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  • 503C Status and Scout Accounts

    Hi all, any Tax Accountants/Lawyers out there?

    Recently, I was involved in fundraising for my son's High School hockey team.

    At a parent meeting, we were discussing if each boy's sales should be used to cover his share of the costs, or all pooled together & the uncovered costs divided equally.

    One parent, who is a tax accountant, said that if you're raising funds for a 503C organization - 100% of the funds you raise have to go into a general pool. In other words, a person can't raise funds for their own personal benefit under the auspices of a 503C. Even if the majority of what you raise goes to the organization.

    Has anyone else ever heard of this? If it's true, I would wonder if it makes putting a percentage of the funds raised by a scout into his "Scout Account" illegal? Or is the Council considered the "general pool", and what a Unit does with the money distributed by the Council sufficiently distanced?

    NC

  • #2
    I've not heard of it, but ...

    Packs, Troops, Teams, and Crews, with relatively few exceptions, are chartered (licensed) by a local Council of the Boy Scouts of America to a local church or civic group. These places often have non-profit status in their own right.

    Some units are chartered by businesses, who do things for profit. One example in my area is a SCUBA based Venturing Crew, chartered by a dive shop.

    A few units go the self-chartering (friends of) route.

    There is one thing a unit does not want to do, especially if it's chartered to a non-profit: The unit does not want to hazard the NP tax status of the Chartered Partner.

    Unit committee chairs and treasurers really should have friendly cups of coffee visits with their Chartered Organization Representative and Institutional Head. Then, when (if) the Chartered Partner issues guidance, it's time to follow it. The Chartered Partner is the licensee of the program.

    I've seen an area unit goof the non-profit status of its Partner. Ugly isn't enough of a word for the consequences.

    Comment


    • #3
      One parent, who is a tax accountant, said that if you're raising funds for a 503C organization - 100% of the funds you raise have to go into a general pool. In other words, a person can't raise funds for their own personal benefit under the auspices of a 503C. Even if the majority of what you raise goes to the organization.

      The parent is correct.

      Has anyone else ever heard of this? If it's true, I would wonder if it makes putting a percentage of the funds raised by a scout into his "Scout Account" illegal? Or is the Council considered the "general pool", and what a Unit does with the money distributed by the Council sufficiently distanced?

      Yah, well, dat's an interestin' argument to try .

      The better argument is that all of the fundraisin' is going to the unit as a common pool, but since one of da unit's educational goals is to develop character by instilling a work ethic ("a scout pays his own way"), the unit chooses to allocate some of the unit's funds to support the activities of boys in a way that encourages that work ethic.

      To my mind, that's "dancing with the devil in the pale moonlight", eh? But probably most units are flyin' below the radar and aren't goin' to cause an issue for themselves or their CO.

      Where the line is clearly crossed to my mind is when those scout accounts allow boys to take money out when they leave the unit. I also think that when they allow the accounts to be used for da purchase of personally-owned gear it's a step too far.

      Oh, yah, and the term you want is a section 501(c)(3) organization, eh?

      Beavah
      (This message has been edited by Beavah)

      Comment


      • #4
        "what a Unit does with the money distributed by the Council"

        Wow...never heard of a Council distributing money to Units. The money flow is usually one way...in the OTHER direction.

        Comment


        • #5
          I've been opposed to "Scout Accounts" consistently - and this is one of the reasons why. I suspect that it's not unknown that Scout units put these accounts together, but that the amounts in consideration are relatively small enough that it doesn't meet an actionable threshold.

          I suspect in general that people who donate (or purchase popcorn, or whatever) understand that it's going to help support the Scout's program, and will help Scouts go camping, etc. and probably won't mind terribly much if some of it goes into a Scout Account that helps Bobby pay for summer camp. Buying personal gear? As Beavah suggests, not a good idea - and I know that I would not be so quick to pull out my wallet if I knew that some of the money was going to buy Bobby a backpack of his very own (not to be confused with a backpack for the Troop to loan out to Bobby when he needs it - I'd support that). In this case, my take on "A Scout Pays His Own Way" is that a Scout comes and mows my lawn, or shovels my driveway, and earns his very own money. When raising funds for the Troop, the Scout is helping the Unit pay it's own way.

          It should be fairly obvious that if a Scout leaves the unit, any money in a "Scout Account" that he, or his family, has not directly deposited in it stays with the unit. Writing a check to the now ex-Scout pretty much crosses that gray line we've created. I have always suggested the same goes for transfering "Scout Accounts" from Cub Scout Packs to Boy Scout Troops. Sure, the lad is still a Scout, but you're transfering Pack assets to a Scout Troop.

          My youth Troop had "Scout Accounts" - but no money came from shares of fundraising - it was actually more like a "christmas club" account at a bank - we deposited money with the Troop Treasurer every week, or month, or as we could which helped save for Summer Camp, or special trips, or could even be used for a weekend trip. If you really want Scout Accounts, consider this model - it's a bit truer, in my opinion, to the notion that "A Scout Pays His Own Way"

          Comment


          • #6
            I just want to riff on something I saw in the original post:

            "At a parent meeting, we were discussing if each boy's sales should be used to cover his share of the costs, or all pooled together & the uncovered costs divided equally."

            I've heard this before in discussions of Scout Accounts (and suspect this is one of the prime reasons that Scout Accounts have, in my opinion, strayed off course).

            Though it may not have been said, I probably wouldn't be wrong in stating that at the very least, in the back of some parents' minds, was the thinking that commonly is brought up as "My kid raised $X.XX during the fundraising drive, and that kid raised on $Y.YY - why should that kid benefit the same as my kid from the hard work my kid put into the fundraising drive".

            You were fortunate, in a way, to have a tax accountant nip that thinking in the bud by stating a reality of fundraising accounting.

            My response would have been a bit more blunt. I would have suggested that the fundraising was done to support the TEAM, that every person on the team has strengths and weaknesses and that all the members of the team help with the weaknesses and benefit from the strengths of the other. If the kid (more likely the parent) can't display teamwork off ice, what does that say about the teamwork potential on ice? If I were the coach, I'd suggest they get with the program and join the team, or find the door.

            Comment


            • #7
              "Sure, the lad is still a Scout, but you're transfering Pack assets to a Scout Troop."

              And I don't see that as a problem if the units both belong to the same CO. It's all the CO's money anyway...not the "unit's" and not the scout's.

              I don't see a problem with scout "accounts"...in most cases, these are not actual accounts, but just a paper accounting of who earned what. I see nothing wrong with teaching that rewards are directly proportional to effort and that if you don't work, you don't benefit. But them I'm one of those angry, astroturf Conservatives.

              Comment


              • #8
                The subject of fundraising was featured in Scouting Magazine in November-December 2007. Here is the link:

                http://www.scoutingmagazine.org/issues/0711/a-projects.html#sbar2

                See especially the section headed:

                Giving Credit Where Credit Is Due

                The first example includes the line:

                These Scout bucks can pay for uniforms, equipment, and activity fees.

                Here is the full text of this section of the article, but read the whole thing:

                Giving Credit Where Credit Is Due

                Units often make a portion of the funds from money-earning projects available to individual members by covering summer-camp fees or depositing money in special accounts for Scouting use. Doing so encourages higher participation and rewards those members who work harder. The details vary widely, however. Here are a few examples:

                - Pack 391, in Albany, Ore., gives Scout bucks to boys who participate in its can and bottle drives. These Scout bucks can pay for uniforms, equipment, and activity fees.

                - Proceeds from Troop 994s mulch sale go to the troop, and some level of participation is required from each family. Scouts who later help spread mulch split all the profits based on the hours they work.

                - Troop 474 reserves 15 percent of the profits from its flag project for its general fund. The other 85 percent goes into Scout accounts.

                - Profits from Pack 33s wreath sale all go into the packs general fund, which keeps dues low and allows for special purchases such as model-rocket kits for all the Scouts.

                - Troop 3 in Brookwood, Ala., manages three parking lots during University of Alabama football games. If a Scout (or his parent) works all eight games, his summer camp and an additional weeklong summer trip are paid for.

                Have fun Scouting!

                Comment


                • #9
                  Here is another case to think about....

                  Our school requires each family to raise $350 per year in profits from fund raisers... Any money not raised is billed to the family.
                  This money is used to cover school activities such as field trips.

                  While stated in reverse, this is the exact same effect of a scout account.
                  The family is expected to sell enough popcorn to send their scout to camp. If he fails to sell enough, he must pay his own way to camp.

                  Does anyone who thinks scout accounts are wrong have a problem with my school example? Is setting a min sales level the same as allocating a percent to the scouts bill? Mathematically they work out the same so is it just a matter of phrasing it right to make it legal? Moral? Just plain right?

                  Or is the min sales requirement just as wrong?

                  Comment


                  • #10
                    My kid's school does like wingnut's school

                    The school is 501c3, a non-denominational Christian school. We have a 'fundraising' account that we are charged, if we go over the amount the school lets the kid have 25% of the overage to use for lunch or whatever.

                    Our Troop has scout accts and they work OK

                    Our Council pays us 35% of popcorn sales, we credit 30% of this back to the boys in there scout account to pay for dues and trips

                    Our Council pays us 40% of family fest sales, we credit 20% back to the boys, the other 20% is used to fund the family fest booth. The portion back to the scouts is put in a scout account.

                    The Treasurer and Financial Secretary of the sponsoring church reviewed this plan and determined that the amounts in question are negligible so they are OK.



                    Comment


                    • #11
                      It came home to a church about ten years ago. A member of the church council wanted to give a $1000 to a church scholarship fund and then have the church give his daughter a $1000 scholarship to a church related college. The kicker was that the college matched congregational scholarship up to $1000. We told him no go, he was not happy with that and soon after left the congregation.

                      We are very careful with what goes as a contribution on a familys record. Many times check come in the offering plate and also go through the deposit. If for example you are buying a study bible or paying for your kids youth group retreat fee it is not a contribution but a gift to youth group fund or buy bible for Sunday school are.

                      Comment


                      • #12
                        Troop 1.

                        Scoutmasters name is Fred.

                        Scouts names are Andy, Bob, Erik, Greg, and Larry.

                        Each Scout earns $100 in the fundraiser. Total $500.

                        All goes into general fund. Committee decides to use the money to help pay for the Scoutmasters trip to the Philmont training center.


                        Troop 2.

                        Scoutmasters name is Lisa.

                        Scouts names are Ajay, Evon, Fung, Lieng, and Yung.

                        Each Scout earns $100 in the fundraiser. Total $500.

                        All goes into Scout accounts. Committee decides to use the money to pay $100 towards each Scouts summer camp.

                        Which committee are you on?

                        Comment


                        • #13
                          Troop 2 is better!

                          We do something like this now with a slight twist.

                          Just had a car wash. Raised $1,100 total. Seven scouts and seven adults for a total of nine families participating.

                          The number of hours each person worked was added up and divided into the total, this came to a certain $$ per hour for each. Each family was credited with an amount. Not everyone worked the same amount of hours.

                          Comment


                          • #14
                            Either troop would be OK, provided that...these expenditures were part of the annual budget plan up front and parents and scouts knew in advance what the purpose of the fundraising was for. The way it SHOULD have happened is, e.g., 50% of the funds raised go into the scout accounts and 50% goes into the troop overhead fund. If there's not enough funds raised to send Fred to PTC, then he pays the rest himself, or doesnt' go.

                            But Fred deciding mid-way through the year that he wants to go to PTC and the troop should pay for it is a non-starter. Propose it in the budget and vote on it, then start fundraising to fund the Troop program.

                            I think where we cross the line is when we fundraise in the name of the BSA/Troop, then give the money to individuals when they leave the unit or to buy personal items. But paying the Troop's summer camp bill is OK in my book.

                            But I'm not a CPA nor a lawyer.

                            Comment


                            • #15
                              Yah, eghlie, your school is playin' with fire.

                              There are two issues here, eh?

                              There's a legal issue. 501(c)(3) entities cannot divert tax-deductible donations/fundraising in a way that "inures to the benefit of" an individual member. So when yeh allocate it to reduce a member's cost, particularly on a per-dollar or per-hour-worked basis, that can be a problem.

                              If yeh want to do that as a troop, your CO needs to treat your fundraiser as unrelated business income, pay the tax on it, and then pay the boy a wage with appropriate deductions for FICA and such. That would teach the lad more about workin' for a living in any event ("Who is this FICA fellow and why did he take my money?" )

                              Anything else is tax cheatin'.

                              When we put on a fundraiser for Scouting, we're telling people that their hard-earned money is going to support the scouting program, eh? Not going to buy the boy a new backpack and set of hiking boots for his very own.

                              That's what fraud is, eh? Claiming to be collecting money for a charity, and then using it for yourself. So there's also an issue here of committing fundraising fraud in addition to tax evasion.

                              The moral issues are similar to da legal ones, eh? I think Calico describes these well. When we raise funds, we're representing that the benefit is goin' to Scouting. And we all know that in Scouting, there are some boys and families who are in dire need, and others who are well-off. To truly keep up our bargain with our donors, we need to allocate the hard-earned dollars they've given us to do the most good for Scouting, not the most good for da boy workin' the fundraiser. Buyin' backpacks for a troop to loan out to boys who need them is great. Givin' money to the lad who worked the fundraiser to buy a backpack for himself is just not kosher.

                              So Calico has the right of this, eh? If yeh care about following the law, and you care about doin' what's right, yeh can't be allocatin' fundraising to individual accounts as though they were wages, and yeh can't be allowing fundraisin' dollars to purchase personal gear.

                              Will yeh get caught? Probably not, unless someone complains. And as long as the dollar amounts stay small you're probably only goin' to get a slap on the wrist and a fine when yeh do get caught. But I don't reckon that sorta thing should matter to people who care about Timeless Values.

                              As to transferring funds between 501(c)(3) organizations, that is allowed. One unit can donate to another if it so chooses. But then that donation goes into da general fund of the new unit, to be allocated as it sees fit, eh?

                              Beavah

                              Furry fellows in online forums can blather on and on, but nuthin' they say should be construed as formal legal opinion or advice. If you or your organization needs real tax or legal advice, yeh have to seek out an attorney in your area who specializes in tax law issues for corporations and NFPs. Don't accept any substitutes, online or otherwise, for da real deal!
                              (This message has been edited by Beavah)

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