Moving away from ISA’s

[Hedgehog]

The benefit is based on participation, not just fund raising.

 

The problem is that there is still a personal benefit.

 

In all honesty, nobody will ever look at our books. We asked our CO if they wanted to look at them and when we told them the numbers they said no, it's not worth their time. So the IRS will also never see them.

 

The real questions are what kind of lessons can we teach the scouts...?

 

Juxtaposition intentional. Integrity is what you do when nobody is looking.

[Krampus]

@@Krampus - maybe the participation or attendance of the event hinges on his attendance and participation at the fundraising.

 

No participation at the fundraiser = no participation at the event.

 

It would really boil down to the parents' attitude.

 

Agreed, but imagine the vein on the DE's neck exploding when these denied members start calling. BSA will not back such an action, so we settled on participate, get = share of money. Our inquiries to the IRS and tax attorneys have settled this issue for us and our COR. We consider it a done deal. Trust me, there was a lot of time and effort (pro bono) spent to resolve this issue to everyone's (IRS, CO and unit) satisfaction.

[SeattlePioneer]

In all parts of Scouting you find people who want to impose their own exaggerated ethical standards on others.

 

An example are the uniform police who carp and criticize people over unimportant details of uniforming.

 

For unit treasurers,  this is often expressed by those who want to impose their own exaggerated Scout Account concerns.

 

Personally,  I pay no attention to these people who have a burr under their saddles. 

 

They are best ignored.

 

Our council,  unit and our boys benefit hugely from Scout accounts.  In our low income area,  it means that those interested can have the Scouting program for their families at no cost to the family budget.    In my opinion,  that is FAR more important than the exaggerated warnings of the Scout Account Police often seen on this board.

 

The Uniform Police are best ignored, and that goes for the Scout Account Police as well.    Unfortunately,  they lack a sense of proportion in applying the Scout Oath and Law,  in my opinion. If I had someone like that in my unit,  they would soon fine themselves unwelcome as being poor examples of Scouting.

[Hedgehog]

In all parts of Scouting you find people who want to impose their own exaggerated ethical standards on others.

 

***

 

For unit treasurers,  this is often expressed by those who want to impose their own exaggerated Scout Account concerns.

 

Personally,  I pay no attention to these people who have a burr under their saddles. 

 

They are best ignored.

 

***

 

If I had someone like that in my unit,  they would soon fine themselves unwelcome as being poor examples of Scouting.

 

if your post is directed at me, please let me know what exagerated concerns I have and which exagerated ethical standard I am applying.  "We won't get caught" is no more a justification for ignoring tax laws than it is for ignoring laws regarding shoplifting, driving under the influence or recreational drug use.  If following the tax laws is a poor example of the virtues of scouting, that I guess I'm a poor example.

 

I've tried to provide helpful advice based on my understanding of the laws -- which, based on my profession, is significantly greater than most others on this board.  If you find my advice helpful, I'm glad.  If you don't, please don't kill the messenger.  I didn't write the law or the Tax Court's decision or any of the rulings out there -- I"m merely giving my (somewhat educated) opinion of how I think they should be interpreted in this context.

Edited October 6, 2015 by Hedgehog

[Krampus]

@@Hedgehog your perspective is appreciated. However, it conflicts with what my unit understands based on a six month effort by a pro bono tax attorney's advice. My cousin's unit went directly to the IRS (and we did as well after I got the contact info) to have them review our approach and get their approval. If they come at us after the fact -- and we were trying to play by the rules -- imagine the field day they'd have with other units that continue to violate the law blindly.

[Hedgehog]

@@Krampus, without seeing the analysis that the attorney or the IRS provided, I really can't comment on whether I agree or not.  My sense was that the method your Troop uses (as you explained it) did confer a personal benefit, but was better than the facts in Capital Gymnastics in that the benefit was based on participation and not a "dollar for dollar"credit based on the amount raised.  Depending on whether 100% of the proceeds are credited toward the scouts, what other fundraisers there are to benefit the troop as a whole and the amount of money raised per scout ($10 per scout compared to $1,000 per scout) as well as the other activities of the chartered organization, I could see how a that could be classified as an insubstantial activity 

 

For our unit, I'm comfortable with 15% of the amount of popcorn sales over $50 going to the scout for use to reduce costs of camping and high adventure trips or to be put toward their Eagle project.  I think that is a private benefit which is insubstantial in light of the activities of the Troop and very insubstantial in light of the activities of the chartered organization.  Any additional fundraisers toward a specific event (e.g. Jambo) go to defray the cost of the all the participants -- thus avoiding the personal benefit issue.  No amount leave with the scout because the unit owns the funds.

 

Each unit needs to make its own decision based on their facts -- my goal is to provide people with some basis for analysis so that the decision is not a knee-jerk ISAs are banned or a "we don't care we will do what we have always done."

[meyerc13]

Hedgehog,

 

I want to thank you for your posts, I have found them very informative.  I'm not an attorney or an accountant, but I studied quite a bit of criminal law in college.  My take on this is that the tax code leaves a lot of room for interpretation in this case.  

 

I think in some cases you could debate on whether the benefit is to the unit or to the individual.  Is it in the unit's best interest if all boys go to camp?  I think you could argue yes on that point.  However, it could also be considered personal benefit.  But as others have pointed out, so could the unit purchasing awards.  How about sending a few boys to Philmont... while it could certainly be considered personal benefit, isn't it also to the good of the unit if those boys come back with better skills that they can pass along to others in the unit?  When my company sends me to training, they put out $3000 or more just for the course, not counting travel expenses.  Is this all that different?  The problem with vague laws such as this is that too much is open to interpretation, and that interpretation can happen at many levels.  One IRS agent might rule differently than other, and the judge might have a completely different opinion on the matter.

 

Then there is the question of how substantial is the benefit.  For my unit, we feel that covering camping is an integral part of our mission.  Yet I'd definitely stay away from allowing boys to buy personal backpacks, knives, tents, etc.  I think the IRS would frown on that. Buying gear for the Patrol or Unit should be fine, but anything the boy can take with them when they leave a unit is probably putting the unit at risk.

 

Overall I think the lesson to be learned here is that there is risk to units, chartered organizations, Councils, and the BSA.  I think we need to all examine how we handle ISAs and determine how much risk we are willing to accept.  If your Council or CO isn't willing to accept the risk, we need to live by that decision.  There are some definite danger zones that I think we should all avoid:

• Allowing the purchase of personal equipment
• Allowing a Scout to 'cash out' when leaving a unit
• Transferring funds between two units with different Charted Organizations
• Allowing too high of a percentage of fund raising to go to the individuals
• Using the money for non-Scout related purposes

Again, IANAL, this is my personal opinion only.  Consult an attorney and make your own decisions on what you are doing or plan to do.

[SeattlePioneer]

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!

 

 

I again suggest that the exagerated concerns some people try to sell are just a form of troublemaking,  like those who try to make trouble by being the Uniform Police.

 

If you have a concern,  state it.  But this practice has been going on for decades without significant objection by councils or BSA.  I've never seen anyone who can point to IRS action taken against BSA, councils or units for handing out prizes and benefits in connection with popcorn sales.

 

At some point if someone can't let the issue rest,  they are a problem that interferes with good Scouting practices.

[Stosh]

Decades?  Maybe, I was unaware of the practice prior to getting reinvolved with scouting as an adult.  We never had it when I was a kid.

 

No we can't cite examples of IRS going after BSA units on their fundraising procedures, but we can cite athletic booster clubs at the local schools getting pinched big time for it.  Who's next?  I really don't want t be the first on some IRS list of those that get audited and have to explain to my CO why they lost their not-for-profit status.

 

By the way, our troop functions just fine without them.

[SeattlePioneer]

I again note that my council has a prize for the family selling the highest dollar amount of popcorn,  which prize is sending the whole family on an all expense paid trip to Disneyland.  Plus MANY other prizes for Scouts who sell popcorn.

 

The only difference between these council prizes and the way most ISAs are run is that NONE of the council prizes have anything to do with Scouting.  Most Scout Accounts run by units require that expenditures from ISAs be Scouting related.

 

In short,  I think that concerns about ISAs are exaggerated.

[Stosh]

And what makes anyone think that prizes won are not counted as income.  Even the Lottery winners need to be paying taxes on their winnings.  I have known for years that contestants on TV shows have to pay taxes on their winnings.  If people go off to Disneyland as a prize and don't claim it on their taxes, it's not BSA's fault.  But an IRS audit of that family could turn ugly rather quickly.

 

A friend of mine won a brand new pick up truck in one of the school raffles and had to sell it to pay for the taxes.  He of course sold it for more than the taxes so he did walk away with a few extra bucks, 

 

People also don't realize that most states that have sales taxes also have use tax codes.  That means if I buy something on the internet and the product originates from out of state I don't need to pay sales tax, but come time at the end of the year, I need to declare use tax on my state return.  Otherwise I am committing tax evasion.  Remember that's the trick that got old Al Capone in hot water.

 

Each of these issues are the responsibility of the individual not the organization giving out prizes or handing out money or paying earned income to individuals involved in fundraising.  The only thing that will get the BSA unit in trouble is implying that their practice allows the fundraiser purchaser or donor the ability to claim that as a charity donation, when it was not.  That's what jeopardizes CO's non-profit status.  It still doesn't let the individual off the hook for needing to claim the money is personal income.  If I shovel the neighbor's walk and he gives me $10 cash and I don't claim it as income on my taxes, I am committing tax fraud.

 

It's a bit like speeding, it's okay as long as you don't get caught.....  

[Hedgehog]

I again note that my council has a prize for the family selling the highest dollar amount of popcorn,  which prize is sending the whole family on an all expense paid trip to Disneyland.  Plus MANY other prizes for Scouts who sell popcorn.

 

The only difference between these council prizes and the way most ISAs are run is that NONE of the council prizes have anything to do with Scouting.  Most Scout Accounts run by units require that expenditures from ISAs be Scouting related.

 

In short,  I think that concerns about ISAs are exaggerated.

 

It seems you won't let his rest... what were you saying what about "troublemakers?"

 

Although I suspect that you will continue to disagree with me no matter what I say, I'm posting the below comments for the benefit of others who are seeking to understand the issue.

 

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/index.php/topic/27713-moving-away-from-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.

 

I again suggest that the exagerated concerns some people try to sell are just a form of troublemaking,  like those who try to make trouble by being the Uniform Police.

 

Yep, that's me.  My mom always said that "Trouble" was my middle name.

 

If you have a concern,  state it. 

 

I've stated my concerns pretty clearly in this thread.  I think my posts are worth re-reading.

 

 

But this practice has been going on for decades without significant objection by councils or BSA. 

 

Let's look at the timeline:

 

June 27, 2011 - IRS Issues Directive Regarding Booster Club Fundraising:

 

http://www.irs.gov/pub/irs-tege/booster_club_field_directive_6-27.pdf

 

August 26, 2013 - Tax Court Issues Capital Gymnastics Case:

 

 http://www.ustaxcourt.gov/InOpHistoric/CapGymMemo.Gustafson.TCM.WPD.pdf

 

February 11, 2014 - BSA Issues FAQs regarding ISAs and Fundraising:

 

http://www.scouting.org/filestore/financeimpact/pdf/INDIVIDUAL_SCOUT_ACCOUNTS_AND_FUNDRAISING_BY_BSA_UNITS_20140226.pdf

 

August 2014 - BSA Revises Product Sales Guide to Include Information on ISAs

 

http://www.scouting.org/filestore/financeimpact/pdf/cfd-manuals/product_sales_guide.pdf

 

December 3, 2014 - Bryant on Scouting Discusses ISAs

 

http://blog.scoutingmagazine.org/2014/12/03/individual-scout-accounts/

 

I've never seen anyone who can point to IRS action taken against BSA, councils or units for handing out prizes and benefits in connection with popcorn sales.

 

I've already addressed the "everyone does it" and "I won't get caught" justifications above.  A scout is obedient -- that means doing what is right even if there is no consequence for ignoring the law.

 

At some point if someone can't let the issue rest,  they are a problem that interferes with good Scouting practices.

 

Sometimes, it is impossible for good men to remain silent when others do something wrong be it out of ignorance or sheer stubborness.

[gumbymaster]

If I shovel the neighbor's walk and he gives me $10 cash and I don't claim it as income on my taxes, I am committing tax fraud.

 

It's a bit like speeding, it's okay as long as you don't get caught.....  

 

Although it is a technicality, the entire tax code is a collection of technicalities.

 

If you are not in the "businsess" of shoveling walks, and you do it without any expectation of renumeration, then the $10 he give you can be considered a gift, which as long as you do not receive more than, I think it's $13,000 this year, from him in the year - it can be considered tax free.

 

On the other side of the coin, if I pay the local boys to mow my lawn - unless they have incorporated or otherwise structured as a formal business, if I pay them more that $600 in the year, I have to file a 1099 to document that I have paid them and potentiially withhold taxes (and pay them) on their behalf.  I doubt most people even know about that, much less do it.

[Stosh]

I guess I wouldn't call them technicalities in as much as I would refer to them as audit interpretation and the mood of the auditor.  

 

I have been audited a couple of times over the years and it is not a pleasant experience.  And you say, "how picky are they?  One was a transposition error.  The math was correct, it didn't change anything on the tax owed, but the scary part was they caught the error.

 

The $50,000 withdrawal from my bank savings account to put down on a house was the other.  A professional accountant was needed to clear that one up.

 

These people play rough, one doesn't want to get on their wrong side.  ISA's?  Nope, not worth the extra work and definitely not worth a round or two with the IRS wasting my time trying to explain my interpretation to them.

[CNYScouter]

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