There are many types of fundraising structures to pick from. We are going to focus on a specific grey area type of fundraising called Cooperative Fundraising. Cooperative Fundraising is a practice, employed by some booster clubs, to receive credit for raising funds. This “credit” is often reimbursed in the form of dollars stored in individual accounts controlled by members of the booster club, rather than the club itself.
Legalities of Cooperative Fundraising
Here is the truth- although booster club cooperative fundraising is technically legal, doing so will cause your booster club to lose its 501 c3 tax-exempt status.
If a booster club or parent group raises the money, they are in complete control of how the funds are spent. If an individual raises funds, the account holder has control over how the funds are spent. This is a problem because of the IRS interpretation of “No substantial part” which means that a booster club’s activity cannot be the primary activity of an individual.
If an individual raises funds for a specific booster club purpose, then the funds are attributed to that individual and any expenses related to raising the money cannot be paid for by the booster club or parent group. For example, if an individual organizes a car wash to raise money for a field trip, then all expenses related to the car wash (costs of supplies, cost of cleaning the car and car repairs) must be paid for by the account holder.
The IRS has stated that it does not consider it to be in the best interest of public policy to allow individuals to raise funds for a specific school activity and then have their expenses paid for by the booster club. The IRS has also stated that it does not consider a booster club or parent group to be responsible for any fundraising activity that is organized and controlled by an individual, rather than the booster club itself.
Why Does the IRS Not Allow Cooperative Fundraising for Booster Clubs?
The IRS defines a “Booster Club or Parent Group” as:
An organization whose principal purpose is to raise funds for student activities at a school. A booster club may also engage in other activities, such as awarding scholarships, providing tutoring services, or promoting community relations. A parent group is similar to a booster club except that a parent group’s activities are limited to supporting elementary and secondary schools.
A booster club, therefore, is a charitable organization meant for a certain, defined purpose. It is not meant to benefit individuals or pay for their expenses. Therefore, cooperative fundraising is not permitted for booster club fundraising.
Why Organizations Might Want to Use Cooperative Fundraising
Here is an example of the right way and the wrong way for a booster club to fundraise.
How to set up your fundraising system, the right way:
Imagine a booster club for a basketball team. This booster club is selling raffle tickets in order to make money for the team. The parents take the raffle tickets, sell them, get receipts of the transactions, and then deposit them as quickly as possible in a booster club account controlled by the organization. The money is then spent on general activities for promoting basketball at the high school, with no special favors given to the children of the parents who did the fundraising.
This is permitted by the IRS because:
- The money is firmly in the hands of the booster club, deposited quickly into the account, and there is a record of the money and where it goes.
- The money is going to benefit the organization as a whole, not individual members.
Here is an example of an organization that is NOT fundraising appropriately.
The parents on a soccer team booster club are selling baked goods to raise money for their travel expenses. Each individual member opens an individual account and deposits the money they made for safe-keeping. The money is eventually transferred to the booster club, and the parents are each credited a certain amount based on the money they raised and the time they spent. Only kids whose parents raised money will have access to these funds.
This is not a tax-exempt activity because:
- The money is in the hands of individuals, not the organization.
- The money is going to benefit individuals, not the organization or its mission as a whole.
Is Cooperative Fundraising a Successful Solution?
Cooperative fundraising is not a successful fundraising solution for a booster club for the reasons outlined above. Here are some different fundraising tactics for a booster club:
- Silent Auction: sell items and services at an auction with no minimum bid price
- Raffle: sell tickets for a chance to win a prize that could be anything from a gift certificate to a lottery-type prize, such as cash or a car.
- Bake Sale: sell tickets for baked goods that you have made or bought from local bakeries or grocery stores.
- Sport or Entertainment Event Fundraiser: combines two great ways to raise money for your cause: ticket sales and sponsorship.
- Phone-a-Thon Fundraiser: call people in order to raise money for your cause over the phone.
Remember, they must be done 1) as an organization and 2) for a general benefit.
Using Cooperative Fundraising Outside of a Booster Club
It is understandable why some parents want to fundraise for booster clubs using cooperative fundraising. Extra-curricular activities can be costly and these parents put in a lot of work to help out the booster club, and in every organization, there can be freeloading. Cooperative fundraising eliminates some of those issues and helps the parent be more fairly compensated for the effort they put in.
Although you cannot use cooperative fundraising as a booster club, for parents who want to get reimbursed for their expenses, they can organize fundraising with individual accounts so long as it is not associated with the booster club. This means that you cannot use the booster club name or logo to raise the funds, or associate your activities with in any way. You must keep it totally separate from the booster club. This is key to effective booster club management.
Conclusion
Cooperative fundraising is not an appropriate activity for a booster club. If your booster engages in it, it risks fines and losing its tax-exempt status. But if you can keep its activities strictly separate from your booster, it could be a good option for parents looking to recoup some of their expenses.
