3 Ways to Get 501(c)(3) Status and Become a Nonprofit Booster Club

Thinking about starting a booster club? Not sure how to certify it as a nonprofit organization? As you may know, becoming a nonprofit makes your club tax-free* and allows donors to make tax-deductible donations. But if you’re starting a new club or resurrecting an old one, it can be a daunting task. Don’t worry! Others have come before you, and done what you’re about to do. There are at least three ways to become a nonprofit, or more specifically, an IRS-designated 501(c)(3).

I’m not a lawyer, and I can’t give legal advice. This post is meant support your own research and share what I’ve gleaned from talking to booster clubs, not bona fide legal professionals.

form-990

I’ve spoken to booster club presidents and treasurers who’ve followed these different routes and their takes differ from a lot of stuff you’ll stumble across on the internet. You can do the paperwork yourself, buy in to an “umbrella” nonprofit, or piggy-back on your school’s nonprofit status. It’s also possible to operate as a nonprofit while you are applying. Under certain circumstances, it’s preferable to avoid becoming a 501(c)(3).  In this post, I’ll give you some of the pros and cons of each path.

* = required field

Do It Yourself (or with your own lawyer): becoming a 501(c)(3) is just paperwork, right? Nope, it’s more complicated than that. The IRS website can give you an idea of how to prepare for your application, and even offers an online slideshow presentation with an overview of the entire process. But you have to learn about state laws, and make sure that you can fit your booster club into one of the narrow definitions of eligible organizations. Assuming you can get through the legal work yourself or find someone to help on a pro-bono basis you could avoid large legal fees. But even DIY isn’t free. Operating a nonprofit seems to require a yearly usage fee of at least $850, and that’s just for federal taxes.

“Umbrella” 501(c)(3): sharing nonprofit status with other booster clubs. There are two types of umbrellas that I know of.

  • National Umbrella: one boutique legal firm takes advantage of a designation in the IRS code that allows umbrella organizations to cover multiple nonprofit licenses under one institutional permit. The IRS looks at this umbrella–called Booster Parent USA–as a giant booster club, whose members are completely independent and share the same tax usage fee. It costs around $200 for the first year and less after that. I’ve spoken to a few booster club presidents and treasurers who use Booster Parent USA and haven’t had any problems. However, be warned: Booster Parent USA may place unforeseen restrictions on your club or complicate the nonprofit reporting requirement. Either way you’ll still have to secure your own Employer Identification Number, and file a 990 to the IRS every year. Before you sign up for any umbrella booster service, have a lawyer familiar with nonprofits advise you, paying particular attention to local laws in your state.
  • Regional Umbrellas: I recently discovered a regional umbrella in California that covers 29 organizations in a single district. It formed in the wake of two unrelated but recent booster club fraud scandals. As a result, the umbrella does more than just provide its members with 501(c)(3) status. It also performs annual audits (bi-annual for clubS with recent fraud cases), hosts member meetings, and makes recommendations about operating procedures and emerging legal and financial issues.

Piggyback: your school is probably already a nonprofit. If your booster club is approved as an official body of your school, you may not need to go through the trouble of certifying as a 501(c)(3). The money in your club will technically belong to the school. They can restrict how your money is spent, and might force funds through a cumbersome purchase order process. I know of some spring sports hitting walls of red tape because their district doesn’t issue any purchase orders after April 1st. Also, schools usually restrict fundraising methods, for example by prohibiting dinners where alcohol is served. These common restrictions, along with many unforeseen complications, might help explain why I tend to see piggybacking happen less in public schools that in private. But even if you’re just starting out and want to use the school as a crutch, this is one way to go.

Do nothing: I’m not a lawyer, and I can’t give legal advice. However, I’ve read a few pieces from lawyers you should look at before you register your club as a 501(c)(3). Basically, there are some practices common in private booster clubs that aren’t acceptable for public nonprofits. Nonprofit Law Blog warns that “cooperative funding” or credit systems can make you ineligible for nonprofit status because of the possibility of “private” benefit, i.e. individual members receiving rewards for their participation. Booster clubs commonly overlook rewards like scholarships, which are heavily restricted under 501(c)(3) rules. Charity Lawyer Blog offers a useful checklist of 501(c)(3)“don’ts” including not supporting private facilities, especially when they are owned by a board member.

Before I sign off, I’d like to share one last suggestion: don’t let the paperwork or the sluggishness of the 501(c)(3) application slow down your fundraising. Some people think that you have to be approved before you start acting like a nonprofit. The truth is that once you submit your application to the IRS, you can start fundraising just like a 501(c)(3). The only catch is that you can’t completely ensure that your donors’ gifts will be tax-deductible. But if the semester is around the corner, you’re starting a booster club, and you want to get the ball rolling, go ahead and start fundraising while the IRS follows up on your application.

Have you already gotten nonprofit status for your booster club? Which path did you take, and how was the process? What were the pros and cons? Have you had any challenges staying compliant? Share your stories with Boosterland.

* Just because you don’t have to pay taxes doesn’t mean you don’t have to file tax returns. Make sure you file every year or the IRS might fine you. Forgetting to file is something that happens when your club has poor continuity.

Leave a Reply