My daughter’s high school band has a contract with a local music venue under which the band operates two refreshment stands at the venue and in return receives a percentage of food and beverage sales. This produces a profit of more than $50,000 per year, so it’s important to the group.
We have a problem with parents who do not volunteer at all for this, or any other fundraising event held to raise money to offset the cost of band fees each year. Can we institute a “play or pay” policy so every band parent must give either time or money?
I have been advised by the band director, as well as a member of the band booster association, that “yes, we can initiate a ‘play or pay’ clause for those parents who don’t volunteer, with payment set based on the value of the time the rest of us volunteer.” I’ve also been told, “no, we cannot force people to volunteer by this means since we are a 501c3 organization.”
Can you clarify which is the correct answer? Without more volunteers we may have to forfeit our concession contract. But requiring people to volunteer seems to be prohibited, or maybe just complicated.
Signed, One of the Ones Who Does All the Work
A lawyer named Ellis Carter explained the situation clearly in a posting on his blog Charity Lawyer, and the Nonprofiteer will borrow liberally from his explanation in justifying her answer, which is NO, you may NOT institute a “play or pay” requirement because for the booster club to be a proper 501c3 charity it can’t do anything to benefit particular individuals who are involved with it; it must distribute its largesse equally among all the members of the band. So even if someone’s parent is a lazy bum and a cheapskate, that young person still gets to be in the band and get an equal share in the benefits which flow from fundraising for the band. Otherwise, the booster club would be engaging in “private inurement,” strictly a no-no under the Internal Revenue Code: a charity has to operate in the public interest, not in the interest of the few individuals directly involved with its operation. And of course this goes double if it’s a public school: every child enrolled in a public school gets to participate in all of that school’s activities regardless of ability to pay. That’s why they’re called “public.”
A certain amount of cooperative fundraising by boosters is permitted, but it can’t constitute a major portion of the charity’s revenue, which yours apparently does. The Nonprofiteer isn’t clear exactly why this prohibition is structured as it is, but she thinks it doesn’t matter because you have another, much bigger problem.
The work that you’re doing for the music venue (presumably for-profit) had better benefit the booster club and the band more than it benefits the venue, or the IRS will regard what the boosters are doing as a profit-making activity prohibited by the club’s 501c3 status. If you’re getting $50,000 from the labor you’re providing to the venue but the venue is earning $500,000 from that labor, this is not a kosher arrangement regardless of how many volunteers you have. For-profit businesses may, of course, donate to nonprofits; they don’t get to exploit nonprofit groups for their own bottom line.
If you want to get around all this (this is the Nonprofiteer talking now, not quoting Mr. Carter’s wisdom), consider turning the booster club into a formal membership organization; those are mostly covered by section 501c6 of the tax code. Membership organizations may charge members whatever they choose, and may include provisions such as, “The $500 annual membership fee will be waived for any member who completes 50 hours of labor annually on Booster Club projects.” On the other hand, donations to membership organizations are not tax-deductible. On the third hand, a membership organization is allowed to have a relationship with a for-profit venue of the kind you describe. Don’t you wish the Nonprofiteer had fewer hands?
If you’re willing to give up tax deductibility of contributions, you’ll get most of what you want: the opportunity to enforce participant behavior through membership as well as the continued flow of funds from the for-profit venue. But if parents refuse to join the Booster Club when it’s reconstituted as a genuine club, with members and non-members, you can’t compel them to do so. All you can do is have a full and frank discussion with all band parents and lay out the need for funding to continue the band program, the inequities presented by the current system, and options for modifying that system, and let the boosters fall where they may.