Moving away from ISA’s

[Stosh]

Lots of good info here and gives us a starting point of things to look at and what to ask about

 

Just because a BSA unit hasn't been audited yet doesn't mean it is not going to happen in the future

None of us have any idea what could trigger an audit of your CO and/or unit

 

Many years ago I also had to deal with the IRS.

I had someone prepare my taxes.

 4 or 5 years later I got a letter from the IRS saying I had under paid my taxes for that year and they were due plus fines

The fines were as much as the back taxes owed

I would hate to have my son's troop account wiped out because of this

 

This has happened to athletic booster clubs and the parents involved had to pay even more than what they had fundraised.  It is a subject that can easily be avoided.

[SeattlePioneer]

<<

SeattlePioneer, on 07 Oct 2015 - 1:20 PM, said:

Take a look at the personal benefits council settle upon those selling popcorn.  Games! Prizes! Gift Cards!   The top seller in my council gets a FREE TRIP TIO DISNEYLAND, all expenses paid  ---- for the whole family!

 

This is presented as a cost of fundraising or an insubstantial beneffit as I discussed here: http://scouter.com/i...isa’s/?p=426872

 

The key distinction is that the cost of that trip is only a small portion of the Council's proceeds from the sale.  It is not dollar for dollar proceeds from what the scout sells.>>

 

 

 

 

Oh,  when you add in all the thousands of prizes, gift cards and such a council pays out in a popcorn sale,  I'd say it amounts to as much as a typical unit pays out in the typical Scout Account.

 

And while most Scout Accounts  are related directly to paying for Scouting activities,  the council prizes are usually unrelated to Scouting. 

 

 

 

I continue to suggest that your concerns are exaggerated.   Thousands of Scout units across the country have been managing Scout Accounts for decades,  and critics can't point to a single audit resulting from that.

 

 

Having read these concerns in detail for years,  the bottom line for me is that Scout units  reasonably should consider themselves free to conduct such activities in the furtherance of their Scouting goals.

[Stosh]

Just so that everyone is on the same page, I used to work for an international multi-billion dollar company that gave out gift cards at Christmas to all employees.  They were all added to the employee's "income" and identified to the IRS on their W-2 withholding.  Any prize that the company gave out was dealt with the same way.  By the way, the Christmas gift cards were $15 to help with the employee's Christmas dinner, good only at a local grocery store.  

 

If only BSA had such integrity.

[CNYScouter]

From my understanding there is nothing wrong with the way a Council's popcorn prizes are done.

Incentives for a fundraiser are considered as a cost of doing fundraising

if you look at the popcorn prizes, for example, in my council you get a $40 gift card for $1100 in sales.

This is 3.6% personal benefit and in the allowable range set by the IRS

Most of the prizes are valued in the range of 4%

As to the Disneyland trip; if this is valued at $10k and the council sells $200k in popcorn it is 5%

Add the total of prizes given comes in at about 9% which in the allowable range for insubstantial personal benefit set by the IRS

 

 

Around here most units do one big fundraiser for Troop funds and all other fundraisers go into ISA's

All of the money raised by these other fundraisers are distributed by either amount sold (a scout get's the entire "profit" from a sale into their ISA) or based on hours worked (a Scout that works 2 hours gets twice as much in their ISA than a Scout that works 1 hour)

 It was determined by the IRS that distributing funds by these methods are personal benefits

 

Making a rough guesimate for fundraising in my son's Troop the funds for ISA's would be at about 70% to 75% personal benefit which is way above the amount determined as insubstantial personal benefit by the IRS

I would think this is the more typical ways fundraising is done

[Stosh]

http://www.nonprofitlawblog.com/there-is-no-i-in-team-common-private-benefit-problems-for-booster-clubs/

 

This is a good read.

[Rick_in_CA]

I continue to suggest that your concerns are exaggerated.   Thousands of Scout units across the country have been managing Scout Accounts for decades,  and critics can't point to a single audit resulting from that.

 

Having read these concerns in detail for years,  the bottom line for me is that Scout units  reasonably should consider themselves free to conduct such activities in the furtherance of their Scouting goals.

My concern with the issue has less to do with the idea of "getting caught" (an IRS audit), than with doing the right thing. I know that my unit will probably get away with it, but it's still the wrong thing to do. What lesson do I want to teach the scouts?

 

A Scout is Obedient - A Scout follows the rules of his family, school, and troop. 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.

[SeattlePioneer]

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Posted Today, 02:27 PM

SeattlePioneer, on 10 Oct 2015 - 12:10 PM, said:

I continue to suggest that your concerns are exaggerated.   Thousands of Scout units across the country have been managing Scout Accounts for decades,  and critics can't point to a single audit resulting from that.
 
Having read these concerns in detail for years,  the bottom line for me is that Scout units  reasonably should consider themselves free to conduct such activities in the furtherance of their Scouting goals.

My concern with the issue has less to do with the idea of "getting caught" (an IRS audit), than with doing the right thing. I know that my unit will probably get away with it, but it's still the wrong thing to do. What lesson do I want to teach the scouts?>>

 

 

My concern is that you guys know less about paying taxes than you think you do,  and loudly proclaim your self righteous ignorance.

 

I have a practical job of managing a Scout unit to do.  Scout Accounts make it possible for low income families to have Scouting without leaning on the family budget.

 

Your exaggerated and unproven claims would cost thousands of families a Scouting program across the country.  All for unproven and exaggerated claims which have no proven basis in reality. 

 

 

Your arguments are identical to the Uniform Police who like to think they up upholding Scouting virtues just as you claim while in fact they are undermining the program.

 

 

 

 

[Hedgehog]

 

My concern is that you guys know less about paying taxes than you think you do,  and loudly proclaim your self righteous ignorance.

 

 

After 22 years of practicing as a tax litigation attorney, I've learned never to think I know everything. 

[hicountry]

We had one account in our troop, all money deposited to it and we wrote checks from it to pay for any troop expenses.

 

Inputs were fundraisers, some annual company donations and money paid in by scouts and their parents.

 

Money out was general troop overhead costs and money to pay for campouts and summer camp also reg fees and the like

 

We kept a spreadsheet separate and part of the pot of money was earmarked as general troop funds and part was what the boys could use for campout purposes only, no gear but for troop campouts. Of that portion of funds deemed to the scouts, each scout had a separate tab and showed in detail all transactions, ie: money paid in by the scout or parents, credit from fundraiser participation and money used for scout costs.....annual dues, boys life, campout costs.

 

A scout local troop campout we would pay out x amount for food, propane, ice and the like. We debited each attending scout on his spreadsheet tally 15 bucks. If the scout didn't have the funds his parents were asked to write a check or their son couldn't go. We learned this from bad prior experience, basically resources will be consumed until exhausted, the lazy in the troop that never did any fundraising (Ussually the same people you had to badger for a check for 3-6 months) would just freeload on the work and money the others put in.

 

I look at this much akin to no score, everyone wins, no one wins youth feel good sports leagues. Every parent and kid on the field knows in their head or on a scratch pad exactly what the score is and who one-lost etc, we aren't fooling anyone.

 

If someone had the ability to absolutely enforce not keep track of who paid or raised what, who used up how many financial resources it would mean a complete and total end of unit fundraising. The general fund inputs would all go to troop overhead costs and everyone would write a check for each and every campout their kid did, razor clean and tidy. No more of the freeloaders riding along on the work and financial contributions of others.

 

My unfortunate experience was most of those who had to be reminded over and over for a check were also the ones who never bothered to fundraise (or provide any kind of volunteer hours what so ever) and were in general, financially well off.

 

I'm not doing anyone any favors in the building character department by letting them continually slide on the backs of others and I am not showing any decent leadership to those who pay and work into the system allow their results of those efforts sponged up by the lazy and clueless.

 

As far as a scout is obedient, I am not blindly obedient to every rule out there when it runs counter to my running the troop right. No way am I going to enable lazy, clueless behavior and no way am I demonstrating to those who work for things that they have to spread the results of those efforts to support those who won't lift a finger or write a check. That would be a dis-service to everyone. 

 

[Jeff5521]

What I still stuggle with is popcorn sales.  The door to door sales part is an individual activity.   Would this scenario work:  Lets say summer camp is $200 per boy and you have 5 boys going.  Your summer camp fund need $1000 so you set a $200 sales goal.  Lets say three boys sell $200, $225 and $175 comissions, can you ask the remaining boys to write a check to the camp fund for $200 each?  Does this pass the test?

 

If so now lets say one boy sells $400 comission, you still require the $200 comission or check from the other boys and then have $200 left over, that goes into the general fund or stays for next years camp?

[SeattlePioneer]

<<As far as a scout is obedient, I am not blindly obedient to every rule out there when it runs counter to my running the troop right.>>

 

 

I agree.

 

 

There is also ---- "A Scout is thrifty.  He pays his own way...."

[SeattlePioneer]

<<

SeattlePioneer, on 11 Oct 2015 - 3:00 PM, said:

 

My concern is that you guys know less about paying taxes than you think you do,  and loudly proclaim your self righteous ignorance.

 

 

After 22 years of practicing as a tax litigation attorney, I've learned never to think I know everything.  >>

 

 

Well,  that's the first time I've heard your claim to real expertise regarding taxes.   

 

I respect that,  but I don't respect the pieties you've handed out,  implying that those using Scout Accounts were being dishonest.  That line is like the Scouter who dons the mantle of the Uniform Police to badger other people over trivial issues.

 

The tax angle isn't trivial,  but it can be overdone as well. 

 

Personally,  Scout Account serve my unit's interests in a variety of ways.  They make it possible for low income families to participate in Scouting without leaning on the family budget.  They induce boys and families to support the unit and the council by selling popcorn.  They teach thrift by allowing boys to purchase their own Scouting adventures through their work.  Many boys learn self confidence in dealing with people through sales efforts.

 

In short,  selling popcorn and Scout Accounts are a useful part of the Scout program,  in my opinion. I'm not going to give all that up based on exaggerated worries that have never actually resulted in IRS audits of Scout units over Scout accounts.

 

So I find your warnings worth listening to,  and I've read the comments on Scout account published by BSA.  The bottom line for me is that there are good reasons for doing what we do,  and little reason to forego those benefits.

 

 

 

[hicountry]

Jeff, let me try and answer how that would work in the unit I used to serve but need to maybe step back a bit.

 

Lets say there was $8500 in the troop account pot in May so we are clear of the recharter, dues paying, boys life stuff all that is water under the bridge. Lets say 1500 of that was earmarked as troop general funds that covers troop overhead items and equipment replacement and repairs. $7000 remains and is attributed to the scouts that the money is used to pay for local troop campouts and regular summer camps. Assume 35 scouts that comes to an AVERAGE of $200 a scout but we have to account to just how those funds are there. Some parents write the troop big checks at the beginning of the year to cover their kids camping, some are making deposits to help cover summer camp costs, some kick a check into the pot once and a while to keep a positive balance for their kid so he never has to worry about campouts and avoids the hassle of needing to write checks to cover low balance. Some of that money is commission profits from fund raisers, popcorn being just one of those type sources. We designate those funds by scout based on who actually did work and generated troop funds, those who don't help and don't contribute don't reap any of those benefits. So some scouts may have several hundred dollars of the troop money rightly usable by themselves to camp, others are close to the average, some a little above or below and then the folks who end up with a negative balance of 30-60 bucks that we let slide on a few campouts and had to cut them off until the parent finally coughed up a check.

 

So lets get to the 5 scouts you mention specifically within that theoretical 35 boy unit with $8500 total pot of money in the troop account.

 

5 boys going to summer camp at 200 a piece. Assume all of them have a zero balance going into this scenario. Scout A does 225 commission, he covers his summer camp cost and leaves 25 surplus in his spreadsheet tab account that he can apply to local troop campouts. Scout b does 200 commission, pays his summer camp and leaves no balance. Scout C sells 175 commission, he has to come up with the 25 balance by whatever means more fundraising, he pays in, parents write a check). Scout D does 400 in commission, he pays summer camp and has a 200 balance to apply to campout costs as the year rolls along. Scout E doesn't sell anything, if he wants to go to camp he has to come up with the funds (ussually his parents write a check).

 

It doesn't matter how much money total is in the pot, that money arrived by others writing checks for their kids or the efforts of those who actually participated in fundraising. (Or the business donation that is earmarked to cover troop expense overhead)

 

If the scout in question is one where a family has extreme finanacial or other problems we might discuss it but the failure to sell anything at all and then hope others will decide to forgo some or all their expense is a longshot.

[Hedgehog]

... and part was what the boys could use for campout purposes only.... If the scout didn't have the funds his parents were asked to write a check or their son couldn't go. 

 

***

 

As far as a scout is obedient, I am not blindly obedient to every rule out there when it runs counter to my running the troop right. No way am I going to enable lazy, clueless behavior and no way am I demonstrating to those who work for things that they have to spread the results of those efforts to support those who won't lift a finger or write a check. That would be a dis-service to everyone. 

 

Under IRS rules, the structure you had would be a private benefit because the ISA offsets personal expenses of the scout that otherwise would be paid by the parent.  The question then becomes whether the benefit is "iinsubstantial"  I can' give an opinion on that because I don't have enough facts about your troop.  Look at my prior posts to see my thoughts on what my troop is doing and why I think that is not substantial.

 

The obedience issue is related to federal laws... not just some random rule.  I"m not saying what you are doing will cause your charted organization to lose its tax exempt status.  What I"m saying is that you need to make that determination based on the facts and the law... not what you think the right answer should be.  Unfortunately, the tax laws don't always come up with what is the right answer -- but that doesn't mean we can ignore them.

 

Well,  that's the first time I've heard your claim to real expertise regarding taxes.   

 

I respect that,  but I don't respect the pieties you've handed out,  implying that those using Scout Accounts were being dishonest.  That line is like the Scouter who dons the mantle of the Uniform Police to badger other people over trivial issues.

 

The tax angle isn't trivial,  but it can be overdone as well. 

 

Personally,  Scout Account serve my unit's interests in a variety of ways.  They make it possible for low income families to participate in Scouting without leaning on the family budget.  They induce boys and families to support the unit and the council by selling popcorn.  They teach thrift by allowing boys to purchase their own Scouting adventures through their work.  Many boys learn self confidence in dealing with people through sales efforts.

 

In short,  selling popcorn and Scout Accounts are a useful part of the Scout program,  in my opinion. I'm not going to give all that up based on exaggerated worries that have never actually resulted in IRS audits of Scout units over Scout accounts.

 

So I find your warnings worth listening to,  and I've read the comments on Scout account published by BSA.  The bottom line for me is that there are good reasons for doing what we do,  and little reason to forego those benefits. 

 

Seattle:

 

I apologize if I came across as saying you were dishonest.  I don't know you and can't make that judgment.  I was reacting to what I sensed was an "I'll ignore the law if I don't agree with it" attitude.  I realize that you were ignoring my advice which you didn't think had much weight coming from an anonomous Hedgehog on the internet.  That's understandable.

 

My point is that we have to be aware that these rules are out there and can affect our chartered organizations.  If you read my posts, I'm not saying that Scout Accounts can NEVER be used.  What I"m saying is that if any funds are set aside for a particular scout, then you have a private benefit.  If there is a private benefit you then need to detrmine whether it is "substantial."  I indicated that I concluded that our unit's use of Scout Accounts did not result in a substantial private benefit based solely on a comparision of the amounts raised for National / Council and the unit to the amounts raised for an individual scout and a larger comparison of those amounts to the overall budget of our chartered organization.  I also mentioned that some benefit could be considered the cost of fundraising.

 

I would also add to the analysis the role that earning money to pay your own way plays in Scouting.  My son fulfilled one of the T-1st requirements through selling popcorn and applying what he earned to summer camp.  I also would consider that the funds are being spent in a way that is within the goals of scouting (i.e. helping scouts go on outdoor trips).

 

Ultimately, we are not so far off in our views -- I just want people to understand that there are better and worse ways of doing Scout Accounts.  If people don't want any hassle, then don't do it.  If you are going to do it, here are some of my suggestions:

 

1.  All funds are in kept the unit's name.

2.  Funds can only be transferred between units within the same chartered organization

3.  Only a portion of the proceeds should be set aside for the scout engaging in the fundraising activity if the fundraisesr is for general purposes.  The rest should go to the unit (or if it is popcorn, a portion also goes to national/council)

4.  If the fundraiser is for a specific trip (Philmont) have the activity be something that everyone can (and is encouraged if not required to participate) in and apply the proceeds equally to reduce everone's cost.

5.  If a scout's family is financially challenged, it is ok to provide them with additional assistance

6.  Scout Accounts can't be used to for personal purchases such as backpacks or hiking boots or ever given to scouts when they leave.

7.  Scout Accounts can be used to fund Eagle projects

8.  Incentives are permissible as a cost of sales -- be them at the National, Council or unit level.  

 

Those suggestions should get the unit close to the Scout Accounts being "insubstantial" but it really depends on a lot of other factors.  Our unit has around $1,500 in Scout Accounts and around $8,000 in other funds.  There might be a different result in terms of substanitality if the amounts were switched.

[Hedgehog]

What I still stuggle with is popcorn sales.  The door to door sales part is an individual activity.   Would this scenario work:  Lets say summer camp is $200 per boy and you have 5 boys going.  Your summer camp fund need $1000 so you set a $200 sales goal.  Lets say three boys sell $200, $225 and $175 comissions, can you ask the remaining boys to write a check to the camp fund for $200 each?  Does this pass the test?

 

If so now lets say one boy sells $400 comission, you still require the $200 comission or check from the other boys and then have $200 left over, that goes into the general fund or stays for next years camp?

 

For an individual activity, I would have a portion (we do 15%) of the receipts (which is around 25% of the profit) go to Scout Accounts.  By my estimate 25% of the profit goes to the unit and the remaining 50% goes to National/Council.  One of the problems in the Capital Gymnastics Tax Court case was that the benefit was dollar for dollar and no money whet to the general organization.  We also have a threshold that you have to sell a certain amount ($100) before you get a percentage.  If you do that, I think (for what my opinion is worth) you can apply the amount credited to the scout (the 15% of proceeds) toward camp and charge the parents for the rest.  Here there is a private benefit that arguable is insubstantial based on the unit and chartered organization's operations.

 

If you do a fundraiser like a pretzel or doughtnut sale to fund a specific activity -- like a high adventure trip -- I would require everyone going on the trip to participate (e.g. everyone has to spend an hour either setting up, running the sale or cleaning up) and split it among those going on the trip.  Under this scenario, all of the profits go to the troop to offset everyone's cost of the trip (resulting in no private benefit).