endeavors involving participation by the group and the amount of money raised, as opposed to one individual at a time, seem to be the deciding factors." ...
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I agree that we are largely in agreement :-)
Thanks for all the research. Nice to find someone else who likes to dig into these things for fun.
So at this point, my understanding is that we are mostly agreed that the typical use of Scout accounts would be contrary to the IRS code, but that there might be some very narrowly constructed situation where the IRS might overlook such a situation.
I'll note that the general case is referred to in the link, and is consistent with all of the previous posts and links that state that such accounts are not kosher.An individual account was set up in a particular girl's name so that drill team expenses incurred by her (absolutely not her parents, such as their own trip costs) could be paid for out of this account. The way the funds were allocated to this account depended upon how many times the parents worked a particular fundraiser for her. For instance, if her parent worked at the ballpark (Texas Rangers games at the stadium) one time, and if the ball park donated $50.00 to the drill team booster club for this, the money would be split 50-50, that is, $25.00 going into the girl's individual account and $25.00 going into the general fund for use by the entire team. Well, come to find out, this is not permissible according to IRS guidelines![emphasis mine]It does further add that the IRS doesn't usually go after groups for this (as we stated)Although many organizations have apparently been cited for this violation, until now, they have only been warned to "clean up their act" but have never been fined ($5000.00 per year). Needless to say, neither our director nor our booster club wanted to be held responsible for any fines of this nature!Even the exception that you quote is listed as being something the IRS will "overlook", not something that is permitted within the guidelines.
IRS Publication 557 has a ton of rules about how to be a charitable organization, most of which are carefully worded to try to stop people from committing various types of tax fraud. There are a few relevant items in there, but there isn't much new there that sheds extra light on the situation.
"No part of the organization's net earnings will inure to the benefit of private shareholders or individuals."
"In order for an organization (including a church and religious organization) to qualify for tax exemption, no part of its net earnings can inure to any individual. "
Oak Tree - Agree with your quotes and responses. What seems to be okay in the case quoted as the IRS overlooking is that the money was never the unit's money. Whereas allocating money earned at a unit fundraiser to individuals is not acceptable. But if the scout sold cookie dough or popcorn, his sales can be treated as his sales.
I'd really like to know if this is "overlooked" or if there is an aspect of the law making it okay.
To be honest, I love tax law stuff. I wish I had more time to dig into it.
- Jun 2005
I reckon it's hard to comment any further on this thread without treadin' a bit too far for me. But let's play a game of hypotheticals.
One might guess da closest IRS advisory letter to the point is this one:
I'm not really sure that such an advisory is necessary, since da issue seems fairly clear, but da advisory a nice point of reference.
It is of course correct that da determination of fraud or tax evasion or any other violation of law or regulation requires a finding of fact, and that will necessarily depend on da particulars of the circumstances. That is what da advisory letter states, but it does it in a careful way which is tryin' to say that the default is that this is use of scout accounts is not allowable, but that, perhaps, maybe, it may be possible to construct circumstances in which this would be OK, hypothetically.
What kinds of constructed circumstances could potentially past muster, hypothetically speakin'? Well, one would perhaps look somethin' like my ScoutTokens notion. In that case, da emphasis is on da educational and character-development purpose which is central to da NFP mission, the individual benefit is only incidental, and da connection to actual dollar funds is at least one step removed.
In what kinds of circumstances would the violation be clear, and scout accounts definitely not pass muster, hypothetically speakin'? Well, one would perhaps consider a case like what fauxc described initially, where there is a sense that those who work fundraisers "don't get rewarded like they should" and the intent is to reward fundraiser participants rather than use da funds to further the NFP mission. A savvy observer might guess that such an admission would be strong evidence of intent to violate da law and regulations in settin' up scout accounts.
All this of course only addresses da tax issue. Beyond that, there are still issues of fundraisin' fraud that would need to be addressed at the state level, among other things.
Given how hard this stuff is to navigate across jurisdictions, and how complex and mired in trade language da tax code in particular can be, in my humble opinion it's not somethin' that amateurs doin' internet searches should attempt. If yeh really absolutely positively feel that your unit must create and operate scout accounts in da way that fauxc suggests, then yeh absolutely should have a sit-down with your chartered organization and its legal counsel to discuss the matter and get help navigatin' rough waters.
Now, nuthin' that yeh hear from an anonymous furry internet critter like a Beavah should ever be taken as legal advice or opinion, or anything other than stray electrons bombardin' your eyeballs. If yeh want real advice on matters like these, find a real tax attorney or other qualified counsel in your own neighborhood pond.
(This message has been edited by Beavah)