The Fundraising Rule That Cost a Booster Club Its Tax Status

Here's a policy that sounds perfectly fair: every family fundraises, and the money each family raises gets credited against their own kid's fees. Work more, pay less. Dozens of clubs run exactly this system — usually with a spreadsheet of 'points' per family.

In 2013 the U.S. Tax Court upheld the IRS's revocation of a booster club's 501(c)(3) status over precisely that system. The club was Capital Gymnastics Booster Club (T.C. Memo 2013-193). Families earned fundraising points that offset their own child's competition assessments; families who didn't fundraise paid full freight. The court's reasoning: a charity's earnings can't be steered to the private benefit of the specific families who raised them — parents were effectively 'insiders' paying their personal obligations with the charity's money.

Why it feels fair and is still prohibited

A 501(c)(3) exists to benefit a charitable class — the team, the program, youth athletics — not to run a cooperative where each family's effort funds each family's bill. The IRS position, stated in its exempt-organizations training materials long before the case: requiring parents to fundraise in proportion to the benefit their own child receives 'causes a direct benefit to flow to these parents,' and crediting proceeds by fundraising participation is prohibited private benefit — including scholarship or fee credits tied to hours a family worked.

The compliant version

• Fundraising proceeds benefit the WHOLE program: every athlete's fee drops equally, or the money buys equipment, travel, and scholarships available to all — regardless of which family raised what.
• Participation in fundraising can be encouraged, celebrated, and publicly recognized — it just can't be the formula that sets an individual family's bill.
• Need-based assistance is fine (and good): base it on need, decided by the board with a policy, not on fundraising credits.
• If families genuinely want a work-more-pay-less arrangement, that's legal — as a for-profit cooperative without deductible donations. You can't have both.

What to do if this is your system today

1. Don't panic — fix forward. Adopt a board resolution ending individual crediting as of a date, and switch this season's proceeds to program-wide benefit.
2. Rewrite the policy: 'all fundraising proceeds benefit all program athletes.' Put it in the bylaws and the parent handbook.
3. Keep the celebration: leaderboards and recognition for top fundraisers are motivating and fine — the prohibited part is the money mechanically following the fundraiser's own child.
4. If you've operated this way for years at real dollar volumes, have a nonprofit attorney or CPA look at your specific facts.

One more reason direct giving beats product sales

Point systems mostly exist because product fundraisers are miserable enough to need enforcement. A well-run direct-giving campaign — where each athlete shares a link and the whole program's goal is public — gets higher participation without any compulsion, and the proceeds naturally benefit the whole program. The compliance problem dissolves when the fundraiser stops being a chore you have to police.

A note on this guide: This guide is educational information, not legal or tax advice. Laws change and facts differ — confirm anything consequential with a qualified attorney or CPA, the IRS, or the Oregon DOJ Charitable Activities Section (971-673-1880). Figures and fees are as published July 2026.

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