Are Booster Clubs Tax Exempt? What You Need to File

Booster clubs provide financial and logistical support to school programs, such as bands, athletic teams, or academic clubs. Their fundraising efforts directly benefit students by covering costs for uniforms, equipment, and travel. However, these organizations are not automatically granted tax-exempt status. Without approval from the Internal Revenue Service (IRS), a booster club is considered a taxable entity, potentially liable for income tax on its revenue. To achieve exemption from federal income tax, a club must formally apply for and be recognized by the IRS as a charitable organization.

Understanding Tax-Exempt Status for Booster Clubs

Tax-exempt status under Internal Revenue Code Section 501(c)(3) formally recognizes an organization as a charity operated for purposes like charitable or educational activities. For a booster club, its purpose must align with the educational mission of the school it supports, and its activities must be directed toward benefiting a student group, not private individuals. The primary benefit of 501(c)(3) status is exemption from paying federal income tax on the money it raises.

Another advantage is the ability to receive tax-deductible contributions. This means individuals and businesses who donate can deduct those contributions on their own tax returns, which is a powerful incentive for fundraising. This status also opens the door to receiving grants from private foundations and corporations, many of which only donate to IRS-recognized charities. A school’s own tax-exempt status does not extend to an affiliated booster club; the club must secure its own determination from the IRS.

Required Information and Documents for Federal Exemption

Before a booster club can apply for federal tax exemption, it must gather and prepare several foundational documents that establish its structure and purpose.

• Employer Identification Number (EIN): An EIN is a unique nine-digit number that identifies the business entity for tax purposes. Applying for an EIN is a straightforward process that can be completed online through the IRS website at no cost.
• Articles of Incorporation: This document is filed with the appropriate state agency to officially establish the booster club as a nonprofit corporation. The articles must contain a clear statement of the organization’s exempt purpose and a dissolution clause stipulating that if the club disbands, its assets will be distributed to another 501(c)(3) organization.
• Bylaws: These are the internal operating rules that govern the organization. Bylaws should detail the duties of officers, procedures for holding meetings and electing leaders, and rules for managing finances. A conflict of interest policy should also be included to ensure decisions are made in the organization’s best interest.
• Financial Information: The club must prepare a budget for the current year and financial projections for the next two years. These statements should outline all anticipated sources of income, such as fundraisers and donations, as well as all projected expenses, like equipment purchases and event costs.

The Application Process for 501(c)(3) Status

Once preparatory documents are in order, the club can apply for 501(c)(3) status. The IRS provides two primary application forms: the standard Form 1023 and a streamlined version, Form 1023-EZ. The shorter Form 1023-EZ is available to smaller organizations with projected annual gross receipts of $50,000 or less and total assets of $250,000 or less.

The application must be submitted electronically through the federal government’s Pay.gov portal, as paper applications are no longer accepted. The submission requires payment of a user fee, which is currently $275 for Form 1023-EZ and $600 for the full Form 1023. After the application is filed, the IRS will send an acknowledgment of receipt and begin its review, eventually issuing a determination letter that officially grants or denies tax-exempt status.

Maintaining Tax-Exempt Status

Receiving a determination letter is not the end of a booster club’s obligations. To maintain its 501(c)(3) status, the organization must adhere to ongoing compliance rules, including filing an annual information return with the IRS. The specific form depends on annual gross receipts. Organizations with gross receipts of $50,000 or less file Form 990-N, an online notice also known as the e-Postcard. Those with gross receipts under $200,000 and total assets under $500,000 may file Form 990-EZ, while clubs with higher income or assets must file the more detailed Form 990. Failure to file this annual return for three consecutive years results in the automatic revocation of tax-exempt status.

Beyond annual filings, the club must operate in accordance with IRS regulations. The prohibition against private inurement means that none of the organization’s income or assets may be used to benefit an insider, such as an officer or director. Additionally, if a club regularly carries on a trade or business not substantially related to its exempt purpose, the income from that activity could be subject to tax as unrelated business income (UBI), requiring the filing of Form 990-T.