Our 501(c)(3) booster club board decided to institute a new volunteer policy this year. All parents automatically become members of the club if their child is in the sport (gymnastics). There are required volunteer hours and failure to meet the hours equals a fine of $25/half hour. Parents can buy out of the volunteer hours by paying $500 up front. Does this policy violate the club's 501(c)(3) status? Does the penalty money received by the club constitute taxable income for the club?
How can a person be required to volunteer? The concepts are diametrically opposed to each other. Volunteering is voluntary. Requirements are not. But we do strange things with language in our society.
This policy comes very close to the type of policy that cost a Virginia gymnastics booster club its charitable exemption this year. (See story Booster Club Loses Exemption Becuase of Fundraising Program.) Depending on how the organization otherwise raises funds and how significant this is in the total operation of the organization, it may have crossed the line. This club ought to take a close look at the overall operations in light of the Capital Gymnastics case.
If by “penalty money” you mean the $500 paid by parents to buy their way out of the draft, assuming that the organization does not lose its exempt status, it would not seem like income from an unrelated trade or business. Like dues, it is a payment for the organization to provide its basic services for the kids. Obviously it is not deductible as a charitable contribution by the family because it fulfills a financial obligation to the organization and isn’t a disinterested gift for the benefit of anyone else.