# Booster Club Individual Fundraising Accounts and Private Benefit

> Why crediting fundraising to individual student accounts can cost a booster club its 501(c)(3) status, what Capital Gymnastics held, and fair alternatives.

- URL: https://boosterclub.org/taxes/private-benefit/
- Section: Taxes
- Updated: 2026-10-08

Crediting the money a family raises to that family's own account, whether called student accounts, individual accounts, points, or fair-share credits, is a fundraising practice that can cost a booster club its 501(c)(3) exemption, and it has. The United States Tax Court upheld the revocation of a booster club's exemption for exactly this in 2013, and the Internal Revenue Service (IRS) has told its agents that the practice is private benefit.

The board owns this decision. Individual accounts usually start because parents see them as fair, and they persist because no one wants to tell families they must end. This page explains the rule, the case, and alternatives that keep fundraising fair without endangering the club.

## Key Terms

- **501(c)(3) exemption.** Federal recognition under section 501(c)(3) of the Internal Revenue Code that the club is organized and operated exclusively for charitable, educational, or amateur sports purposes, which makes it exempt from federal income tax and makes gifts to it deductible.
- **Private inurement.** Any 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. Booster club parents who vote and serve as officers are insiders. Inurement is prohibited regardless of amount.
- **Private benefit.** A benefit to private individuals that is more than incidental to the club's charitable purpose. This applies to anyone, not only insiders.
- **Charitable class.** The group a charity serves, such as all students in the school's band program. A charity must serve the class, not hand-picked members of it.
- **Individual fundraising account.** Any system that tracks what a family raised and applies it to that family's own fees, dues, trip costs, or other obligations.

## What Individual Accounts Look Like

These arrangements raise the same problem under different names:

- Each family's share of fruit sale profit goes toward its child's trip balance.
- A student who sells 100 candy bars has the camp fee waived.
- Gift card or scrip rebates are credited to the account of the family that bought the cards.
- Families must "fundraise or pay" a set amount per student, and what they raise counts against what they owe.
- Volunteer hours or concession shifts earn credits against a child's fees.

The common thread is that the club's fundraising proceeds, raised in the club's name and using its tax-exempt status, reduce a particular family's private costs in proportion to that family's effort.

## The Capital Gymnastics Case

*Capital Gymnastics Booster Club, Inc. v. Commissioner*, T.C. Memo. 2013-193, was filed August 26, 2013.

**Facts.** The club had been recognized as exempt in 1988 as an organization fostering amateur sports competition. In its fiscal year ending June 30, 2003, its members were parents from about 240 families whose children trained at one private gym. Membership was mandatory for families whose children competed, and each family owed an annual assessment of $600 to $1,400 per athlete to cover meet entry fees and coaches' travel. Families could pay in cash or fundraise. Fundraising (wrapping paper, discount cards, cookie dough, candles, ornaments, and scrip gift certificates sold mostly to members) earned points worth $10 each, credited against the family's assessment.

About 46% of families fundraised. The fundraising produced net profit of $35,326, and the club used 93% of it to reduce the assessments of fundraising families, on average by 50 to 70%. Families who did not fundraise received none of it.

**Holding.** The Tax Court sustained the IRS revocation. It found that the club's net earnings inured to the fundraising parents, who were insiders, by relieving them of an economic burden, and that the club conferred substantial private benefit on those parents' children rather than on its athletes generally. The court called the points "as good as dollars."

**Arguments the court rejected.**

| Club's argument | Court's answer |
|---|---|
| The money never went to parents; it paid meet fees directly | The parents still received a benefit: a reduction in cash they were required to pay |
| All the athletes belong to a charitable class | Even within a charitable class, the club cannot select which individuals benefit |
| Booster club fundraising is a recognized exempt activity | The IRS agreed fundraising is permissible; the problem was earmarking proceeds to the families who raised them |

The court noted the case was not like a school band's candy sale or a once-a-year carwash where fundraising is a tiny fraction of the organization's work. That observation describes the facts; it does not create a safe harbor for small individual account programs, and the IRS guidance below is not limited by size.

## IRS Guidance

- **2011 memorandum to IRS agents.** The Director of Exempt Organizations wrote on June 27, 2011 that if a booster club credits amounts raised by a participant toward that participant's dues, or against the cost of a trip, the club is providing a private benefit to that participant, and such practices could result in the club failing to qualify under section 501(c)(3). The memo added that amounts credited to a participant's account could be income from services and could result in employment taxes.
- **1993 training text.** The IRS continuing professional education text "Athletic Booster Clubs: Are They Exempt?" concluded that a club whose parents earn credits toward their own children's costs cannot qualify, because inurement is strictly forbidden without regard to the amount involved. It described such clubs as a cooperative funding mechanism for the parents themselves, and contrasted them with a club that had no point system and supported all team members regardless of whether their parents fundraised.
- **Exemption applications.** When an application shows individual accounts, the IRS asks the applicant either to describe changes ensuring earnings do not pay for benefits to specific individuals rather than a class of participants, or to explain why the practice is not inurement or substantial private benefit.

A related issue: a parent's payment of their own child's fees is a payment for a benefit to that family, not a charitable gift. The Capital Gymnastics court noted, without deciding it, that fundraising points let parents satisfy assessments with untaxed earnings.

## Why Parents Find It Fair, and Why the Law Disagrees

Parents see individual accounts as rewarding effort: the family that sells more should pay less. Charity law looks at it from the donor's side. The neighbor who buys cookie dough is supporting a charity, not paying down a specific family's bill, and the club's tax exemption exists because its money serves the whole program. When fundraising follows the family that raised it, the club is acting as a collective billing service for its members, which is not a charitable purpose.

## Other Private Benefit Risks for Booster Clubs

- Paying an officer, or an officer's relative or business, without a disclosed conflict and an arm's-length price. See [Conflict of Interest Policy](https://boosterclub.org/governance/conflict-of-interest/).
- Awarding scholarships or financial help without written, objective criteria, or with officers choosing their own children.
- Spending club money for the benefit of a private business, such as a privately owned gym or training facility.
- Buying gifts for selected staff or players from general funds.

## Compliant Alternatives

| Instead of | The club can |
|---|---|
| Crediting each family's sales to its own child | Pool all proceeds and reduce the fee equally for every participant, or fund the trip for all |
| Waiving fees for top sellers | Recognize top sellers publicly, without cash-value rewards |
| "Fundraise or pay" requirements | Set a fee, invite voluntary fundraising for the whole program, and offer need-based assistance |
| Crediting scrip rebates to buyers | Treat rebates as general club revenue |
| Tracking sales by family for credit | Track sales by family only for inventory and delivery |

Need-based assistance is the usual way to keep programs affordable. It works when the board adopts written, objective criteria, a small committee or a school counselor decides confidentially, and no one decides on their own family's request.

## Unwinding an Existing Program

1. Adopt a board motion ending new credits as of a stated date.
2. Inventory every account balance as of that date.
3. Decide how to handle existing balances with a tax professional, and record the decision and reasoning in the minutes. The right answer depends on what families were promised and has tax consequences.
4. Explain the change to families in writing, citing the IRS guidance and the Capital Gymnastics case.
5. Adopt a written policy prohibiting individual crediting, and update fundraising flyers and order forms.
6. Adopt a need-based assistance policy so the change does not price students out.

## Common Mistakes

- **Renaming the accounts.** "Fair share" or "participation credits" carry the same risk if proceeds still follow the family that raised them.
- **Assuming a small program is safe.** The IRS memo and the case reasoning do not depend on size, and an audit can reach back years.
- **Mandatory fundraising quotas.** Requiring each family to raise a set amount, with the shortfall billed, recreates individual accounts.
- **Officers deciding their own children's assistance.** That is inurement on its face and undermines trust in the whole program.
- **Ending the program without a plan for balances.** Families feel cheated, and the club makes rushed promises that create new problems.

## Checklist

- [ ] Review every fundraiser for credits, points, or fee reductions tied to individual effort (board)
- [ ] Adopt a board motion ending individual crediting as of a stated date (board)
- [ ] Inventory existing account balances as of that date (treasurer)
- [ ] Decide the treatment of existing balances with a tax professional and record it (board)
- [ ] Notify families in writing of the change and the reason (president)
- [ ] Adopt a written policy prohibiting individual fundraising accounts (board)
- [ ] Adopt need-based assistance with objective criteria and confidential decisions (board)
- [ ] Update flyers, order forms, and the website to remove any reference to individual credit (fundraising chair)
- [ ] Add a private benefit review to the annual bylaws and policy review (secretary)

## Related Pages

- [Fundraising Rules for Booster Clubs](https://boosterclub.org/fundraising/rules/) for mandatory fees and cooperative fundraising
- [Conflict of Interest Policy for Booster Clubs](https://boosterclub.org/governance/conflict-of-interest/) for transactions with officers
- [Donation Receipts and Acknowledgment Letters](https://boosterclub.org/taxes/donor-acknowledgments/) for why fees are not gifts
- [Fiduciary Duties of Booster Club Officers](https://boosterclub.org/governance/fiduciary-duty/) for the duty of loyalty
- [Losing and Regaining 501(c)(3) Status](https://boosterclub.org/taxes/revocation-and-reinstatement/) for what revocation means

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*This page is general information for volunteer-run booster clubs. It is not legal,
tax, or accounting advice, and BoosterClub.org is not a law firm, accounting firm, or
government agency. Rules change and vary by state and district. Confirm current
requirements with the IRS, the relevant state agency, the school district, and a
qualified professional before acting. If a fact on this page is out of date, we want
to know.*

## Sources

1. IRS: https://www.irs.gov/pub/irs-tege/booster_club_field_directive_6-27.pdf
2. IRS: https://www.irs.gov/pub/irs-tege/eotopica93.pdf
3. IRS: https://www.irs.gov/charities-non-profits/other-non-profits/exempt-organization-sample-questions-other-miscellaneous-activities
4. IRS: https://www.irs.gov/pub/irs-pdf/p4221pc.pdf