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The Boy Scouts are as American as apple pie, football, and the Star-Spangled Banner. My husband and both of my sons participated in the Scouts. My stepfather is an Eagle Scout. I have no quarrel with the Boy Scout ideals to be trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful, thrifty, brave, clean, and reverent. However, it is time to clear up a few myths and build a better Boy Scout program.
The myth or misconception: Boy Scouts of America (BSA) is a national youth development program. The reality: BSA provides a youth development program, but it does not operate the program. This may sound like nit-picky legal minutia. Actually, it is very important.
The BSA is structured much like a franchise. The BSA “owns” the Scouting program but contracts with its 272 local Councils. This is to manage programs and provide services to local Scout units. Councils provide services to the local Scout units. However, they do not actually operate Scout programs either. The Councils instead contract with thousands of local community groups, churches, and schools (called “Chartered Organizations” in BSA lingo). Consequently, these organizations are legally responsible for operating local Scout units.
The problem: Chartered Organizations do not realize they operate Scout programs they sponsor.
A bigger problem may be the BSA filing for bankruptcy protection to protect its considerable assets from the hundreds of sexual abuse claims. The bankruptcy court set a November 16, 2020 deadline to file claims against the BSA. Once the BSA's deep pockets (over $1.4 billion reported in assets on the 2018 IRS Form 990 tax return) are no longer available, claims may increase against the Chartered Organizations operating local Scout programs.
The BSA Structure
Looking closer at the BSA structure, you find the national BSA, local Councils, and sponsors or Chartered Organizations are each separate legal entities. The local Scout units (Packs and Troops) are not legal entities at all. By separating the BSA, local Councils, and sponsors into different corporate entities, a firewall is created between the groups. In fact, this means the national BSA has built-in protection against legal claims filed against Councils or local sponsors. In reality, lawsuits may commonly name all possible parties to an action. For example, in a Florida case in which a Scout died during a camping trip, the volunteer troop leaders, chartered organization, Scout council, and the BSA were all sued. Once a lawsuit is filed, it is then up to each of the defendants to prove to the court why they should not be liable for the action.
The firewalls the BSA built might help a defendant get out of a claim. The BSA—and local Councils—may argue about responsibility for the acts of local Scout leaders because Scout leaders are volunteers of the Chartered Organization (sponsor). Therefore, BSA and Councils have no control over the selection or supervision of local Scout leaders.
Why did the BSA Structure this Way?
In the beginning, back in the early 1900s when a man named W.D. Boyce started the Scout program, the BSA structure made sense. Boyce faced competition from the Mutual Improvement Association. This was a youth scouting program of the Church of Latter Day Saints (LDS). The LDS had 20,000 boys enrolled in its program by the end of 1912. Boyce negotiated with the LDS to adopt his Scout program by signing a “charter agreement.” Thus, the LDS became the first “Chartered Organization.”
Boyce then negotiated with other religious faiths to use the Scout program. Because Boyce and the BSA did not want the program to be considered only an LDS, or Protestant, or Catholic program, the BSA contracted with each faith group to use the Scout program. This includes customizing it to their religious faith and selecting their own Scoutmasters.
IRS Tax Exemption Did Not Exist
The structure of nonprofit organizations has changed significantly since Boyce began the Scouts. Back in 1916, President Woodrow Wilson signed a federal charter which established the Boy Scouts of America as an official organization. A lot has changed since then. The current nonprofit tax exemption laws came into effect with the Revenue Act of 1954, which established section 501(c) for exempt organizations. All nonprofit organizations—regardless of gross annual revenues—are required to file a tax return (IRS Form 990). However, this requirement only went into effect in 2007 after the passage of the Pension Protection Act of 2006.
Sponsors Misunderstand their Role
As the BSA program grew, the involvement of local sponsors in the program decreased. Today, many sponsors—like those at my church—are under the impression Scouts operate their own programs. The church’s role: provide space for Packs to meet on Monday nights and provide a closet for a Pack’s equipment. Sponsoring organizations do not select Scoutmasters, vet Scout leaders, or participate much at all in Scouting programs. Hence, this is why many are surprised to learn by signing the BSA Annual Charter Agreement, sponsors agree to “conduct” Scout programs. This includes “assuring adults selected as unit leaders are suitable.”
The short 1-page Charter Agreement does not explain much about the BSA structure. Nor does it describe the liability the Chartered Organization is undertaking by sponsoring a local Pack. One needs to look deeper. The BSA Fiscal Policies and Procedures for BSA Units say local Scout units are instructed not to incorporate or obtain 501(c)(3) status. Rather, the BSA states the local units fall under the Chartered Organization’s legal and tax-exempt status. Consequently, this makes the Chartered Organization responsible for—and legally liable for—the Scout Pack, its activities, leaders, and finances.
Building a Better Scout Structure
While most local Scout Troops follow the BSA’s advice, some Troops have decided to become nonprofit corporations and obtain IRS 501(c)(3) tax-exempt status. Guidestar lists several hundred local Boy Scout Troops. This makes a lot of sense. By incorporating the troop, a legal shield of firewall is built around the Troop leaders, providing protection for the leaders and their personal assets. Incorporation also means Troops own their assets, rather than sponsors. Finally, incorporating helps protect Chartered Organizations and their assets from claims relating to the activities of Troops. Obtaining IRS 501(c)(3) status for Troops enables them to accept tax-deductible donations. Tax-exempt status also clears up the ambiguous tax status of the Troops.
The BSA strategic bankruptcy filing may protect the BSA’s assets and allow it to restructure and continue the Scout program. However, this action also shines a light on the BSA and how its structure does not protect the interests of the local Troops, their leaders, and sponsors.
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