Author: Jean Schroeder

Spring is in the air, and we all know that means youth sports are in full-swing!  Whether you are a baseball or soccer parent, or you are planning for upcoming fall booster club activities, you are likely participating in some type of fundraising event.  You should be aware that nonprofit 501(c)(3) organizations have to be careful to structure those events so that no part of the earnings  benefit a private individual.

Let’s look at an example:  one common fundraising technique is to provide each participating youth with a percentage of the funds they raise through product sales, either in cash or in a separate “account” that can be applied to fees, camps, etc.  Although this may seem “fair” (after all, if your child puts in all the work, he/she should get all the benefits!), the funds retained by your child are providing a private benefit, and are not helping the organization as a whole.

One more example:  participation in fundraising events earns each family “points”.  Dues, program fees, etc. are at a reduced rate depending on the number of points earned.  As with the above example, family #1 could pay the full amount of dues (let’s say $100), while family #2 could pay $50 because they did some fundraising for the organization and earned points.  In this case, family #2 is receiving a direct private benefit that does not assist the nonprofit organization as a whole.

What’s the risk if your organization has fundraising activities similar to those described above?  If the IRS determines the private benefit is substantial to the activity being conducted and not just merely incidental, the organization’s tax-exempt status could be revoked.  In addition, if contributions received are not assisting the entire organization, they are not considered tax deductible by the donor.

Luckily, there are options!  If you find yourself in this situation, consider the following:

• Funds raised can be split evenly among all team members, regardless of who “earned” the money.
• Team members can apply for funds based on financial need. The organization should have a formal application and decision-making process to ensure the funds are distributed to a charitable class of individuals (i.e. the poor or distressed).
• Funds raised can be applied to total costs of the team (e.g. direct purchase of uniforms, equipment, and tournament fees), thus reducing overall costs to each family.
• Funds can be given directly to families, with 1099s issued to report the compensation received. Each family would then have to report these amounts on their federal income tax returns.
• NOTE: some very popular SCRIP programs have been structured to avoid these issues – the funds raised actually belong to the families, not the organization, and are considered “rebates” rather than fundraising income.  If you participate in these programs, make sure you understand how they are structured.

Remember you can’t force individuals to participate in fundraising events as a condition of benefiting from the group’s activities. Still have questions?  Call any one of our tax-exempt specialists at 342-5630:  Jean Smith, John Walker, or Traci Hanson.

Your controller just gave two weeks notice.  It will be impossible to get an advertisement out, hire someone, and orient them to your organization in this timeframe.  What will you do?

Your administrative team has been focused on a new program that is about to launch.  You completely forgot about the upcoming audit and you do not have the resources to prepare for it.  Your board of directors will not let you postpone.  How will you ever get through the audit without working a significant number of extra hours?

Your bookkeeper is about to go on medical leave, and you have nobody else on staff with the skill to prepare payroll and financial statements in her absence.  You might be able to find some help at a temporary agency, but the learning curve involved would be fairly steep. How will you keep the accounting side of the business on track?

Your last audit report was full of findings related to subsidiary schedules not reconciling, and many adjustments were made by the auditors.  How can you prevent this going forward?

You’re in luck!  The dedicated professionals at KT have the ability to work with your accounting team and fill in wherever needed. Whether it’s an emergency situation due to an employee resignation, or just the need for some extra help during a busy time, we can be available to keep your finances running smoothly.  Our team is skilled in accounting rules for virtually every industry, and we have a working knowledge of many of the most common software packages used.  Here’s a small list of what we can do for you:

• Daily bookkeeping processes performed either onsite or remotely, to include accounts payable, payroll, bank deposits, billing, etc.
• Account reconciliations
• General journal entries
• Assistance with financial reports needed for grant reporting
• Financial statement preparation
• Preparation of board reports
• Assistance with budgeting
• Audit preparation, to include preparing audit schedules, pulling documents requested by the auditors, and preparing financial statements with all required disclosures.

In addition, we can assist with interviewing potential bookkeeping candidates – our professionals can draft an advertisement, review resumes, conduct telephone screens, and assist with interviews.  Finally, we can be there to help train your new hire and make sure the transition is a smooth one!

Don’t let a lack of resources put your organization in a financial crisis – call us now to discuss how we can help!

At Ketel Thorstenson LLP, we work with a lot of nonprofit organizations to make sure they comply with current accounting standards. Whether you are involved with a church in Williston, a youth group in Custer or a charitable foundation in Spearfish, you need to file the proper financial statements.