Our school system has several 501(c)(3) nonprofit organizations that raise money for extracurricular activities. We all maintain our own checkbooks, file our own taxes and do everything that we have been told we need to do. Now the administration is trying to get all of the clubs to turn their monies over to the school so the treasurer at the board of education has control over the money, and the athletic director has to approve everything that is purchased. The treasurer, who is new to the school system, says that our system is "barely legal" in allowing these 501(c)(3) groups to operate on behalf of school clubs without running the finances through the school. With the school funding system as it is, and the lack of trust in the administration, we have great concern about changing the procedure that we think is best for our clubs. Can you tell me if we are "barely legal" and/or to whom we could turn to for legal advice?
There is certainly no federal tax reason why your various 501(c)(3) organizations can’t raise money for school activities, and it sounds as though you are doing what is necessary to comply with applicable requirements. I would be very suspicious about any effort to take control over the money that you raise for the school, especially when the basis is that the current situation is “barely legal.” Barely legal, of course, translates into legal, a little bit like barely pregnant translates into pregnant.
There is no way that I can tell whether there might be some real legal impediment to the present system under the local school law applicable to your district. You should consult with a lawyer who is familiar with the applicable school law on that question. But the announced rationale for the change isn’t very convincing, and if there isn’t more, actually confirms that what you are doing is okay.
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