What the IRS has said
In a 27 June 2011 memo, “Booster Club Dues and Non-Exempt Activity,” the IRS Director of Exempt Organizations wrote that if a booster club confers a benefit on a participant in return for fundraising, such as crediting the amounts a participant raises toward that participant's dues or the cost of a trip, the club is providing a private benefit to that participant. Such practices “could result in the organization failing to be described in § 501(c)(3).”
The same memo warned that amounts credited to a participant's account for fundraising could be income from services, which can bring employment tax into the picture. It points to a 1993 IRS training text, “Athletic Booster Clubs: Are They Exempt?”, which covers the same ground.
What these arrangements look like in practice
Clubs rarely call them “individual accounts.” Look for any of these patterns in your club's rules or spreadsheets:
- Each family has a running balance, and fundraising sales reduce what that family owes
- Wreath, candy or card sales where the seller's profit is applied to that student's trip
- “Fair share” rules where families who sell more pay less
- Students whose sales exceed their cost get a refund or a credit toward next year
- Sponsorships a parent secured are earmarked for that parent's child
Families usually set these up with good intentions. The problem is not the fundraising; it is tying the result to one participant's benefit.
What families can deduct
The 2011 memo was prompted by an IRS Chief Counsel analysis of the families' side of the question. That analysis concluded that booster club participants may be able to deduct what they pay only to the extent it exceeds the value of the benefits they receive in return, and only if they intended the excess as a charitable contribution.
In practice, that means required fees for a trip, uniform or season are generally payments for something the family receives, not gifts. A separate, voluntary donation to the program is a gift. Keep the two apart in your records and on your receipts, so families are not told a fee is deductible when it is not.
- Required dues, trip costs and uniform fees: payments for benefits received
- Voluntary donations with nothing in return: contributions
- Payments over $75 that are partly a gift (a banquet ticket, for example): need a written quid pro quo disclosure
- Any single contribution of $250 or more: the donor needs a written acknowledgment
The Tax Court case treasurers should know
In Capital Gymnastics Booster Club, Inc. v. Commissioner, T.C. Memo. 2013-193, the Tax Court upheld the loss of 501(c)(3) status for a booster club that let families earn credit toward their children's assessments through fundraising. The problem the court focused on was the direct link between what each family raised and what that family owed.
It is a federal case, but the rule it applied is the same everywhere, including Massachusetts.
Alternatives that keep the program fair
The goal most clubs are trying to reach, making sure no student is priced out, can be met without individual crediting.
- Pool all fundraising and use it to lower the cost for every participant equally
- Offer need-based scholarships decided by a committee under written criteria, without regard to how much a family raised
- Keep scholarship decisions confidential and document them in minutes
- Separate voluntary donations from required fees in your records and receipts
- Where a family pays a fee for a trip or uniform, treat that as a payment for something they receive, not a gift
Unwinding an existing system
- 1.Adopt a written board policy that fundraising proceeds benefit the program as a whole.
- 2.Announce the change before the next fundraising season, so families are not surprised mid-year.
- 3.Stop tracking fundraising results by family in any record that affects what a family owes.
- 4.Decide how to handle existing credit balances with advice from your tax preparer or an attorney, before anything is paid out.
- 5.Set up the scholarship committee and criteria before the first request comes in.
- 6.Tell whoever prepares your 990-series return what changed and when.
Where we come in
We can help you separate fees, donations and fundraising in the books, and prepare the club's returns once the policy is in place. Questions about legal exposure from past practices belong with an attorney. We give you a scope and a price in writing before anything starts.
Figures on this page were checked against the IRS and Massachusetts sources listed alongside on 28 Sep 2026. They change — confirm the current amount before relying on one.
General information for owner-led businesses, not advice for your specific situation. Tax and accounting rules change, and how they apply depends on facts particular to your business. Talk to us — or to another qualified professional — before acting on anything here.
