Today TaxMama hears from Dennis in the TaxQuips Forum, with a problem. “I have recently become Treasurer of a band booster organization and need clarification about quota accounts. They have a “quota” account for each student that is used for an annual trip. You must make your quota amount or you are not allowed to participate in the trip. Quota is earned through various fund raisers such as bingo, selling subs, etc. or the family can write a check. I have heard of organizations operating in this manner being fined by the IRS because the rules state that you cannot single out individuals and all money must go into a pool to be distributed evenly. My question is, is there any way around this?”
First of all, they are really lucky to have you. You seem to be the first one to address this issue.
That’s a really good question. I did some research a while back with IRS. It was regarding those accounts that are set up for accident victims or crime victims once their plight is publicized on the news. I was curious to know how they get around the provision regarding making donations to a designated person.
You can’t get around it. When donations are designated for someone specific, as you have described AND that person cannot participate unless they raise enough money, I believe you’ve blown the charitable contribution deduction for all donors.
How else can you do this?
Well, you continue the practice, but this becomes gifts from all the donors, not charitable contributions. Certainly, the parents cannot get a contribution deduction. I doubt that anyone is making a large enough contribution to really miss the deduction.
Another way you can keep the tax benefits is to have the students do volunteer work at the fundraising events. All the money goes into a general fund. Track the hours and reward those that hit targets. Encourage students to help each other raise the money in general. You may actually find either more money is raised – or more students will get involved in school activities.
Here’s another idea. Get corporate sponsors. Some parents may own substantial businesses. Have the children do some volunteer or internship programs at those businesses to learn more about jobs and responsibility?
Let’s see if anyone else has any ideas?
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