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Do mandatory fees jeopardize exemption

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Do mandatory fees jeopardize exemption

Our local youth sports league operates as a nonprofit 501(c)(3) public charity. In order for kids to play, the league charges anywhere from $100-$175 per child per sport. This is a mandatory fee. In addition, the league demands that parents volunteer for a specified number of hours per sport doing whatever job they assign: selling concessions, cleaning bathrooms, picking up garbage after games, etc. Does this fit the description of a nonprofit charitable organization for tax-exempt purposes?

The tests for 501(c)(3) charitable status focus primarily on the activities of the organization and the lack of private inurement, not the sources of funding to operate the program.  Programs that are entirely based on fees for services can qualify for (c)(3) status without obtaining a single dollar of contribution. Since kids’ sports activity is generally considered charitable and educational, this set-up should not be disqualifying.

The issues arise when parents seek to take charitable contribution deductions for their mandatory payments, which, since they are mandatory, are not charitable contributions.  Also, outsiders who make payments on behalf of specific individuals are not able to claim deductions, although many probably do so.  There may in fact be some gifts made for the benefit of the league as a whole and those gifts could be charitable.

If your league owns a playing field for which it seeks real estate tax exemption and is in a state that demands a certain amount of “subsidy” between the cost of providing the services and the fees received in return for the services (See Ready Reference Page: “Act 55 Defines Charity Eligible for Exemption”), it may not be able to meet the test unless it has a lot of real contributions from the outside.  Volunteer hours can often be counted in such calculations, but the parents are not “volunteers” when required to work in order for their children to play.

Tuesday, April 17, 2012

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