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Can we offset mandatory donation with ticket sales?

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Can we offset mandatory donation with ticket sales?

My daughter’s local 501(c)(3) swim academy has recently organized a “mandatory” "Taco Fund Raising Event." They have asked each parent to sell $200 worth of tickets, or if they can’t sell the tickets, to pay from their pocket. We are already paying for the swim lessons and donating supplies and service hours. Can they ask for a mandatory donation like this? 

They can ask but it has a couple of serious problems. First a “mandatory” donation is not a donation at all, and it is a misrepresentation to say that it is. I don’t know whether the donation language is yours or the academy’s, but this is merely an additional fee for the kids to participate. Even if the academy is requiring the “donation” and providing an acknowledgment (which would be improper because you are receiving services in return), it isn’t likely that anyone will be prosecuted for such a technical issue. But it is a fee and it is not correct to call it a donation. You should not claim a charitable contribution deduction.
More importantly, the IRS could take the position, as it did successfully in a case decided last year, that the ability to offset a parent’s payment obligation by selling fundraising items constitutes private inurement to the parents who choose to do so. As a result of that argument, a gymnastics booster club lost its 501(c)(3) exemption. (See Nonprofit Issues®, 7/16/13.) The facts of that case may have been more egregious than this, but the principle is a real one. An angry parent might make the organization’s life miserable with a complaint to the IRS.
I fully understand that this type of arrangement goes on all the time in youth sports. But organizations and “donors” could avoid a lot of problems if the fundraising efforts were voluntary and the benefits spread among those who were less able to afford the program. If the organization wants to make it mandatory, the only practical recourse is probably to rouse a large group of the parents to object. If you can’t do that, I hope at least that you enjoy the tacos. 
Tuesday, July 8, 2014

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