“A Scout works to pay his own way and to help others.” This wording, or a version of it, has been in the explanation of “A Scout is Thrifty” in the Scout Law for decades. And while a Scout might have a part-time job in order to earn money for his Scouting activities, many troops have long provided a means by which a Scout can earn money for his troop expenses through fundraising.
Not any more.
The typical arrangement where all or a portion of the profit from the sale of a product such as popcorn or holiday greens, or work done – stadium cleanup, for instance – is credited to a boy’s Scout account has been in almost universal use. Scouting is normally a reasonably-priced activity compared to other youth clubs and teams, but activities like high adventure, Jamboree and NOAC can be a steep obstacle in terms of finance. A way by which a boy can earn the money and reduce the outlay his family is responsible for seems like a perfect way to teach personal responsibility and develop character.
The Internal Revenue Service doesn’t quite see it that way, however.
In a series of rulings, both recent and over the last few years, the IRS has examined the issue of what they term “private benefit” from activities of non-profit organizations (usually called “501(c)(3)” from the section of the IRS code that regulates them). In order to remain eligible for non-profit status, money raised by the organization must be used for the public good, not to enrich the members personally, either in the aggregate or directly attributable to an individual’s portion of the fundraising. Scouting units are owned by their chartered organizations, and their non-profit status is conferred upon them by the CO, most of which are 501(c)(3) organizations. Private benefit to members in anything more than an insubstantial amount may jeopardize the non-profit status of the parent organization. Initially, the IRS ruled in a case involving sports booster clubs, but have also passed judgment in a similar manner when a ruling in a Scout context was requested. The same approach applies as well to church youth groups, marching bands and academic clubs.
In light of these rulings, the Boy Scouts of America is beginning to inform units that they may no longer allocate fundraising proceeds to “Scout accounts” for the private use of members to pay their expenses. This goes against a longstanding recommendation that units should use fundraising to allow individual Scouts to pay their own way. The new policy was first found buried in a publicationÂ aimed at councils on running effective product sales, which was released late last summer, and most recently appeared in Fiscal Policies and Procedures for BSA Units,Â a summary of frequently-asked questions about unit finance.Â The product sales guide acknowledges that conflicting information will be found in publications and websites but states that other references to the now-prohibited method of allocating funds would be changed as they are discovered. Units can still conduct fundraisers to fund unit operations, but cannot require a minimum fundraising amount per Scout or family and cannot allocate proceeds to individual members. It’s still OK to hold fundraisers and earmark funds for activities that benefit the community, such as Eagle service projects, or to raise money for a specific unit purpose such as the purchase of a trailer or equipment. And units can still maintain “bank accounts” for Scouts and families if they wish to keep money on deposit for payment of expenses.
This may be a major blow to troops and even packs across the country as they deal with the impact on their membership and budgets. Many questions remain unanswered:
- Even if a chartered organization isn’t a 501(c)(3) charitable organization (there are several, such as hospitals or fire departments), BSA’s wide-reaching blanket prohibition would seem to ban units that wouldn’t otherwise be affected from individual fundraising.
- Without the incentive to raise funds for their accounts, how do we motivate Scouts and their families to participate in fundraisers – especially our more ambitious participants?
- Can Scouts still accept prizes for their participation, such as those typically given for various levels of popcorn sales?
- For many years, Trail’s End has had a scholarship program where boys selling a minimum amount can earn money for college. What’s the future of this program?
- What constitutes an “insubstantial amount?” The IRS ruling applied to booster clubs organized for the express purpose of raising funds for participants in a sports or band program. If a Cub Scout pack that raises and spends a few thousand dollars a year is chartered to a large church with a budget of a million dollars or more, does the IRS ruling still apply? Will the BSA grant exemptions in such cases?
The BSA appears to have made up its mind, even if the action was necessarily rolled out in a hasty manner. And, because A Scout is Obedient, we may have no choice but to follow the rule. If you’re unsure about any aspect of what’s allowed and what isn’t, your unit-serving professional is your best point of contact. One thing is for certain: Most of us will need to start talking about how to fund our units going forward.
Update:Â The BSA has issued some guidance on individual Scout accounts. Read about it in this blog post fromÂ Scouting Magazine. (Dec. 3, 2014)This post New policy prohibits individual Scout fundraising accounts first appeared on Bobwhite Blather.
41 Replies to “New policy prohibits individual Scout fundraising accounts”
This is going to impact a lot of families ability to participate in even the basic activities like summer camp or purchasing uniforms.
I’ll wait to hear this come down from my council. But in doing so, we’ll effective cut the ability of some lower income families to participate…those whose scouts use the fundraising to pay for summer camp. This is…a bad idea.
I don’t believe education scholarship funds are taxable so could contributions to a scout to attend summer camp be labeled as education since the goal of summer camp is to teach scout skills and merit badges. The whole point of the scout program is to teach a boy life skills so he can contribute to his community, family and nation.
What is really bothering me about this change is we are not getting direction on what to change “to” … only “don’t do this anymore”. Hoping National is going to provide some better guidance here.
Political crap, once again from National that is going to severely hurt units. Truthfully speaking this is all about National letting councils take money from units and keep it for themselves. Why must National continue to make it difficult to nearly impossible to serve ALL youth who would be interested in joining Scouting. This more or less limits participation of youth in financially unstable families. This is wrong and absolutely disgusting.
Additionally the Unit Money-Earning Application is just another example of the bureaucracy that has invaded National in the recent decade or so. National, if you read this comment, please understand that we volunteers are getting sick and tired of you playing politics, instead of doing what is best for the youth we are supposed to be serving.
Why do you say that this I a move from National to keep more money from Units?
While I do agree that this is going to be harder than it needs to be if we don’t have some guidance, there is another side effect. It can go two ways, either there is a scramble to find an end run around these, units will simply decide not to change anything. And while I feel that this is unreasonable it also won’t condone ignoring it.
And why this decision may have a bit more bite and harder to ignore than leaders would like is because if COs get a whiff that their non-profit status is in jeopardy they may crack down as well.
This is an IRS ruling, not a BSA ruling. No doubt BSA would be very happy to not have its units follow this ruling, but BSA didn’t make this ruling. The National Council hasn’t had a stellar year, but it isn’t to blame for everything… good grief.
And please stop the “council keeping units’ money” garbage. Unless of course you want to quit using your council’s camps, run the background checks on every adult member of your unit or deal with the phone call from a reporter asking about the membership policy.
So what is a scout “bank account” kept by the troop which is still allowed? That seems to me to be another “playing with words” statement. A scout account for the boy is just that; it is a troop controlled bank account designated for “him” and with restrictions on its use to actual scout costs, such as camping and such. Are they trying to say the troop would need to keep a separate bank account (in the bank) for each boy? That of course would be almost impossible.
A troop can continue to keep a separate accounting for each Scout and keep the funds in a single account at the bank, for the convenience of Scouts and their families who may wish to make deposits to pay for campouts or summer camp (think of it as a “camp savings plan” like a Christmas Club). And, units can still do fundraisers. The BSA’s prohibition is on allocating proceeds from unit fundraisers in proportion to the amount the Scout sold or hours of work performed. (For example, sell 10 boxes of popcorn and earn $30 for your Scout account.) Ordinarily, that would be considered wages or commissions and are subject to taxation, which the IRS contends should not be “shielded” because the organization is a nonprofit.
If a unit wanted to redistribute fundraising proceeds to Scout accounts, they presumably could do so to all participants equally, since this would be the same effect as applying them to the unit’s general fund and then using that to reduce the overall cost. And those funds certainly wouldn’t be available to be withdrawn as cash.
Do not see the difference. A scout earns money on his own and puts it in his troop account; that includes participating in the unit opportunity to “earn” a percentage of specified amount base on his participation. It can only be used for program in the troop, or with proper documentation, uniforming and reverts to the unit should the scout leave, other than direct deposits from the family which are specified on the deposit for whatever.
Why do we need to nit pick this to death. Reality is that the boys that most need this will generally participate, while those that do not will simply have their parents pay as they go. Problem with asking a scout to simply save on his own is that too many parents would simply take the boy’s money if they decide it is necessary. If the IRS is so desperate they need to worry about the pittance in most accounts, then they are even more screwed up than is obvious. Certainly they have enough “real” tax cheats that they can’t find or choose to ignore. JMO of course.
The difference is the “on his own” part. It’s OK to earn money from a paper route (if those still exist!), doing chores or mowing lawns, but not when the unit gets involved as the de-facto “employer”, essentially paying the Scout for selling candy bars or manning the tree lot. That’s the part the IRS is objecting about.
So then put all fund raiser funds into a “grant” account to which those scouts that meet the stipulation of having helped fund it and have specific program needs can apply. But, that seems just more red tape to get to the same place.
Again, why should this be any huge concern to the IRS anyway? There is real money being diverted and stolen under loop holes and simple evasion, including a number of congressional members at times that seem to get away with owing large amounts. Oh, that’s right, those people are too hard to deal with; so lets find little fish to harass. Sort of like a friend of mine who was a long time server raising two sons on her own. She was audited twice for tips; her income, with two kids, was less than $10,000 at the time. She was forced to pay a couple hundred dollars in additional taxes and fines. Makes perfect sense to me.
This is not new news; in fact, the IRS advisory has been around since 2002 (and before) and the BSA’s policy has been around even earlier that that (the Fiscal Policies and Procedures document has been around since before 1994 and the version that has been cited is the most recent revision).
The author of this article is blowing the issue out of proportion by making it seem that this is a new action by the BSA.
The issue is one of whether fund-raising proceeds (from popcorn or any other fund raiser) a Scout has raised are exclusively his or whether they belong to the unit and are used as a means to further its program by providing the Scout the means to pay his own way through the unit.
If the unit has set up Scout “accounts” where the Scout may purchase items for his sole use inside and outside of Scouting, the unit (and its chartered organization) are considered to be “co-operative” (CO-OP) organizations and are then subject to both individual and corporate income tax and the chartered organization may lose its tax-exempt status.
If the proceeds are part of the unit’s general fund and unit provides camperships or if the unit needs supplies to aid the Scout in any area of the program (advancement, camping supplies that may be lent to the Scout, etc.), based on a Scout’s request then there is not problem. Uniform may be purchased and lent to Scouts who might otherwise not be able to afford them fall into this latter category.
The problem is that units use their Scout Accounts as, effectively, savings accounts and when the Scout leaves the unit (ages out, transfers, etc.) they take the money they “earned” with them. That’s another major “no-no” when it pertains to the IRS and BSA rules.
Some may call it semantics, but when it comes to the IRS, one does not want to poke or antagonize.
So, all the BSA is doing is ensuring that its long-standing policy by raising the visibility and nothing more. It’s a clarification in order to protect your tax-exempt CO and your Scouts (that is, unless you *want* to spend time to fill out that tax form as per http://www.irs.gov/pub/irs-pdf/p929.pdf.
Thanks for the clarification on the points in the article. It sounds like you are quite familiar with the circumstances, either as a finance or Scouting professional.
Indeed, the IRS has had longstanding rules against private benefit by nonprofits as reflected in the articles I cited, but the cases were generally smaller booster clubs organized for the primary purpose of raising funds for the participants. However, Scouting units aren’t standalone entities but usually represent a small division of a larger chartered organization, and up until recently there hasn’t been any clear unit-facing language prohibiting allocating proceeds earned by a participant back to his expenses. There isn’t any word one way or the other in the Troop Committee Guidebook, for instance; the Unit Money-Earning Application, which has an extensive set of rules on the back, doesn’t mention it, and indeed recent editions of the Scoutmaster Handbook offer the advice:
In fact, the paragraphs in which the prohibition on allocating funds to Scouts is stated in the Product Sales Guide is accompanied by the caveat:
This would seem to confirm the existence of language in BSA documents that is at variance with the no-Scout-allocation policy.
I don’t think I was blowing the issue out of proportion, because it’s been the predominant impression among Scout troops that some form of Scout-account distribution was a generally accepted practice. I’d guess that most troops have been doing it. The point can also be made that very few unit treasurers or committee chairs (or even those of the chartered organization) are familiar enough with tax law and IRS rulings to know about the ongoing restrictions on private inurement by nonprofits; thus the action by the BSA to bring it to our attention. The fact remains that this policy statement represents a paradigm shift in the way we raise money in our troops and it will certainly require some adaptation on the unit level.
“Units can still conduct fundraisers to fund unit operations, but cannot require a minimum fundraising amount per Scout or family and cannot allocate proceeds to individual members.”
Can you please share where you found instruction that minimum fundraising amounts are also prohibited? I can’t find that particular bit in either of the documents you linked, and I’d like to have official documentation to share with our Committee.
Looking in the IRS discussion that I cited, and reading about “Club A” and their activities, it appears that they have a “work and pay or don’t play” policy, which disqualifies them as an exempt organization. This is better explained by Sandra Pfau Englund, Esq., in a white paper from her nonprofit law firm. There are other factors at work in “Club A” being denied non-profit status, but the minimum work or contribution requirement appears to be a factor. This whitepaper, incidentally, contains a very helpful flowchart that can aid in determining whether a given organization is engaging in permitted or prohibited activities for 501(c)(3)s.
The IRS discussion goes on to explain:
To be on the safe side, we may need to avoid requiring certain minimum levels of parental participation, whether it be raising a specific amount of money or serving on a committee or an activity as a condition of membership or receiving benefit from the organization.
This whole thing is, as they say, a “sticky wicket” and each case really needs to be evaluated individually by qualified professional finance people. This is probably why the BSA painted with such a broad brush, prohibiting all activities resulting in private benefit.
This subject was recently brought up at our Troop’s leaders meeting. What has me confused is if the fiscal policy is talking about scout accounts, then why not spell it out in unambiguous terms? It states “Can my unit credit amounts from fundraising to an individual toward their expenses? No. The IRS has stated that crediting fundraising amounts constitutes private benefit.” If National doesn’t want Troops to use scout accounts, then just say it! I am guessing the majority of units out there are not even aware of this document so why doesn’t National do a better job of communicating this information. I know we have never once heard our own Council mention this topic – not at a roundtable, not in written communication and not in an email.
I am all for abiding by the rules. But our Council has never provided us with a rulebook. And now I am doing my research via Google because that seems to be the only way to learn anything.
Could someone also explain to me how this doesn’t “break the rules”? Our local council offered 2 free tickets to a local theme park or a council gift card for scouts who sold over $1500 in popcorn. The gift card is issued in the scout’s name. Is this not a private benefit? The card could be used for council events, camp or anything in the Scout shop. The theme park tickets are given to the scout that earned them. Is this not a private benefit? If the Council provides this type of reward and it isn’t a violation of National’s fiscal policy, would it be okay for a unit to offer a similar type of reward? It would be very easy to set up a reward system for a fundraiser that is similar to the popcorn fundraiser. Say Johnny worked so many hours at a fundraiser, he could get a gift card of a certain value. And if Timmy worked 1/2 the time at the fundraiser, he would get a gift card of a lesser value.
Would this even be allowed? Is this better than having individual accounts? I am not trying to circumvent the rules, but when they are not clearly defined, how can you abide by them? If our Council is the overseer of all the units under it, shouldn’t the units be able to follow their example?
Mark West wrote in part: “Additionally the Unit Money-Earning Application is just another example of the bureaucracy that has invaded National in the recent decade or so. National, if you read this comment, please understand that we volunteers are getting sick and tired of you playing politics, instead of doing what is best for the youth we are supposed to be serving.”
Mark, chill. The BSA’s Unit Money-rasing form has been around since the 60s. Besides, the form doesn’t go to National — it remains there at the Council level.
While, I was not aware of that, I still believe the application for Unit Fundraising shouldn’t exist because quite frankly I don’t want council nosing around in how my unit decides to raise money. Yes it is a check and balance but it is a check and balance that I’ve seen abused. So maybe I’m jaded but it isn’t like my concerns are unfounded. One example I had a DE say to me once that the primary purpose behind checking the unit money-earning application is to ensure that units do cut into councils share of donations. That really ticked me off that this DE had the guts to say that and then say that was what he was instructed to check for. Mind you at this point this DE didn’t know their was a unit fiscal/fundraising guidelines packet.
Your DE may have been a bit crass in the way he characterized the purpose of the unit money-earning application, but the national by-laws do prohibit units from soliciting funds directly. Since we operate under the national charter we’re obligated to follow that provision. Only councils are authorized to directly solicit funds, and indeed a business owner who isn’t familiar with Scouting’s organization could misconstrue a Cub Scout pack’s request for a donation as a request from the “Boy Scouts” in the larger sense, which may impact programs like Community Friends of Scouting.
That said, I’m sometimes amazed at the professionals’ own misunderstanding of our rules on fundraising. You only need to look at the hasty retraction of the recent item on the Scouting Magazine blog to get a sense for how complex (and counter-intuitive) these rules can be. Over the holidays, our district featured in its weekly newsletter a picture of Scouts in uniform doing a good turn by ringing bells for the Salvation Army, an activity explicitly prohibited on the UMEA.
Your council isn’t “nosing around” in your fundraising affairs any more than it is intruding upon the way you wear your uniform or conduct the advancement program. Paraphrasing B-P, there’s a right way and a wrong way, and we ought to do things the right way.
So…. many Districts are doing the Camp Cards fundraisers now. Are they all in violation? They let kids sell the local coupon cards, 50% goes back to District, 50% stays with Pack/Scout to go toward their individual summer camp costs.
That sounds exactly like what’s not permitted. Am I missing something? Must all Camp Card proceeds go into the Unit general fund, and can’t be used for individual Scout expense?
The answer to that, and probably most other questions like it, will have to come from your council, after their professional staff evaluates how the policy pertains to them. Get in touch with your district unit-serving executive if you have any concerns. If the promotion is sponsored by the council, then your unit’s status is most likely not affected.
The whole area of fundraising is a hairy monster that can be difficult to understand, even for the BSA itself. For instance, look at the item on Scouting Magazine’s blog this week that was quickly retracted. The article described one unit’s fundraiser – bagging groceries for tips – in direct violation of BSA’s by-laws which prohibit units from asking for monetary donations. In another instance, one council proudly ran in its newsletter a photo of a troop in uniform manning the red kettles for the Salvation Army, despite the clear wording on the Unit Money-Earning Application specifically stating it as being not permitted.
One thought which should be considered is using the IRS Guidelines against them.
It has been referenced a Scout should pay their own way by earning money with a paper route or other activity. Let’s consider a fundraiser, like popcorn sales, as a commission only job. The IRS allows a person to claim ‘Exempt’ on a W-4 if your total income is $6200 or less in 2014. This means no taxes paid by the individual. This would be the majority of Scouts in the country. In addition, an employer, in this instance the council, would not have to report earnings on a W-2 if the ’employee’ earns less than $600. This would account for typically 3/4 of all Scouts in the council. Even if the Scout earned commissions more than $600, they would not pay any taxes until their total income is over $6200. The commissions earned could then be used for any purpose as they would be paid to the Scout and not the Unit. The Scout would then hopefully use those funds to pay for Scouting.
This would be no different than a non-profit hiring a telemarketer to raise funds for their organization with them getting a commission on funds raised.
To do this would require some policy adjustments at the National Office but could be done and still allow a Scout to be Thrifty.
I’ve just read the Product Sales Guide on the BSA site and even this document seems to contradict itself. Under the Camp Discount cards on Page 8 it says:
“Your son will get $100 for his Scouting program,” and “your son gets $100:50 percent return to you!” and then at the top of the very next page it says “The use of individual youth accounts to credit amounts from fundraising to an individual toward their expenses is not permitted.”
Am I not understanding something? If they are saying that your family just saves that amount by using the discount card then how can the council get $100 and your Scout get $100?
My impression is that you are correct in that some of the wording implies that the Scout, not the unit, would benefit from the sale of the camp cards. I’m guessing that the paragraph prohibiting individual benefit was dropped in to the document without revising what was already there. In order to keep within the constraints found on the next page, the proceeds from the sale of camp cards should go to the unit, not the Scout, for the purpose of offsetting the cost of participating in summer camp or day camp for all Scouts, not just those selling cards.
So the IRS is at it again! This is shameful, our government is going way to far and our society will pay for it.
How about sending 1099 forms to each scout who ‘spends’ more than $600 from his account. Now the money is taxable. If the scout earns less the $4000 (I believe) he doesn’t have to file any way. Just a thought? Any accountants with an opinion on this idea?
I am not an accountant (although I can do double-entry bookkeeping) but the main issue here is not income that is paid out to Scouts but rather the way the income is earned and treated by the unit. If the money goes to benefit the troop at-large, then that’s in keeping with the purposes of a 501(c)(3) organization. If we start attributing income and issuing 1099s (or even W2s) to Scouts, then the Scouts become employees, we become an employer and are subject to all sorts of reporting as well as payroll taxes, medicare taxes and potentially withholding taxes.
If you’d like my two cents, we need to follow A Scout is Obedient (“He obeys the laws of his community and country. If he thinks these rules and laws are unfair, he tries to have them changed in an orderly manner rather than disobeying them.”), and urge Congress to reform that part of the tax code to permit individual benefit in a limited amount for youth groups where the beneficiaries are under a certain age, say age 18. The prospects for this actually happening are dim, though, given that the current Congress has failed to enact any legislation of significance other than perhaps the Farm Bill, and seems more bent on repealing things. To cite the old joke: If the opposite of pro is con, is the opposite of progress Congress?
I think this goes beyond the affect on the Local Units and the Scout who has financial struggles. I don’t believe that this ruling would preclude Units from offering scholarships to Scouts who can demonstrate financial need, but it may. However, I do believe that it will change the criteria used to establish how scholarships are awarded. I know in our Council, they have Camperships which are awarded for Council and District sponsored camps, those applications include a section on participation in Unit fundraisers and Scouts who didn’t “earn” enough in the fundraisers or don’t participate aren’t eligible. I believe this change would mean that those questions need to be removed, because even if they did participate, those funds can’t be used for anything other than Unit activities. When I spoke to our District Executive about this, he indicated that the Council was not going to remove this from their applications. In fact, the current Campership applications include this section with instructions for units to allocate a part of the Scout’s sales to the individual for that purpose. This application was written after the rulings were issued. When I questioned if they believed that this was in compliance with the rulings from the IRS, he wouldn’t answer instead, he said that the Unit was going to have to find a way to help the scout. I believe that the BSA as a whole is going to have to addresses all of the ramifications quickly on this otherwise Units may begin to fold and Council and District camps will suffer tremendously from the decreased attendance.
If this is the case then NO COUNCIL can have custodial accounts for units either. Because if you think about it – it is earmarked for unit or individual needs.
The issue is not whether units or councils can maintain accounts for members, but rather how those accounts are funded. There’s nothing wrong with the traditional unit deposit account that many councils offer, because they are merely holding for future use funds that were deposited by troops and packs. Likewise, a troop could maintain accounts for its Scouts into which the boys (or their parents) could deposit money to be used for campouts or summer camp, like a savings account at a bank. Where we’d run afoul of IRS rules is a situation where the member gets a “cut” of the profits on the products he sells (ostensibly under the umbrella of the nonprofit organization) for his own personal expenses, whether given to him in cash, deducted from his participation costs or placed in a custodial account.
If a business sells a product at a profit, that profit is taxable, but a nonprofit organization escapes paying tax because the profit is for the good of the community. If the money goes to fund the non-profit’s programs, then it’s tax-exempt. If it’s given instead to one of the members for his own personal expenses, then it’s not for the good of the community any more.
Seems like there is really two issues here getting jumbled into one:
* Whether or not the donations are tax deductible – thus causing the Chartered Org potential issues with their non-profit status.
* Whether or not the donations are gifts or income.
I would argue that most people feel they are making a gift – overpaying for a product because they know the extra goes towards scouting – usually, from my experience, intending the gift to help the scout that asked for the contribution.
Tax deductible donations are another story – most donations to scout fundraising would likely not qualify – and tax deductible receipts are generally not provided (if they were the actual value of the popcorn/product would be deducted from the price paid and only the remaining amount would show up on the receipt).
Now how to maintain scout accounts so boys will be encouraged to pay their own way means we would need to change change the way one we think about and handle the funds. The funds are contributions to the boys rather than to the unit (i.e. the Chartered Organizations) for scouting.
Either 1) the contributions are gifts to the boys and deposited into an account owned by the chartered organization in trust for the boys that received the gift.
or 2) they are income of the boys deposited into an account owned by the CO in trust for the boys that received the income.
Viewing it as Income would require the boys to fill out IRS paperwork and file tax returns each year ONLY IF their total income from scouting and any jobs they might have is more than $6,100 (assuming the scouts are dependents on their parents IRS returns and single). Since nearly all earn less than $6,100 a year it does not matter how one characterize the contributions since even if one characterizes it as income to the boys it is not enough to trigger the need for them to file a tax return.
HOWEVER, I think that the contributions are better viewed as gifts to the scouts – even when they do some work in return for the gift as the donation is given to the boys with the intent that it be used for scouting. Therefore, the contributions could be gifts to the boys “in trust that they will use it for their scouting expenses”.
Using the latter interpretation, the scouting units would need to change how they run their fundraisers but could still use Scout accounts. The fundraiser documentation would need to make it clear that it is a gift for the boy with the intent that they use it toward their scouting – and not a tax deductible donation to scouting – to make those the giver would need to give the gift to the local Council or National Council.
The Unit would then help the boys manage the funds (they need to since they were given in trust for a specific purpose) through the use of scout accounts. Since the unit expenses are part of the scout’s costs for scouting – they unit could determine that XX% of the collected funds are the costs of belonging to the unit and cover expenses common to all the scouts, and YY% are for the scout’s individual costs for non-unit operation expenses (such as scout camp, camping gear, etc.)
Thanks for this post; our Troop just smacked into this policy WRT Camp Cards, and now we are trying to sort out the mess right in the middle of this fundraiser–that was doing amazing things for the Scouts this year.
I’m angry at the situation, but hopeful we will find some acceptable path. The exchange here is helping me think through the options.
Could it be that local councils are not aggressively announcing this “policy” because they receive substantial financial benefit from product sales such as popcorn and camp cards?
I’m most concerned that if Scouts can no longer receive a direct, individual financial credit for selling popcorn or camp cards or whatever, many may opt out of selling, sales will fall significantly, local councils will suffer financially and ALL of Scouting will negatively impacted.
I just read that Scouts in our council sold $860,000 worth of camp cards. Assuming (I really have no idea) that council retains $2 (40% of the selling price) from each card sold, that amounts to $344,000. This is a huge issue!
Our Troop in the past has always had Scout Accounts where profits from our Spaghetti Dinner have gone to each Scout to use towards Summer Camp in proportion to how many of the activities they participated in during the Dinner. So I understand now that we can’t do that, but we can split up the proceeds equally to all the Scouts to reduce the cost of Summer Camp.
However, what I am really unclear on is can we require a minimum level of participation? If one family does 6 of our activities, and another does 0, do we really have to give that family a share? Can we say a Scout has to do 3 of the 6 activities?
Thanks for any advice.
I think I’d apply the proceeds to the total summer camp cost and use that to reduce the per-person cost for everyone, in keeping with BSA’s statement. You would then need to use “social engineering” to encourage (dare I say “shame”?) your non-participating parents to pick up their share of the work.
Very interesting comments. While I often get concerned about the IRS (I probably owe them money now and just haven’t been told) the whole concept of this policy seems simple enough. If an individual scout is gaining from a Pack or Troop supported event, even if you feel they earned it, it is not within the guidelines of the IRS. It’s not all doom and gloom, cats and dogs are still bitter play partners. Let’s teach the kids the importance of earning their way by participating. They can also learn that in society, there are those that pay taxes and those that use taxes. Of course some cases are legit, some are not. If each of the kids and their parents are properly encouraged to be a part of the organization and do what they can, then the organization will be able to reduce the cost for everyone. This may mean that some skate for free, it has been that way for a long time. Maybe a lesson will be learned during that unearned summer camp that will change a kids outlook on how they should participate. Just a thought!
The whole situation is very sad and makes me angry. And when I tell my scout, he’ll be ticked. He has always worked harder than most of the boys in the Pack and the 2 troops he’s been in. He participates in ALL fundraisers so he can earn more $ for his scout account. He does this because we can’t afford to pay for camp. He is learning to earn his way. If the monies have to be equally split regardless of how much he puts into it and how little the others do, why would he work as hard as he used to? This is just STUPID! Working hard to pay your own way is teaching life skills, isn’t it? Or am I wrong here. When they grow up and go to work in the real world, everyone’s wages aren’t pooled & split equally despite Fred being more skilled or working more hours than Bob… NO, you are rewarded for your hard work. So if the IRS needs to tax boys, then so be it. But I’ll be darned if I encourage my son to work as hard as he used to if it means that Billy who only sold 5 camp cards and 1 wreath is going to get the same $$ as he did by selling his 50 camp cards and 10 wreaths. Why would he bust his butt?
Not being able to accrue funds toward camp through Scout fundraisers is definitely a blow to the boys who want to earn money that way and to the families who rely on fundraising to help make things happen for their son. While investing in Scouting is good for the community (the Ann Curry rescue that’s making national news is just one example of Scouts doing good), the IRS sees it all in accounting black & white to our detriment.
Even though it’s not as easy as participating in a troop fundraiser, Scouts can still earn money for their participation through outside jobs like shoveling snow, mowing lawns or working part-time. Unfortunately, the minimum-wage jobs that traditionally attract youth are being relied on more and more by adults unable to find other employment, and that’s crowding out young people, but jobs can sometimes still be had, particularly by youth of the caliber that Scouts often exhibit.
Even if all proceeds from fundraising go to the unit and not to the individual Scout, it can still be beneficial by lowering costs for all. Surely, some will get a free ride (most likely for those who can afford Scouting on their own) but it can also be structured so as to convey a sense of responsibility to his patrol and to the troop and thus encourage participation by all. See R.Scott’s previous comment for more on this thought.
So now that National has clearly defined that Individual Scout Account funded by fundraising are non-permissible, how do we handle funds in those accounts that have already accrued. Should scout have the ability to spend those down? or Should we be radical and just wipe them out?
How could you just wipe the current funds out? Are they composed solely of past fundraiser earnings? In our case, we have deposited money into the scout account to pay for activities, so it isn’t even money earned via a fundraiser. We just use it as a holding account so we don’t have to pay out each time.
The number of units that will be affected by this change is rather small.
In the rulings it was mentioned that an insubstantial part was deemed acceptable.
T.C. Memo. 2013-193
UNITED STATES TAX COURT
CAPITAL GYMNASTICS BOOSTER CLUB, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5819-09X. Filed August 26, 2013.
â€œ26 C.F.R. section 1.501(c)(3)-1(c)(1), Income Tax Regs., provides: â€œAn organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.â€ (Emphasis added.) That is, under the statute the exempt purposes must be â€œexclusiveâ€, but the regulation provides that an organization may be tax exempt even if its operations include activities in furtherance of nonexempt purposes, provided that those activities are â€œinsubstantialâ€. â€œ
Like all good bureaucrats what is the definition of insubstantial. A later ruling which was mention in a webinar issued in the an e-Letter from the Finance Impact titled â€œWHAT YOU NEED TO KNOW TO KEEP YOUR COUNCIL TAX-EXEMPT STATUSâ€ Russ McNamer, J.D., charitable trust compliance attorney, brings up the topic of individual Scout accounts. He mentions that there was a second ruling where insubstantial was defined as less than 2% and substantial as more than 30%. Again hand it to the wonderful bureaucrats, what is the area between 2% and 30%. But we now have a benchmark to use, the 2%. (Interesting how popcorn sales come in at about 30% back to the Troop.)
A large number of Units are Chartered by Religious organizations which hold the 501(c)(3). (Units which have obtained their own exempt status will probably fall over the limit since they are the only ones raising funds.) That said the IRS is looking at the entire Religious organizations for what benefits are going to individuals. The amount of money raised by most Religious organizations trumps any amount that a unit will earn and the amount passed on to its members. A troop, belonging to a Religious organizations that reports earnings of 1(one) million dollars to the IRS, would need to offer over $20,000 to its members to reach 2%. Most troop fundraising monies are not given exclusively to it members, only a portion of the monies raise go to the members the rest goes to the troop in whole.
Boy Scouts fit in to the purpose of most Religious organizations. They are part of their Charter Organizationâ€™s community outreach programs.
The following article I found to really put the whole thing in perspective.
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