The tax man is threatening a long-standing practice of Fayette County booster clubs — giving parents credit for fund-raising — in a move that could have broad implications for extracurricular activities nationally.
The Henry Clay High School band booster club recently paid about $30,000 in IRS penalties, and the Lafayette band boosters were hit with a $9,000 fine, which they are appealing. The IRS has also contacted the Bryan Station baseball boosters.
At issue is something booster clubs have done for years: giving parents credits for working at bingo parlors and concession stands and selling items ranging from candles to candy. In many cases, those credits are then subtracted from the annual fees parents pay for extracurricular activities such as band, cheerleading and athletics.
But it now appears that the IRS is tightening up on the private, non-profit booster clubs, saying benefits to individual parents are illegal unless they pay taxes on the money.
The IRS actions here could have an impact nationally, since most booster clubs follow the same procedures.
”Other booster clubs in Kentucky and from other states have called because they have similar procedures,“ said Brian Kinney, former president of the Lafayette band boosters.
IRS representative Jodie Reynolds said that federal law prohibits the IRS from discussing a specific organization's tax issue.
The practice of giving parents credits to work off fees they would otherwise have to write a check for has been widely accepted.
”Our organizations have had these fund-raisers for years and there's never been a problem, so the district is surprised at the IRS' position,“ said Lisa Deffendall, a spokeswoman for Fayette County Schools. The district essentially has no authority over the private groups.
Fayette County Schools pays for head coaches and band directors and some assistants, but most expenses for sports and extracurricular activities are left to the parents.
Fund-raisers help booster clubs raise hundreds of thousands of dollars to pay for uniforms, trips and equipment. In addition, big Fayette County booster clubs have paid for some of the nicest athletic fields in the state.
The concern about a process where little is paid by the school district is that many students won't get to participate because their parents can't afford the fees.
However, Douglas Romaine, the Lexington attorney who represents Lafayette band boosters, said the IRS is concerned about whether individual parents receive benefits or whether the fund-raising activities benefit the entire group.
Of all the fund-raisers for booster clubs in Fayette County, bingo has traditionally brought in the most money — a total of $6.8 million from 2000 to 2005.
The IRS informed Bryan Station's baseball booster club that it could no longer give monetary credit to parents for their voluntary work efforts. And that affected the school's band boosters, a group that was sharing a bingo night with the baseball boosters.
”The Bryan Station Baseball Booster Association can no longer compensate band members for working bingo,“ club members were informed in a newsletter. ”Therefore, we can no longer participate in bingo as a dependable monthly fund-raiser.
”So it looks like the keeper of the taxes (IRS) has brought on the death of bingo.“
Romaine said what has happened with the Lexington booster clubs ”is a significant issue in the tax-exempt organization arena.“
At both Henry Clay and Lafayette, officials said every child is treated the same regardless of whether the family raises money for the club.
”If a child can't afford it, all they have to do is tell the director and it's taken care of,“ said Scott Nicewarner, president of the Henry Clay group.
Romaine said the IRS is engaging in ”piecemeal policing,“ sanctioning some groups but not others.
”The IRS has not given any guidance to the booster clubs,“ Romaine said.
Paying the price
Lafayette Band Association Inc. one of the largest band booster clubs in the state, is appealing the $9,000 IRS penalty it received for 2007, in the process racking up twice that much in legal fees, said Kinney, the booster club's former president.
The Lafayette group was audited a few years ago and told that it was doing everything right, Kinney said.
When it was audited again in 2007, the IRS found fault with the same practices that were previously approved, said Kinney. The group raised about $300,000 through fund-raising and fees in 2007, he said.
The fees in the Lafayette band are $900 per student each year. That covers all expenses, including uniforms, instruments and repairs on instruments, hotels, instructors and countless other extras that it takes to maintain a 200-person student band, Kinney says.
The band has won 14 state championships.
The Henry Clay band boosters, who brought in about $150,000 in 2007, never expected to pay a $30,000 penalty to the IRS.
”We are just a bunch of parents trying to raise money because the school district doesn't fund a musical education for our children,“ said Nicewarner,
”We didn't follow the letter of the law,“ he said, ”and, even though it was out of ignorance, the right thing to do was to pay it.“
Nicewarner said the booster club paid the penalty so that the IRS would not go after individual families.
”They were selling cookies, candles, flowers and fruit, and then to penalize them, it was causing major stress with the parents,“ he said.
Henry Clay Band members pay anywhere from $75 to $350 in fees annually, depending on how many band activities they participate in.
The club did extra fund-raising to make up for the $30,000.
Will students still play?
Jim Carroll, a spokesman for the Kentucky Department of Charitable Gaming, said that under state law, everyone who works bingo for a club is a volunteer and no individual is allowed to be compensated.
The Lafayette and Henry Clay band booster groups and the Bryan Station baseball booster group are all in good standing with the state, he said.
Meanwhile, boosters at both schools have stopped giving parents credit for fund-raising.
At Lafayette, all money raised goes into one pot and every family must pay the same amount in fees. Parents have less motivation to help with fund-raising, Kinney said, and some parents are questioning whether they can afford for their children to participate.
”It will deter students from joining the band,“ said Kinney.
At booster club training sessions, district officials are telling booster clubs to work with their accountants.
Kinney said the Lafayette boosters are trying to figure out how to entice parents to help raise money without offering credits.
”We are going to do something to counter,“ Kinney said. ”but we don't know what.“