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Moving away from ISA’s

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Oddly enough my cousin's unit had tax attorney, who is a former IRS agent, approve the approach they took. We copied it.

I'm thinking that this is one of those "ask three experts and get three answers" kind of thing. My IRS agent friend's advice was to simply stay away from anything like ISAs, but I know others have gotten different answers.

 

Nor does it address how council popcorn sales that give private benefits to scouts who sell more than others a prize, and not everyone getting a prize.

My understanding is this comes under a "the cost of fundraising" and is reported to the IRS that way (it's like paying your fundraisers).

 

I would encourage other units to do the same and not take advice from the likes of us. ;)

I agree with this.

Edited by Rick_in_CA

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As a scout, I wanted to go to Philmont.   I mowed lawns and sold newspapers in front of the commissary on base.   My earnings went into a tin can in the kitchen.   When it was time to pay up, I gave the SM what was in the tin can.   I was still a bit short, but my parents paid the difference (bless them).

 

The troop treasurer should not have to be a part-time CPA.  

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As a scout, I wanted to go to Philmont.   I mowed lawns and sold newspapers in front of the commissary on base.   My earnings went into a tin can in the kitchen.   When it was time to pay up, I gave the SM what was in the tin can.   I was still a bit short, but my parents paid the difference (bless them).

 

The troop treasurer should not have to be a part-time CPA.  

 

That's how I got through scouts as a youth.

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The troop treasurer should not have to be a part-time CPA.  

 

Nor should a home-owner or head of household. ;) But that's our government for you.

 

I wonder how many kids' parents are claiming those popcorn prizes -- especially those gift cards -- given by council as untaxed income. ;)

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Nor should a home-owner or head of household. ;) But that's our government for you.

 

I wonder how many kids' parents are claiming those popcorn prizes -- especially those gift cards -- given by council as untaxed income. ;)

I concur!

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I take a very different approach. One of the benefits I and others who posted gained from scouting had to do with financial management. The way I see it, the isa and even troop accounts done "all legal" far too often take away the opportunities from the patrol and the individual scouts to learn something about money and finances. One troop I volunteered at did great fundraising, it was all organized by the parents. The scouts just showed up to "work". The amt of $ raised was considerable. Every campout (all activities for that matter, even dues) were funded by this event. The only exception was a partial funding of summer camp. So besides the event being adult run, the biggest problem I saw was the spending of the $. Campout with 4 patrols, they all show up to the store with their menus and are "allowed" $10 per boy. The patrol gathers up all their food and goes to checkout with the troop treasurer (adult) who writes a check for the food as long as it came in under the maximum. The boys were denied the opportunity to learn about collecting $ from patrol mates, remembering to even bring it, etc... When I mentioned it to the SM, the response was "its easier this way". Well of course it is easier, the boys didnt do much and learned nothing. Stosh would point out the boys learned that they dont need to do anything because the adults do it all for them. What is most sad, is I have seen many financial systems in troops which deny the boys the opportunity to learn to do things for themselves. Isn't that kind of the point of all this?

 

So my take is not what is legal, blah blah, but instead what provides the best opportunities for the boys to learn to do for themselves. Certainly not accounts managed and controlled by the adults.

Edited by DuctTape
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Nice thoughts @@DuctTape, but getting more than 4 boys together to do anything with all the things they're involved in is terribly difficult these days.

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I take a very different approach. One of the benefits I and others who posted gained from scouting had to do with financial management. The way I see it, the isa and even troop accounts done "all legal" far too often take away the opportunities from the patrol and the individual scouts to learn something about money and finances. One troop I volunteered at did great fundraising, it was all organized by the parents. The scouts just showed up to "work". The amt of $ raised was considerable. Every campout (all activities for that matter, even dues) were funded by this event. The only exception was a partial funding of summer camp. So besides the event being adult run, the biggest problem I saw was the spending of the $. Campout with 4 patrols, they all show up to the store with their menus and are "allowed" $10 per boy. The patrol gathers up all their food and goes to checkout with the troop treasurer (adult) who writes a check for the food as long as it came in under the maximum. The boys were denied the opportunity to learn about collecting $ from patrol mates, remembering to even bring it, etc... When I mentioned it to the SM, the response was "its easier this way". Well of course it is easier, the boys didnt do much and learned nothing. Stosh would point out the boys learned that they dont need to do anything because the adults do it all for them. What is most sad, is I have seen many financial systems in troops which deny the boys the opportunity to learn to do things for themselves. Isn't that kind of the point of all this?

 

So my take is not what is legal, blah blah, but instead what provides the best opportunities for the boys to learn to do for themselves. Certainly not accounts managed and controlled by the adults.

DuctTape, well said.

 

The troop sounds like more like a cub pack than a scout troop.   Unfortunately, we are seeing this more and more, not only in scouts but also in school and sports.  Mom and dad doing everything and the kids show up and have fun.   As you said, the best way is to learn for themselves (how to organize, budget, raise funds, etc.).

 

As I look back, the best way I learned about money was as a young patrol member, planning a menu, making a food list (after checking the patrol box/cupboard for what was on hand), collecting money, and shopping as a patrol.   The concept is sound.   Learning what a dollar is worth...how to hunt for a bargain...how to plan...all good stuff to be used in real life, which is right around the corner when you're a scout.

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I was one of those who insisted for the usual fare (including amassing a couple grand over a couple of years for an HA), this is a non-issue. But let's suppose you want to go forward with making the treasurer's life a little easier and phase out ISA's.

 

It's simple. Johny's $1000 for Philmont stays allocated to that purpose. He can also add to that from his electronic device consulting service (the modern lawn-mowing equivalent) to pay his fees. Jimmy's $50 debt for camp overages will either be payed by him (from his online game-FAQ writing business) or out of the troop's operating budget. He defaults, you all owe. 'Nuff said.

 

Treasure then says, "No more splitting fundraisers into ISA's."

 

Done.

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I was one of those who insisted for the usual fare (including amassing a couple grand over a couple of years for an HA), this is a non-issue. But let's suppose you want to go forward with making the treasurer's life a little easier and phase out ISA's.

 

It's simple. Johny's $1000 for Philmont stays allocated to that purpose. He can also add to that from his electronic device consulting service (the modern lawn-mowing equivalent) to pay his fees. Jimmy's $50 debt for camp overages will either be payed by him (from his online game-FAQ writing business) or out of the troop's operating budget. He defaults, you all owe. 'Nuff said.

 

Treasure then says, "No more splitting fundraisers into ISA's."

 

Done.

 

That makes the most sense.  The answer is one of balancing prior commitments (you get what you raise) and compliance with your reading of the BSA/IRS guidelines.

 

However, there is a lot of grey area in the BSA/ IRS guidance (and I wrote that before rereading the Bryant on Scouting article "But it’s not that simple. And the explanation won’t be as black and white as you’d like. That’s because the IRS rules governing things like individual Scout accounts have a lot of gray areas.")  I've read the IRS guidance that  is out there and it is less than clear what "substantial" private benefit means.  It is clear that running a fundraiser for a soccer club and having all the net proceeds pay for the individual players expenses is a substantial private benefit.  Beyond that, it is a judgment call.

 

What if a scout gets of the gross proceeds of the popcorn they sell?  A portion goes to National/Council (36%), a portion to the Troop (18%) and a portion goes to the Scout's ISA (15%) to offset costs realted to Scouting.  Is that "substantial" especially in light of the other activities of the chartered organization (of which all of the funds are used for example, church purposes) and the de-minimis level of popcorn sales (e.g. say $10,000 of which the CO/Troop gets $3.400 and puts $1,500 into the ISAs)?  BSA says 30% has been found to be substantial but this is 20% (15%/70%).  If you look at the $1,500 as part of the CO's fund raising (let's say $1,000 a week for 52 weeks for a church), the percentage is 2.8% which BSA says 2% has been held to be insubstantial.  

 

The IRS guidance in response to a Cub Scout Pack's ruling request was "Earmarked accounts may not be compatible with continued tax exemption. Such a decision cannot be made without considering all of the facts and circumstances. "  Talk about being equivoqual.

 

The safest route is not to use ISAs.   If you do use them, don't credit the scout the full amount of the net receipts of their sales.  If you are doing a fundraiser for High Adventure (which would entail more than the typical amounts done for popcorn sales), have all the scouts who are going participate.  Then the funds received offset the cost of the trip in total rather than being applied to any specific scout.  

 

Ultimately, the answer is my favorite lawyer answer... "it depends."

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Nice thoughts @@DuctTape, but getting more than 4 boys together to do anything with all the things they're involved in is terribly difficult these days.

This is why I like the dynamic of patrol accounts where the boys in the patrols work together for a common goal.  The benefit is a shared benefit and not singularly personal.

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"I wonder how many kids' parents are claiming those popcorn prizes -- especially those gift cards -- given by council as untaxed income"

 

If the gift card is awarded and given to the Scout, then it is doubtful there is any income tax liability.  Most Scouts' income is rarely even as large as the standard deduction.

 

"But money earned from fundraisers must primarily be used in a way that benefits the entire unit, McGowan says. The nonprofit status of the BSA and of the unit’s chartered organization is at stake." -- from the article mentioned

 

Comparing money raised by the troop with the total amount of money raised by a chartering organization seems to be an effort to game the system rather than embracing the spirit of the law and of BSA rules & regs -- which say no to ISAs

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A few thoughts:

 

Thought one: it's unlikely that any CO, unit or individual will be investigated by the IRS for the use of ISA's - the IRS just doesn't have the resources to investigate every unit - it's only likely to happen if your CO is being investigated which might trigger a look at their unit's operations, or in the case of someone filing a complaint with the IRS (perhaps by a parent ticked off that Johnnie Scout got $2K from fundraising dollars to go to Philmont while their own son got nothing (and no, the IRS doesn't care if Johnnie worked hard at fundraising and Billy did nothing).

 

Thought two: if your unit is investigated, the "But it's not against BSA rules or policy" won't be an effective defense.

 

Thought three: I'm always leary of "work-arounds" to IRS rules and laws - they tend to make things worse for people if the IRS does come knocking.

 

Thought four:   don't rely on the precentage game as means to determine if an inurement is substantial or not - there are cases where it's been found the percentage can be as low as 4% for something to be considered an illegal private inurement - and it's not necessarily 4% of a great deal of money that triggers a violation - in once case, 8% or $875 was enough to be considered a private inurement.

 

Thought five:  Be careful as you try to parse what the IRS means by "private individual having a personal and private interest in an organization"  In general, the IRS considers that any individual member of an organization meets the definition of a private individual with a personal and private interest in an organization.  In addition to the teamwork that comes with working with his Troop and Patrol and working towards the benefit of all that comes in the Patrol structure, a Scout simutaneously has their own personal interest in Boy Scouting through the earning of ranks, up to Eagle Scout - desiring and earning Eagle Scout, or Life, or First Class, is not a group project - it's an individual goal and project.

 

Thought six:  Despite the poor direction from the BSA (really, how difficult is it to just flat out state that ISP's are allowed in a "banking" sense, where a Scout can deposit their own money with the Troop to help save up for camp or Philmont, etc. - like an old fashioned Christmas Club account - but that dollars raised in fundraisers are not allowed to go into ISP's at all, though a unit may provide funding help for camp and Philmont provided that all Scouts are given that equal opportunity) it should be pretty clear that ISP's are simply more trouble than they're worth. 

 

Thought seven: In regards to thought one - having said that it's unlikely a unit will get caught, there is a more important principle here at work, and I'm reminded of it in a resurrected thread about Win All You Can and the takeaways from this  Wood Badge activity - one of those takeaways is that living the Scout Oath and Law is neither limited to Scouting only nor is it limited to the youth.  We're Scouters, we should be modeling the Scout Oath and Law to our Scouts in our everyday lives, and especially in our Scouting life and should not be trying to find work-arounds to IRS rules or ignoring the rules altogether because "we probably won't get caught".  We should eliminate ISA's completely, simply because it's the right thing to do. 

 

 

All that being said, and knowing it's an imperfect solution, I agree with Qwaze here in that making the transition shouldn't be abrupt where past promises are no longer honored.  Honor the past promises but eliminate continued private enrichment from fundraising dollars starting right away.

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I love the analogy of safety in numbers.  That works as long as you are buried deep in the herd, but if the wolves are at the edges, where you are, it could be a bad day coming down the road.  I have noticed how this works every day.  The vast number of drivers out there drive over the speed limit and for some reason a lot of people are caught and fined, their pocketbooks take a hit.  The added risk to oneself and the people's safety entrusted to you in your vehicle is also increased as the speed increases.  

 

So if someone bends the speeding laws, why not other laws?  Everyone threshold of lawbreaking varies, do you wish to entrust your son to someone when you don't know their threshold for legal compliance?

 

I drive my wife nuts with my driving at or less than the speed limit depending on weather, road conditions and traffic.  Haven't had a speeding ticket since the early 1970's.   The last time I was pulled over by a police officer was for having fuzzy dice hanging from the mirror of my '74 Nova.  :)  

 

I guess I do a lot of risk taking in the woods in search of adventure, but when it comes to everyday safety and the safety of others (CO's non-profit status) I get very serious about sticking with the rules.  Just remember, Al Capone was taken down for tax fraud, you could be next.  Sport booster clubs have already felt the sting.

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ISA's are not prohibited nor will it raise a red flag just because you use them. That is a myth backed up here. You need to avoid private benefits and a few other things. You'd be surprised how easy it is to get a tax attorney or CPA to review the applicable tax code and advisories and your unit's approach. Many people will do this pro bono if your paperwork is good. We had a parent (with this background) look over our stuff.

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