Individual Scout Accounts Part Trois

[boomerscout]

Why can't we simply continue with our program as it works and quit "looking" for problems. It unlikely this is really an issue with most units. It gets tiresome to see the continual bantering about what "might" be done wrong, or "might" go wrong, or "what" someone else is doing that someone thinks is wrong. Just run your program honestly and the best you can. If something unusual comes up, worry about it "then"!

Probably because "head 'em off at the pass" gives better results than "try and pick up the pieces" afterwards. Also fewer ruined reputations of those caught out. Successful businesses do this; it's called scenario planning

[VigilEagle]

So my question is, have any units lost Tax-Exempt status because of ISA? Or is this the ant hill that just became a mountain? I know units that have (and still do) ISA and haven't heard boo from the local Council, IH, IRS, or any other acronym...

[Pack18Alex]

What I find frustrating is that IRS issues vague letters, with words like substantially in there. It would be nice if the BSA would draft a CAREFUL letter to the IRS governing what is substantial. Often the IRS picks thresholds like 50%.

 

It's possible that a request that would permit 40% of the money in the Scout Account, to be used towards that individual's participation in Scouting, and 60% in the Scout Unit general fund for the mission, would fly.

 

Substantially, the money goes to the unit. The 40% isn't an excess benefit, because it's limited to Scouting.

 

Somewhere in 8 figures of salary, someone can think to call a tax lawyer, instead of depending on volunteers at their local Church/Synagogue to do the heavy lifting.

Fred, I disagree, it was a letter about a specific Unit with 100% going to Scout Accounts with no controls.

 

I think BSA would like to ditch Scout Accounts and have everything go to fund Unit programming under the belief that this will strengthen unit finances and free them up to charge Council Dues on top of National Dues. Scout Accounts make this harder.

 

I mean, banning Scout Accounts is extreme, while it's possible that a restricted form could be okay.

 

Look at some of the 501©4 nonsense… Cannot be primarily "political" defined as endorsing/supporting candidates has been ruled as permitting 49% "political" and 51% "issue advocacy."

 

Primarily and substantially have meaning, they don't mean any.

[fred johnson]

So my question is, have any units lost Tax-Exempt status because of ISA? Or is this the ant hill that just became a mountain? I know units that have (and still do) ISA and haven't heard boo from the local Council, IH, IRS, or any other acronym...

Yeah, lots of units have ISAs. I have not heard of a scout unit fined.

 

But other groups have been affected. here's the one that I originally learned from. The booster clubs agreed to pay the fine because the IRS threatened to go after the parents for not reporting earned income. So instead, the 501c agreed that they screwed up and thus paid the fine. One of the fines was $60,000, larger than the annual budget of the booster club.

 

http://www.kentucky.com/2008/12/16/628251/audits-trouble-bryan-station-high.html

 

Our troop sells so little it's really not a big issue. Our pack ... maybe. But I know of a pack and a troop in our town that each sell $30,000+ in popcorn and similar in wreaths. Big scouting units. If I remember right, they have ISAs.

 

Though not a scout unit, a local football fundraiser was turned in (I think to the IRS) by local businesses because they were competing with a core facet of several of those businesses and not paying sales tax, no licenses and not having any structural overhead. The football team's actions were costing the business tens of thousands a year in sales and were not competing on equal footing.

[fred johnson]

Generally VigilEagle is right. The risk is extremely low. Odds are the IRS won't pursue it because the groups are too small.

 

But that makes it an all the more interesting. It's a classic moral dilemma. An ethics challenge. Do you do follow the rules even though no one is looking? If you don't agree with the rules, do you work to change the rules while being compliant or do you just ignore and break the rules? Do you approach the decision with odds are no one will get hurt or that we do the right thing? Is it okay because we don't like the IRS rules. heck, no one likes the IRS to begin with.

 

It's interesting because we claim to help scouts do the right thing and to be good citizens.

 

I'm not perfect on this point either. I'd rather see it different. But it's what it is. So what do we do about it. How do we make our decisions?

[RememberSchiff]

Generally VigilEagle is right. The risk is extremely low. Odds are the IRS won't pursue it because the groups are too small.

 

But that makes it an all the more interesting. It's a classic moral dilemma. An ethics challenge. Do you do follow the rules even though no one is looking? If you don't agree with the rules, do you work to change the rules while being compliant or do you just ignore and break the rules? Do you approach the decision with odds are no one will get hurt or that we do the right thing? Is it okay because we don't like the IRS rules. heck, no one likes the IRS to begin with.

 

It's interesting because we claim to help scouts do the right thing and to be good citizens.

 

I'm not perfect on this point either. I'd rather see it different. But it's what it is. So what do we do about it. How do we make our decisions?

In this IRS matter, if the unit does not follow the rules, they are not at risk. The legal risk is borne unknowingly by the Charter Organization and then later by the parents of those scouts with SA's. Blindsided.

[boomerscout]

Generally VigilEagle is right. The risk is extremely low. Odds are the IRS won't pursue it because the groups are too small.

 

But that makes it an all the more interesting. It's a classic moral dilemma. An ethics challenge. Do you do follow the rules even though no one is looking? If you don't agree with the rules, do you work to change the rules while being compliant or do you just ignore and break the rules? Do you approach the decision with odds are no one will get hurt or that we do the right thing? Is it okay because we don't like the IRS rules. heck, no one likes the IRS to begin with.

 

It's interesting because we claim to help scouts do the right thing and to be good citizens.

 

I'm not perfect on this point either. I'd rather see it different. But it's what it is. So what do we do about it. How do we make our decisions?

maybe by looking at Trustworthy, Loyal, Obedient, Brave, or don't we teach by example anymore?

[ZScout5]

I found the following posted on Rainbow Council's website (IL). I have not seen anything similar anywhere else.

[h=2]FAQ's - Individual Scout Accounts and Fundraising by BSA Units[/h]

Below are frequently asked questions provided by BSA Legal Counsel regarding Individual Scout Accounts and the applicable IRS fundraising policies for non-profit organizations.

Are individual Scout accounts permitted?

Yes. These accounts are permitted when funded by the youth member through savings, a

portion of a weekly allowance, and chores around the home and neighborhood. The youth

member’s family may contribute, but no charitable deduction is allowed.

 

What is private benefit, and why is it not allowed?

Private benefit is when funds raised in the name of Scouting or another charity are directly

allocated to the youth member or family doing the fundraising. Funds raised in the name of

Scouting should benefit the entire unit. The tax laws do not permit private benefit, with the

exception of an “insubstantial†benefit.

 

How is an “insubstantial†benefit defined?

The IRS has classified 30 percent of the money raised as “substantial,†and less than 2 percent

as “insubstantial.†The burden of proof that the benefit is “insubstantial†is on the organization.

 

Are incentives allowed for participation in fundraising or sales?

The IRS has not ruled on this matter, but the “insubstantial†benefit restriction would apply.

 

Can Scouting units use funds to assist youth members who have a financial need?

The unit can allocate funds based on financial need, and may consider factors such as

participation in the unit, advancement, and Scout spirit.

 

Are there penalties for private benefit or other tax issues?

Private benefit may result in the loss of tax-exempt status for the chartering organization, or the

local council. Allocating funds raised in the name of Scouting directly to a youth member could

result in self-employment tax liability.

 

[fred johnson]

Well written. Sounds accurate to the IRS documents I've read.

[qwazse]

This was source material for our topic at roundtable last night. Some conclusions: Paying for camp, uniforms, equipment, etc ... Was not a private benefit. Compare that with how we provide our communities with trained citizens prepared to serve, and you get the idea. If a boy fundraises enough to go to Jambo, Is that a benefit to the troop? It is a benefit to his Jambo contingent. Finally, if a boy leaves scouting the $ raised do not go with him.

[Pack18Alex]

One nice thing about Camp Cards is that 100% of the money goes to Scouting (in our Council, 50% Unit, 50% Council).

 

If a Unit puts half the money is an ISA and half in general treasury, that's only 25% for an individual benefit, which seems to be below the threshold ruled substantial. We generally keep the private benefit part to under 20%.

 

Patrol Accounts would let the Scout get closer to private benefit without it being actually private.

[ScoutNut]

Can Scouting units use funds to assist youth members who have a financial need?

The unit can allocate funds based on financial need, and may consider factors such as

participation in the unit, advancement, and Scout spirit.

 

In other words, if all monies are kept in the Troop bank account, it is Troop money, not Scout money. Troops are able to "allocate" their Troop funds as they see fit.

[fred johnson]

Pack18Alex ... IRS said 30% is substantial and 2% is insubstantial. 20% and 25% is in the grey area. Do as you will given that I've never heard of a troop audited by the IRS.

 

Qwazse ... "If a boy fund-raises enough to go to Jambo, ..." is explicitly private benefit. When a scout fundraisers money in the name of the troop, then the funds belong to the troop. So if "the troop" raises enough to send someone to Jambo, the criteria for picking the scout needs to be based on troop benefits or need or something aligned with the non-profit goals. If the criteria is "who raised the money", that is explicitly private benefit.

 

As a 3rd party and given that Jambo costs $2000 to $2500, I'd really question whether that is the best way to spend a very large part of the troop's funds.

[qwazse]

Fred, ask your self this:

 

Is a troop better if boys come back from Jambo with stories and ideas and a ton of patches? If not, why promote it to your boys.

 

Is your troop able to take more backpacking trips if boys are involved with Philmont? If not, why promote it to your boys?

 

We send some boys on HA's because they come back and inspire the rest of our boys. We send them so that they learn more about this big country of theirs. We send them so that when they are in the crucible on Paris Island they are the least of their DI's worries, so that when it's time to sandbag or swift water rescue or whatever, they are prepared and their community is better for it.

 

If this is not happening with your boys who've come back from "big ticket" events, don't send them!

 

Don't like "warm fuzzies"? If a boy fundraises $2000 to his account through popcorn, that means 'bout $2000 went to the vendor, $1000 went to the council $1000 went to the troop. Boy has 33% in his scout account. Now you can mandate that it all go into some pot like the Marxists do. Or, you could explain to the boy that he is now a direct steward of $2K of troop funds for as long as he is scouting with you all. Then, let the boy decide if some of it should go to help his buddy (or some anonymous scout) make it to camp, or if he is in a unique position to represent the troop/council at some big-ticket event.

 

Just because it's his decision does not mean it's his individual benefit. His choices should be limited to those which make for better scouting.

 

P.S. - I'm actually of the ilk when our crew fund-raises, we toss it all in one pot and use it to reduce fees. I would be happy if it were that way with the troop. (Son #2 might actually fundraise more if it were so.) So, in committee meetings, I am promoting change on that front. But, there is no reason to put what people have been doing for years in the worst possible light.

[skeptic]

Qwazse; you mean the IRS is not just foaming at the mouth to come and find out if our boys may have gotten a few dollars allocated to them for troop expenses on their behalf? Oh my.