Fundraising Rules for Booster Clubs: Private Benefit and Fees

The Core Rule: Money Raised Belongs to the Program

A 501(c)(3) organization is a nonprofit that the IRS recognizes as exempt from federal income tax because it is organized and operated for charitable or educational purposes. Two federal limits apply to everything it does:

• Private inurement. No part of the club’s net earnings may benefit an insider, meaning a person with influence over the club, such as an officer, a board member, or a parent member. The IRS treats inurement as an absolute bar: there is no amount small enough to be allowed.
• Private benefit. The club may not be operated for the benefit of private interests. Some individual benefit is unavoidable (every player gets a uniform), but it must be incidental, not the point.

The IRS states both limits on its inurement and private benefit page (external site). The full analysis lives on Private Benefit, Inurement, and Individual Fundraising Accounts.

Applied to fundraising: every dollar the club raises goes into the club’s general funds or into a program-wide restricted fund, and the board spends it on the program according to the approved budget. How much a given family raised has no bearing on what that family’s student receives.

Individual Accounts and Per-Student Credits

An individual fundraising account (also called a student account, a player account, or a fair-share credit) is any system in which the money a family raises is tracked and applied to that family’s own costs. Common forms include:

• Product sale profits credited toward a student’s trip, camp, or uniform fee
• “Points” earned at concession shifts that reduce a family’s assessment
• A trip account per student, funded by that student’s sales, with the balance refunded or rolled forward
• Volunteer hours that substitute for a required payment

The IRS has opposed these arrangements for decades. Its 1993 Exempt Organizations continuing education text, “Athletic Booster Clubs: Are They Exempt? (external site)”, described clubs using a “work and pay or don’t play” model and concluded that they were providing “a cooperative funding mechanism” for the parents who controlled them. Because the parent members are insiders, the IRS found that the arrangement caused prohibited inurementInurementAny part of the club’s net earnings benefiting an insider, meaning a person with influence over the club, such as a member, officer, or director. A 501(c)(3) may not allow it in any amount.All terms and substantial private benefit, and that such clubs “cannot qualify for exemption.” The same text warns that scholarships conditioned on a parent’s participation, or sized by the hours a family worked, also cause inurement.

The Capital Gymnastics Case

In Capital Gymnastics Booster Club, Inc. v. Commissioner, T.C. Memo 2013-193, decided August 26, 2013, the U.S. Tax Court upheld the IRS’s revocation of a booster club’s exemption. Families owed an annual assessment of $600 to $1,400 per athlete and could reduce it by earning points, each worth $10, through the club’s product sales and other fundraisers. The court found that the club “operated in a manner that allowed substantial private inurement and promoted private, non-public interests.”

The IRS still applies the case. A 2023 revocation letter released by the IRS (Letter 202334016 (external site)) revoked an organization’s exemption because it operated “like the organization described in Capital Gymnastics Booster Club,” raising funds to benefit only families who worked the fundraisers.

What Revocation Costs

When exemption is revoked, contributions stop being tax deductible, the club may owe federal income tax, and state exemptions that depend on federal status usually fall with it. Reapplying is pointless until the club changes how it operates.

Mandatory Fundraising or Pay Requirements

A mandatory fundraising requirement says, in effect, “raise this amount or pay it, or the student does not participate.” The requirement creates three separate problems.

1. Exemption. It is the “work and pay or don’t play” structure the IRS described. When parent members set the requirement and their own students receive the benefit, the club is serving its members, not a charitable purpose.
2. Deductibility. A payment required for a student to participate is a payment for a benefit, not a gift. IRS Publication 526 (external site) also bars deductions for contributions earmarked for a specific person. A club that calls a required fee a “donation” and acknowledges it as one misleads the donor and the IRS.
3. School law and policy. A booster club does not decide who participates in a school program; the school does. Whether a public school may charge students to participate, and whether participation may ever depend on payments to an outside group, is set by state law and district policy, and the answer varies. The club confirms the local rule with the district before setting any expectation.

What a Club May Do Instead

• Publish a voluntary suggested contribution. State plainly that it is optional, that no student’s participation or treatment depends on it, and that the club does not track who paid against what students receive.
• Fund the whole program from the budget. Pay for the trip, uniforms, or camp for every participant out of general funds.
• Offer need-based assistance. A committee awards aid on written, objective criteria, without regard to whether the family volunteered or raised money.
• Leave fees to the school. If the district charges a participation fee under its own policy, that fee belongs to the district, and the booster club does not collect, credit, or waive it.

Cooperative and Joint Fundraising

“Cooperative fundraising” is used two ways, and the club needs to know both.

In the IRS sense above, it means members raising money together so each can offset personal costs. That is the individual account problem and is not permitted for a 501(c)(3).

In the ordinary sense, it means fundraising jointly with another organization: two booster clubs running one concession stand, a booster club and another school parent group sharing an auction, or a restaurant donating a percentage of an evening’s sales. Joint fundraising is allowed when the club does the following:

1. Put the arrangement in writing before the event: who runs it, who holds the money, how net proceeds are split, and who reports the income.
2. Deposit the club’s share into the club’s own account; never let another group hold the club’s money in a personal account.
3. Confirm whether the arrangement needs district approval (most districts require it for events on school property).
4. Check state law for percentage-of-sales promotions. Some states regulate a “commercial coventurer,” a for-profit business that tells customers a share of its sales will go to a charity. California, for example, requires a commercial coventurer to register and report to the Attorney General unless an exemption applies (California Attorney General (external site)).

District Rules

Districts decide whether an outside group may use the school’s name, mascot, logo, and facilities to raise money, and on what terms. Tennessee, for example, requires every school support organization to file a form with the director of schools before raising money and to obtain approval before scheduling any fundraiser (Tennessee Comptroller model policy (external site)). See School District Fundraising Policies and MOUs.

Title IX

Booster money counts when a district measures whether boys’ and girls’ athletic programs receive equivalent benefits. A club that funds only one team can create a legal problem for the district, which may then restrict or decline the gift. Washington’s education agency, for example, tells schools that a donation must not result in a disparity, and that the school must correct one if it does (Washington OSPI (external site)). See Title IX and Booster Club Fundraising.

The Other Rule Layers

Acknowledgment thresholds: IRS Publication 1771 (external site). Volunteer exception: IRS Publication 598 (external site).