By Jon Rydarowski
Maintaining your nonprofit status is one of the most critical components of any soccer organization’s future success. As a 501(c)(3), your organization receives huge benefits that allow you to operate successfully. From federal income tax exemptions to reduced postal rates, the life of a nonprofit is good. But beware; there are pitfalls along the path of nonprofit success that must be avoided at all costs! These pitfalls directly jeopardize a club’s nonprofit status. Here are the four major pitfalls to your nonprofit status.
1. Private Benefit/Inurement. As a 501(c)(3) it is imperative that your youth soccer club or organization avoids all activities that would provide a substantial benefit to the private interest of any one person or individual organization. Simply stated, no one person or organization can receive direct private financial benefit from your organization. This doesn’t mean that your club can’t pay reasonable salaries; just keep your DOC’s salary under a million bucks (that’s sarcasm, for all you over-excited DOC’s out there).
‘Inurement’ takes private benefit a step further, stating that no part of an organization’s income or assets can accrue to a person inside the organization (an insider). For example, your president cannot sign a contract to work with his own ball supply company unbeknownst to the board, in order to realize a financial gain from the deal. Inurement does not include reasonable payments for services, payments that further tax-exempt purposes, or payments for the fair market value of property. In summary, don’t try to cheat the system!
2. Lobbying. Nonprofits cannot influence legislation. As stated by the IRS: A 501(c)(3) cannot urge the public to contact a member or employee of a legislative body to propose, support, or oppose legislation. While there is a section (Code 4911) that discusses lobbying activity allowance based on expenditures, the best practice in general is to keep your organization focused on soccer.
3. Political Activity.Not limited to lobbying activities, your soccer organization is not allowed to engage in any political campaign activity for a candidate, directly or indirectly. Your club cannot influence, intervene, participate, rally, etc. on behalf of or in opposition to a candidate for public office, including making contributions or public statements on the club’s behalf. Your club may invite a candidate to speak at events so long as there is equal opportunity for all other candidates to speak, there is no indication of support or opposition, and there is no political fundraising involved. As a best practices approach, leave the politics to the politicians and away from the club body.
4. Excessive Unrelated Business Income. If income is generated through “unrelated” business activities (UBI) such as fundraising, product sales, sponsorships, etc., that may be taxable. If taxes are not paid on these products/services then your organization could lose its nonprofit status. UBI can be tricky. When evaluating whether a certain activity is taxable or not, ask yourself three questions:
Is your activity a trade or business? (e.g. product/merchandise sales, selling vendor sponsorships, etc.)
Is your activity regularly carried on? (Your concession stands could generate UBI/
Is your activity not substantially related to furthering your exempt status? (Is it directly related to offering soccer to the youth, or simply increasing revenue?)
If you answered yes to these three questions, then the activity generates UBI and taxes should be paid.
For more information on nonprofits, check out www.stayexempt.org – an online resource provided by the IRS. As a nonprofit club it is important to know all the details regarding your 501(c)(3) status. By taking some time to learn all aspects as well as pitfalls, you are helping to guarantee the future success of your club.
Jon Rydarowski is Director of Marketing for Blue Sombrero, provider of online registration and club management technology for youth soccer organizations in more than 30 states across the country. Jon is also editor of The Administrator, a weekly e-newsletter and blog focused on the business of running a youth soccer club.