Our local athletic program is run under the 501(c)(3) guidelines. When we sign our child up for a sport and pay the fee, we are forced to agree to volunteer 5 hours or pay an additional $25. If we choose to volunteer, then we have to go online and report our time so they can get additional grants. I would like to know if it's legal to collect the extra $25 and how they should log it on the Form 990? It's not part of the sports fee. To me, it would be income.
I think the extra $25 is part of the sports fee. If your child can’t play without either paying the extra $25 or getting you to work for $5 an hour, it isn’t a voluntary contribution and is part of the fee. I would report the cash as part of the fee on the Form 990. I wouldn’t report anything on the tax return for this kind of “volunteer” service.
I think it is legal to ask for this kind of payment. You have a choice of what you want to do if you decide to sign your child up to play, but the organization has to be sure that it doesn’t run afoul of the IRS's concern about using fundraising to offset mandatory fees. One organization that went to an extreme in this regard recently lost its exemption for being primarily a fundraising agency. (See Nonprofit Issues®, 7/16/13.)