IRS Booster Club Guidelines and What You Need to Know

Introduction

Running a booster club is a lot of work, dedication and can be… fun!  However, one area that most people can agree is not fun, is dealing with the government!  When it comes to booster clubs, there are a lot of rules, regulations, and guidelines set by the federal government that must be followed to a T. Most of those regulations are managed by the Internal Revenue Service arm of the federal government. That makes IRS booster club guidelines possibly the most important to be aware of, especially with the financial nature of a booster club.

The IRS and Booster Clubs

Booster club organizations, when properly set up are set up as a nonprofit and therefore qualify for tax-exemption. During the initial paperwork for starting a booster club, after an EIN number is assigned, then optional 501(c)(3) paperwork is filled out and submitted to the IRS to qualify for the tax-exemption status. Submitting your 501c3 application means your leadership team a agrees to follow all of the IRS booster club guidelines and rules for a tax exempt nonprofit.

 

IRS booster clubs guidelines and rules include:

Ensure that no person(s) profit from the booster club

IRS booster club guidelines explicitly state, “none of its earnings may inure to any private shareholder or individual.” This means that no one can receive incentives, monetized or otherwise if it leads to the benefit or advantage for any individual. This is the exact opposite of a FOR PROFIT company where an individual or individuals can benefit monetarily from the company.  Beyond finances, this also applies to any other assets, items, gifts, goods or prioritizing one person or group over the others. The goal of the nonprofit is its mission and ensuring that the bulk of the support (financial or otherwise) supports that mission.

Please know that the IRS is very heavy-handed on making sure that there is a fair playing field for everybody.

Distribute the finances equally among students

Speaking of fairness, one of the stickier points regarding IRS booster club guidelines is that the booster club has to distribute their funds evenly among participants regardless of individual participation. While it may seem unfair to award hardworking participants equally as those that put in less effort, that should not be the focus.  Instead, the spirit of the IRS booster club guidelines is ensuring every participant, no matter their skill level or interest have equal opportunity to succeed and are equally supported by the booster club.

A simple way to put it:

1. If a booster club is using their funds, they need to be used in a way that all participants benefits
2. If a booster club is distributing physical items, every participant should be offered the item(s)
3. If the booster club is sponsoring an activity, it needs to be an activity all of the participants can opt to participate in

If your booster club, small nonprofit or PTO is struggling with managing finances and your contacts, Booostr can help.  With tools like Booostr Financial Manager and Booostr Contact Manager (CRM), even the smallest nonprofit can improve their management.

Annual IRS Filings for Booster Clubs

Just like any other 501c3 nonprofit, IRS Booster Club Guidelines state that nonprofits must file a yearly update with the IRS using the proper 990 form.  The exception to this rule are churches and specific government-related organizations.  To understand which 990 form your booster club needs to file, there is a pretty clear break down:

1. FORM 990-N – 501c3 Nonprofits / Booster Clubs Gross Receipts equal to or under $50,000.00
2. FORM 990-EZ – 501c3 Nonprofits / Booster Clubs Gross Receipts less than $200,000.00 and Gross Assets less than $500,000.00
3. FORM 990 – 501c3 Nonprofits / Booster Clubs Gross Receipts Over: $200,000.00 and Total Assets over $500,000.00
4. FORM 990-PF – All private Foundations

See all IRS nonprofit 990 form requirements here.

IRS rules for nonprofits are, for the most part fairly straight forward.  When small organizations that have less than $50K in annual gross receipts, they only file a simple postcard simple return online. While the form gets slightly more complicated with the 990-EZ, it is still pretty straight forward as well. By the time your organization is raising enough money to file FORM 990, you should have regular accounting and oversight in place too!

Always keep in mind, IRS booster club guidelines and their management, are the responsibility of the leadership and not following the annual filing schedule can result in loss of the 501c3 status as well as numerous fines.

 

Organization Controls That Can Help You Follow IRS Booster Club Guidelines:

• Elect A Treasurer
  • Essentially the finance or accounting role for the booster club that is in charge of recording, documenting, and keeping the financial activities organized.
• Maintain The Business Practice of Regular Financial Reviews
  • Including but not limited to reviewing financial statements, bank statements, and having them reported at each booster club meeting.
• Create And Maintain A Budget
  • Having a budget with projected revenue and expenses can help a booster club stay on track with their financial goals
• If Needed, Consider Hiring An Auditor
  • Hiring an auditor is more of an extreme control In many cases this should be somewhat of a last resort in the event a booster club, PTO or small nonprofit has not kept great financial records. Bringing in an outside auditor can help ensure that all of the I’s are dotted and T’s are crossed, making it much easier to meet IRS booster club guidelines.
• Maintain Financial Records
  • With small, primarily volunteer organizations, there is typically more leadership transitions. The best way to ensure the health of the organization and maintain its 501c3 status is to make sure your booster club, small nonprofit or PTO saves financial records for a minimum of 7 years. Chance are you won’t need them, but its always better to have them than not.

As with any business, a nonprofit should always strive to maintain detailed financial documents. Tracking is key to ensuring your booster club meets IRS booster club guidelines and has the documentation back itself up in the event an issue arises with the IRS.

For Reference: A List of Booster Club Financial statements:

• cash receipts
• cash disbursements
• checking account beginning and ending balances
• balance sheets
• income statements
• invoices for money spent
• invoices for donations received
• receipts for any booster club sales
• grants or similar funding
• in-kind donation receipts and tracking

 

Why do you need to keep a record of your booster club finances?

The short answer is, because that is part of running a business! It’s essential that your booster club keeps detailed accounting records and financial books not only just to show that it complies with the IRS Booster Club Guidelines, but also to help it operate more efficiently. A great financial record keeping system will make 990 tax form preparation easier, budgeting simpler and help leadership more clearly understand a booster club’s impact. Poor financial bookkeeping will inevitibly make operating your booster club, small nonprofit or PTO much harder and could potentially result in the booster club losing its tax-exempt status through error prone tax filings.

Maintaining detailed financial records benefits everyone involved with the booster club, from leadership, to participants to the community it serves. It is one of the key tools to help grow the future success of the booster club.

 

Recordkeeping and Unrelated Business Income Tax (UBIT) 

One grey area that all nonprofits should be aware of is related to the IRS’s definition of Unrelated Business Income Tax (UBIT).  The issue with UBIT is that there are no hard and fast rules and it can be fairly subjective in many cases. The purpose of UBIT is to ensure that nonprofits utilize their tax exempt status to focus on funding efforts that directly support their mission. So for instance your booster club is focused on supporting your activity, in order to do that you might conduct fundraisers of various types, ask for donations, and sell merch. However, if for some reason the booster club opened a clothing store to sell all types of commercial brands of clothing, even if all of the profits from that store were going to the mission, the IRS would look at revenue generated from that store as UBIT and slap a 21% tax on those sales.  By adequately tracking your booster club, small nonprofit or PTO’s revenue and focusing on funding effort that are mission focused, you can better track any costs that could be subject to UBIT. Any tax-exempt organization that makes over $1,000 or more in gross revenue from UBIT have to report it on Form 990-T.

“The obligation to file Form 990-T is in addition to the obligation to file the annual information return, Form 990, 990-EZ or 990-PF. Each organization must file a separate Form 990-T, except title holding corporations and organizations receiving their earnings that file a consolidated return under Internal Revenue Code section 1501”. [Source]

What financial records should be kept?

With the exception of a few specific cases, the law does not explicitly tell nonprofits the proper process for recordkeeping. This puts the onus on the organization to maintain accurate records in the form of recordkeeping that works best for them.

The most important thing about your booster club’s recordkeeping is that it details all of the income and expenses of the organization. Accuracy is key, and you can use a ledger or a suite of tools like Booostr to track finances, contacts, documents and communication. When you understand the IRS booster club guidelines and manage your records in a proper and detailed way, it makes your accounting and management of tax deadlines much easier.

 

If your organization is looking to shift from your current systems, Booostr offers a comprehensive set of tools designed specifically for small nonprofits, booster clubs and PTOs.  Booostr helps organizations improve their management, raise money online and communicate better with their supporters.

Interested? Get started with Booostr for FREE today!