Fundraising & The Irs

[WoodBadge06]

Are there any accountants out there who are familiar with any IRS rule/regulation that would govern or restrict setting aside money within a unit's budget for a specific Scout based on his own fundraising effort? We have no visibility per se with the IRS since our chartered organization does not provide us any funds nor do they allow us the use of their tax-exempt certificate. We certainly don't file a tax return, either.

Specifically, my pack is participating in our council's popcorn fundraiser. As an incentive, we want to allow boys who exceed a certain sales goal to keep that portion of their sales profit. This money would only be used to pay for things like day camp, resident camp, uniforms from the council run Scout Shop or dues - no cash distributions or repayment for bringing in a receipt from Walmart for camping gear or the like. Additionally, if they left the pack, the money would remain if it was unused by the time they left.

There seems to be some debate within my district, but no one can show me anything in writing that would prohibit doing so. All I've heard is third-hand hearsay. Everything I have found in writing, including the Cub Scout Leader Book, the Pack Record Book and the Unit Fundraising Application, says nothing that prohibits putting aside money within the pack budget for a specific boy based upon his own efforts. Indeed, the Cub Scout Leader Book states "the budget plan teaches boys to earn their own way..." Also, the Pack Record Book states "In some packs, boys earn their dues by participating in pack money-earning projects. It is important that such work be credited to the boy personally rather than to the pack as a whole..."

[Nuts4Scouts]

I do not know of any IRS regulations on this. I would venture a guess that most every Troop in the country does this and it is becoming more popular with Packs.

It is not like it is income to the Scout, but more like a unit based Scout Bucks incentive.

[WB Bear]

I am unaware of any type of IRS regulations regarding unit accounts. The administration is by the unit committee. The CO should be kept informed of the money and its usage though after all the units belongs to them. I also believe that the CO can let you use their ID number too, if they so chose.

Setting up accounts for the boys is a great idea and it helps them with the 9th point of the Scout Law, Thrifty. Dues that are collected go into a general fund per say for the general operation of the unit. With the fundraisers I believe it is a good idea to credit the boys a percentage of it. It’s an incentive for the boys and also their parents to participate in the fundraisers. It also gives the boy a chance to pay is own way to camp or whatever. I firmly believe that the money is to be use for Scouts, no cash just something for Scouts. And also if they quit Scouts the money stays with the unit. The important thing though is that this needs to be set up by the committee and rules in place to start with.

That brings up another and more important issue. There must be a unit budget yearly. Maybe at the same time the unit does their yearly planning. It is also very important to have a treasury report at the monthly committee meetings.

[Dan Pickett]

We do this in our Pack with popcorn sales. The amount of popcorn each Scout sells = a portion of his camp fees or to be used at the scout shop. When they crossover to Boy Scouts the money he has earned will go with him. We do not pay out any cash to the boys.

[Den5Pack457]

You are within the limits of Section 501(c)(3) of the IRS Code. You are using the fundraising revenue to support the Boy Scouts. As long as it's an expense of equipment, supplies, or activities; you're fine.

Almost EVERY troop I've worked with do this. Also, some other non-profits I've worked with, too.

And, yes, along with WB Bears wisdom, you CAN use your CO's tax exemption ID and/or EIN (Whichever the situation warrants).

One debatable item that always seems to come up is, what's the disposition of "issued" uniforms, supplies, and equipment. Also, some groups have the scout sign for their issued items as well as letters of intent before funding camps and other activities.

[WoodBadge06]

Since I first posted this question, I've engaged in a lot of research. I recently received contact information for the IRS office that handles tax-exempt organizations, IRS Exempt Organizations Customer Account Services. Despite my better judgement, I did the right thing and called them. Of course, I got the answer I feared. The bottom line is that individual accounts are not permitted for units with tax-exempt status from their chartering organization. So, we (and I mean 'we' in the broader sense of volunteer adult leaders in Boy Scout, Cub Scout and Venturing units) are out of what I think is one of the best sales motivation tools in our kit. I got fairly specific with the counselor on the phone and no matter how I tried to slice it, I couldn't get to 'yes'. The unit's funds must be directed at the unit as a whole or each member given equal opportunity for an equal amount for a specific activity/event determined by the unit committee.

[WB Bear]

I have some difficulty understanding this. Typically units have there own bank accounts, separate from the CO. They don’t have a tax-exempt status or number. The unit committee is the custodian of the account. The individual “scout accounts” are not actually accounts where someone other than the custodian of the accounts have access to.

[WoodBadge06]

True. I ensured the IRS rep understood I was not talking about opening individual accounts at a bank. As you implied in an earlier post, units are not legal entities themselves, but are "owned" by the chartering organization. If you haven't already read it, "Unit Gifts & Tax Exempt Status," available at www.bsa-gwrc.org/forms/bsa_unit_policy_update_2006.pdf laid it out fairly clearly for me. That document was the first step on my trek to try and answer my original question, as I knew that our tax status would determine how we could spend our money.

A lot of what you mentioned in your first post can still be done with the unit's money, but specific amounts of money can't be tagged to individuals and tracked independently. As an example, based on what the IRS rep explained to me, the committee could decide to set aside $500 towards summer camp for the 20 boys and adults who are registered (i.e. $25/each) with the unit. If only 15 people sign up, then the unused $125 returns to the general treasury to be reassigned by the committee for some other use.

[Nuts4Scouts]

My question is how on earth would the IRS have any knowledge of how a unit allocates it's monies?

When an exempt organization, files it's taxes, what's reported is earnings, expenditures, and any "profit" or "loss". The amount allocated to each scout would not be reported to the IRS in any way. The money all basically belongs to the unit and the CO anyway, not the individual Scout.

If there were any legal problems with Scout Accounts, I would think that BSA National would have prohibited the practice long ago, instead of encouraging it.

[WoodBadge06]

I can only assume an audit would uncover any details. As my initial post indicated, I had no reason to doubt the practice of ISA's until I was made aware of some information within my district that seemed to bring it in to doubt. Thus my original question to the forum.

When I wrote a letter to the editor of Scouting magazine regarding the IRS position on individual Scout accounts (which were highlighted in a fundraising article in one of their recent issues), I received a letter from the National BSA Foundation in reply.

The lawyer who responded said I was basically correct and that the IRS routinely interprets their rules as narrowly as possible. Getting the IRS to informally bless exceptions to the rules based on facts they're given over the phone is rarely successful. My question: "Then why doesn't BSA present the facts and get a formal IRS ruling on it?"

The letter goes on to imply that it's okay to use individual Scout accounts because the amounts of money involved are so small on a relative basis that it wouldn't be worth the IRS's time to pursue the violation. So, am I now to be left with the impression that BSA is saying it's okay to break the law because we're only breaking it a little bit? Needless to say, I'm flabbergasted. Here we are trying to teach boys to grow up to be good citizens but we're not supposed to be ones in the process of delivering the program? It's like there's an elephant in the room that we all know is there, but no one wants to acknowledge out loud because we're afraid something bad might happen.

The lawyer indicated that how the funds are controlled and spent is what's critical and confirmed the similar train of logic I tried to get the IRS to bless over the telephone. "Individual Scout funds paid to the council, clearly benefit individuals. But they also substantially benefit a charity, and the charity controlled the funds to being with."

The letter concluded by stating the IRS introduced the new Form 990-N a couple of weeks ago and that all small charities, including Scout units, will now have to start filing them. They are requesting guidance from the IRS and outside counsel and plan to share it with everyone once they receive it. Since their own publication "Unit Gifts & Tax Exempt Status", that I referenced in an earlier post, says that units are not legal entities, I'm interested to find out why they would have to file this new form vice their chartering organization.