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IRS Clarifies Burden of Proof Around IFAs

Mission Impact Department

Council Operations


To:      Mark Moshier

From: Russ McName

Re:      Private Benefit Doctrine

Date:   May 25, 2010


Is the creation of individual youth accounts within the unit, where a portion of the money that an individual Scout raises during a fundraising event is reserved for his use alone, an incidental private benefit as allowed under 501(c)(3)tax-exempt status?

Brief Answer

The creation of individual youth accounts within the unit, where a portion of the money that an individual Scout raises during a fundraising event is reserved for his use alone is not an incidental private benefit. The BSA has not met its burden of proof to establish that it is not organized or operated under 501(c)(3) tax-exempt status for the benefit of private interests related to individual youth accounts.


On March 7, 2002, a letter was received by the National Office from Richard R. Shelly, related to the use of a “reserve scout account program” within his Cub Scout Pack. Enclosed was a letter from the IRS in response to a letter he sent.

The IRS responded: “The distribution method that you are proposing – the creation of a reserve fund within the Pack where a portion of the money that an individual Scout raises during a fundraising event is reserved for his use alone is a troublesome one. Earmarked accounts may not be compatible with continued tax exemption. Such a decision cannot be made without considering all of the facts and circumstances. Accordingly, we are not ruling definitively at this time.” (Undated letter from Gerald V. Sack, manager, Exempt Organizations, Technical Group 4)


The Boy Scouts of America and local councils are recognized as tax-exempt under an IRS group exemption ruling dated November 24, 1965. Units are considered tax-exempt as an integral part of local councils. The tax-exempt status of the Boy Scouts of America National Council, and through our group exemption for local councils, is based on being organized and operated exclusively for charitable purposes as stated in the governing documents.

Bylaws Article I, Section 2:

“The purpose of the Corporation is as set forth in the original certificate of incorporation under the laws of the District of Columbia, dated February 8, 1910, and restated by the Congress of the United States of America on June 15, 1916, as follows: ‘That the purpose of this corporation shall be to promote, through organization and cooperation with other agencies, the ability of boys to do things for themselves and others, to train them in Scoutcraft, and teach them patriotism, courage, self-reliance, and kindred virtues, using the methods which are now in common use by Boy Scouts.’ In achieving this purpose, emphasis shall be placed upon its educational program and the oaths, promises, and codes of the Scouting program for character development, citizenship training, and mental and physical fitness.”

Bylaws, Article XI, Section 1, Clause 2:

“Contributions shall be solicited in the name of the Boy Scouts of America only through or by the authority of the Corporation, and shall be limited to the National Council or chartered local councils, in accordance with these Bylaws and Rules and Regulations of the Corporation. Youth members shall not be permitted to serve as solicitors of money for chartered organization units, for the local council, or in support of personal or unit participation in local, national, or international events. Youth members, however, are permitted to secure sponsors for council or district activities approved by the executive board. These approved activities may result in financial support for the local council in accordance with the Bylaws and Rules and Regulations of the Corporation.”

Rules and Regulations, Article XI, Section 1, Clause 1, (b) Purpose:

“All money raised by or received for the benefit of a unit or local council shall be deemed to be received or acquired solely for the benefit of Scouting as interpreted and promoted by the Boy Scouts of America.”

Rules and Regulations, Article XI, Section 1, Clause 1, (c) Local Council Control:

“Subject to the general rules and regulations adopted by the National Council or Executive Board, local councils shall control the raising and expenditure of all funds for local Scouting work in their jurisdiction.”

Discussion of the Law

“IRC 501(c)(3) provides exemption from federal income tax for organizations that are ‘organized and operated exclusively’ for religious, educational, or charitable purposes. The exemption is further conditioned on the organization being one ‘no part of the net income of which inures to the benefit of any private shareholder of individual.’”

“The word ‘private’ has been held to mean the antonym of ‘public’ – used to distinguish a private individual from the general public – and is intended to limit the scope of those persons who personally profit from an organization to the intended beneficiaries of the allowable activities.” (Overview of Inurement/Private Benefit Issues in IRC 501(c)(3), 1990 IRS EO CPE Text)

“The regulations cited above contrast private, non-exempt purposes with public exempt purposes. Note that it is the organization’s true purpose, not the stated purpose or the organizational language, that we must consider. A benefit that is necessary part of the exempt purpose of the organization does not serve private interests. On the other hand, anything flowing from an organization’s activities other than public, charitable benefits may be serving private interests and therefore a nonexempt purpose.” (Private Benefit Under 501(c)(3), 2001 IRS EO CPE Text)

Private Benefit

“In G.C.M. 38459, Chief Counsel had observed that ‘an organization which serves a private interest other than incidentally is not entitled to exemption as an organization described in section 501(C)(3). Thus, although an organization’s operations serve a public interest, exemption will be denied if private interests are also served.’”

“In our opinion, the word ‘incidental’ in this context has both qualitative and quantitative connotations. We think it is qualitative in the sense that to be ‘incidental’, the private benefit must be a necessary concomitant of the activity which benefits the public at large; in other words, the benefit to the public cannot be achieved without necessarily benefitting certain private individuals.”

“There is also a quantitative connotation to the term ‘incidental’ in this context.”

“In our consideration of the proposed revenue ruling in G.C.M. 35701 … we stated that:

‘If the purposes or operations of an organization are such that private individuals who are not members of a charitable class receive other than an insubstantial or indirect economic benefit therefrom, such activities are deemed repugnant to the idea of an exclusively public charitable purpose. ..This result is the same, moreover, even if the purposes and activities of the organization would be charitable were it not for the element of private benefit.’”

“It thus appears that any private benefit arising from an organization’s activities must be ‘incidental’ in both a qualitative and quantitative sense if that organization is to be entitled to exemption under section 501(c)(3). That is, an activity may provide an indirect benefit to private interests, and thus be ‘incidental’ from a qualitative standpoint, but if it provides a substantial benefit to private interests, albeit indirectly, it will negate charitability and exemption under 501(c)(3).”

“While the prohibition against inurement operates only against insiders, the prohibition against serving private interests operates against all parties who receive a benefit not accorded to the public as a whole.” (1990 IRS EO CPE Text)

The Burden of Proof

“Regs. 1.501(c)(3)-1(d)(1)(ii) states the burden of proof is upon the organization to establish that it is not organized or operated for the benefit of private interests. This requirement applies equally to inurement and private benefit issues. While it is difficult to prove a negative, the organization is certainly in a better position than the service to know the detailed facts surrounding its formation and operation”

“Failure to provide relevant information is a sufficient basis for both the Service and the courts to refuse to recognize the organization as exempt. This reduces the possibility that an organization may take refuge in a gray theoretical area or retreat into claims of ignorance about its own operations. Simply put, the organization must establish the factual basis for its exemption.”

“Since inurement and private benefit issues are highly fact dependent, the courts do not look with favor on an organization’s failure to provide relevant facts and they are not hesitant to find that an organization has failed to carry its burden.” (1990 IRS EO CPE Text)

Applying the Law to the Facts

“The discretion inherent in finding and weighing facts can produce results which are difficult to rationalize.” (1990 IRS EO CPE Text)

“At first glance, it appears from the above discussion that straightforward rules or principles can be applied to private benefit issues. American Campaign Academy defines private benefit as ‘non-incidental benefits conferred on disinterested persons that serve private interests.’ Court cases, revenue rulings, and GCMs further define non-incidental, benefits, disinterested persons, and private interests. We understand that private benefit must be both qualitatively and quantitatively incidental. We think we can distinguish between substantial and insubstantial benefits. We believe we can distinguish interested and disinterested persons. We can identify direct and indirect benefits.”

“In reality it is difficult to apply the private benefit analysis.”

“Ultimately, we must take the ‘facts and circumstances’ of each individual case and apply the law discussed above to determine the presence of private benefit. For example, benefits that are nonincidental in one factual situation may be incidental in another given the totality of the circumstances.” (2001 IRS EO CPE Text)

“Court decisions, private letter rulings, technical advice memoranda, G.C.M.’s, and articles in professional journals provide a continuing commentary on inurement and private benefit issues. All of these sources stress three major points: (1) an organization is exempt on the basis of its purposes and not its activities; (2) the issue as to what an organization’s purposes are is to be resolved in light of the totality of the facts and circumstances in a particular case; and (3) the burden is generally upon the organization claiming exemption to establish that its operations are exclusively in furtherance of exempt purposes and that it does not operate for the benefit of private interests.” (1990 IRS EO CPE Text)


The creation of individual youth accounts within the unit is not permitted under the BSA National Bylaws and Rules and Regulations. Where a portion of the money that an individual Scout raises during a fundraising event is reserved for his use alone, it may not be compatible with continued tax exemption of the local council. The creation of individual youth accounts within the unit is not an incidental private benefit to the BSA’s primary activities.

Qualitatively, the creation of individual youth accounts within the unit is not a primary activity to accomplish one or more of the exempt purposes of the BSA. It does not benefit the public as a whole. Quantitatively, the benefits from individual accounts are substantial and direct. The BSA has not met its burden of proof to establish that it is not organized or operated for the benefit of private interests related to the creation of individual youth accounts within the unit.


Booster Club Fundraiser Ideas That Work

Sandra Pfau Englund

Jan 08, 2020

Raising money for the students at your school is always important. Government tax funding usually doesn’t cover all the costs of a great education system. So, it's essential for parents, administrators, and teachers to all pitch in on fundraising. One of the best, and structured, ways to raise money is by creating a booster club. All you have to do is incorporate, obtain your tax exemption, get an EIN, and register with your state. A booster club then allows your group to raise funds for your school with all the benefits of making charitable donations for donors. The primary goal of a booster club is to raise support for the school, including extra funding, so let's take a look at the top booster club fundraiser ideas.

Community Fundraising Ideas for Booster Clubs
1. Membership fees must comply with law

One of the top booster club fundraiser ideas is to accept membership fees. However, it's important to note that while you may charge membership fees, it is vital to understand the laws regulating that revenue. Thus, for more information to ensure you comply with all laws, take a look at experts in the field, such as Parent Booster USA.

2. 5K Fun Runs bring together your community

Do you want to get everyone in your community involved in one of your fundraising ideas for booster clubs? Well, a 5K walk/run might be the right fundraiser for you. Recruit a team of volunteers who will help you plan this kind of fundraiser. Then, charge all participants for walking/running the race. You'll need to get the necessary permits for the route, but a 5K fun run is great because it involves your entire town. So, take a look at these tips for planning your fun run for great success.

Digital Fundraising Ideas for Booster Clubs
3. Charity auctions with or without an event

Have you ever considered an online charity auction? It's one of the best booster club fundraiser ideas, done conveniently online. Sure, you can combine an online auction with a fundraising event (e.g., sporting match, dinner, etc.), but it's also a great stand-alone fundraiser. So, all you have to do is get a charity auction platform, auction items, and then promote away. Remember, travel, spa, and sports items do very well in this fundraiser. Check out these dos and don'ts for an auction.

4. Email flash fundraiser for one day only

Yes, email still works. In fact, one-third of online fundraising comes through email. For a flash fundraiser, pick a day where you're going to blitz your donor base through email. For success, you'll want to ensure you have a compelling story and a sense of urgency for the funds. And don't forget to include videos and photos for your flash fundraiser. Also, remember that while you will get responses to this fundraising idea through email, you will want to also share across social media. Set a financial goal and tell everyone that you need the funds by the close of the day. 

Sports events for booster fundraiser ideas
5. Championship event fundraiser for your booster club

Playing sports is a big part of school life, and it can serve as the center for fundraising events. As a result, one of the most fun (and competitive) booster club fundraising ideas is a fundraiser tied to a championship. Perhaps your students have made the cut at the national level, state, or local levels. Or, maybe it's the last game at your school before vacation. Whatever the reason, select a game that is special and then raise money around it. Ask all parents to get involved and promote your event on social media. When people arrive to see the game, you can charge an admission fee for entrance to this special game.

6. Raise money with a pitch-a-thon

Everyone likes a little bit of competition. Therefore, with that in mind, one of our other excellent booster club fundraising ideas is a pitch-a-thon. It's easy to get one together during any time of year. Before any sporting event at your school, get the crowd motivated by inviting anyone to throw the fastest baseball pitch. But, you're not limited to baseball. See who can kick a soccer ball the farthest or throw a football. You can plan it yourself, or work with a third-party partner to help you prepare it. However, charge participants and attendees to this fun event.  

Creative fundraising with no selling or asking for money
7. Shoe drive fundraiser

Finally, one of the most creative booster club fundraising ideas is a shoe drive fundraiser. You can raise school and team spirit by having different grades and classes compete against each other. All your booster club has to do is collect gently worn, used and new shoes. And, once the event is finished, you get a check. Not only will this fundraiser raise funds for you, but it's a socially responsible fundraiser. Meaning, you support the planet and also micro-entrepreneurs working to help themselves out of poverty.

The easiest way to get and keep tax-exempt status