While gaining a non-profit status is a rather straightforward process, maintaining and keeping it can prove to be more difficult. There are many nonprofit laws in place that a group must follow. A non-profit organization can lose non-profit status if they don’t follow the rules and nonprofit guides. These rules are set in place by the IRS and outlined in the 501(c)(3) documents you must follow as a nonprofit.
Booster clubs have nonprofit status because they are a charitable organization not looking to profit off of their financial gains. A Booster club’s nonprofit status can be removed if there are any nonprofit company mistakes, which is why this a great reason to keep booster club management up to date on the rules and guides. That way, nothing risks your current booster club status with the IRS. The following outline some of the more common ways that a booster club could lose it’s non-profit status.
Inurement or personal gain
As a non-profit organization, no one is supposed to financially gain from the money earned within the company. This means that the money earned by the group should not be an income to benefit any of its members. You are volunteering your time, free of charge and to be paid would make it a job and therefore your booster club could lose nonprofit status because it would no longer be considered a nonprofit.
This also means that you cannot lower prices or offer special deals for members if it can in any way be used as a personal gain for them. Not only does this risk your booster clubs nonprofit status, but the IRS could also choose to charge an excise tax to the individuals who profited from the insider deals.
Lose non-profit status for engaging in political activity
This is a rule stating that nonprofit organizations are not allowed to participate in any political campaign for anyone that is running for public office.
It doesn’t matter if it is a local, state, or federal level as they are all included in this prohibited activity. You can view more information about this 50-year-old ban by visiting the IRS website page Charities, Churches, and Politics.
Lobbying can cause you to lose non-profit status
Lobbying is when you try to convince or pursue other people to contact legislative members for the purpose of adding, changing, supporting or rejecting a piece of legislation. While you are allowed to do some lobbying as a nonprofit, you can lose non-profit status if this becomes the main goal in your group.
To actively seek out people to help push your booster clubs views upon the legislation is against the rules set in place by the IRS. You want to make sure that any lobbying activities that your booster club partakes in are limited so that it does not take over a substantial part of your booster clubs activities.
Not reporting annually = lose non-profit status
As a 501(c)(3) you are exempt from federal income tax but you are still required by the IRS to report certain information annually. To not report the proper information on time and with the proper forms can risk your booster club and cause you to lose non-profit status.
The Pension Protection Act of 2006 added the law that failure to report this information return for 3 consecutive years will automatically cause groups to lose non-profit status.
Failure to pursue original purpose
When you first created your booster club and sent away the information required to become a nonprofit organization, it was because you fit into the IRS tax-exempt categories. As a booster club, you qualify for charitable status and as such are exempt to federal taxes.
Organizations that qualify for the nonprofit tax exemption must fit into one of the qualifying categories as outlined by the IRS. If at any point during your booster club’s, it strays away from these categories and changes its purpose and goals, the IRS must be notified.
Unrelated Business Income
An organization can lose non-profit status if it has too much income from a regular pathway not related to the organizations exempt purpose. What this means is that if your booster club starts making too much money from one source that doesn’t fall in line with your charities regular trade and business earnings, you might lose nonprofit status.
There are a lot of different scenarios in which this can be okay or wrong. The IRS includes detailed information in regards to this in Publication 598.
And lastly, you can lose non-profit status if you partake in illegal activities.
While you aren’t going to do anything extreme such as dealing drugs or sell weaponry, there are other things considered to be illegal for nonprofits that you may not have even considered. In fact, some are incredibly easy to miss and not even know about!
With fundraisers being such a huge part of booster club management and finances, it’s easy to get swept up in the idea of what works and what doesn’t. Unfortunately, we don’t often stop to think about the ways things can be considered gambling.
Gambling is not allowed for nonprofit groups and this includes raffle sales as well as certain games of bingo.
The definition of gambling includes, “playing games of chance for money or taking a risky action in the hope of a desired result.”
Buying a ticket for a drawing for the hopes of winning a prize, is gambling because there is a risk of not getting anything at all. Selling bingo cards for people to play gives the same result. People hope to win something, but most likely will not as there are only a few select winners for this game.
While you may never intend to lose non-profit status in your booster club, it’s important to remember that it is possible. You should do your best to stay in line with the nonprofit rules so that you don’t put your group in jeopardy. Some of the ways that you can lose non-profit status are incredibly simple and easy to overlook. This is why it’s important to stay knowledgeable and aware of the rules so you don’t accidentally hurt your booster club.