"Expose corruption and breaches of integrity wherever discovered"

According to the IRS, local sports associations and community support groups, volunteer fire and ambulance associations and their auxiliaries, social clubs, educational societies, veterans groups, church-affiliated groups and groups designed to assist those with special needs all need to ensure that they're square with the government.


Rev. Rul. 67-119; 1967-1 C.B. 284
January, 1967

This revenue ruling distinguished Revenue Ruling 57-119, C.B. 1957-1, 331, which, as described previously, had found university sports officials to be employees for federal employment tax purposes. In this particular instance, the issue was "whether, for Federal employment tax purposes, officials of athletic contests, for example, referees and umpires, are employees of an association through which their services are offered to various schools, including the members of a statewide high school athletic league." The facts of the case were as follows:

The association is a nonprofit, self-governing organization. Its purpose is to train and develop contest officials and to maintain a booking office for high schools, preparatory schools, and others desiring the services of the officials. Its membership consists entirely of officials who pay annual membership dues to, and participate in the operation of, the association. The association receives an annual booking fee from each school using its services.

The association conducts clinics for the purpose of familiarizing its members with the rules and regulations governing the particular sports events at which they will officiate. Under the bylaws of the association, general rules of conduct are prescribed for the member officials and an official may be suspended for violation of these rules. The association's bylaws and the rules and regulations pertaining to its operations serve principally as guidelines for the officials in order that the association may maintain standards established by the National Federation of State High School Athletic Associations.

No member of the association may accept an assignment to officiate at a high school game unless he is assigned through the association. Officials are not given season schedules but are offered assignments on a per game basis. An official may accept or reject an offer from a school. The school pays the official a set fee for his services after each game. Fees paid by members of the high school league are set by the association, with the approval of the league, and cannot be changed without the league's approval. The league is a separate and distinct organization from the association.

As defined in the Internal Revenue Code, "the term 'employee' means any individual who, under the usual common law rules applicable in determining the employer-employee relationship has the status of an employee."

In the opinion of the Internal Revenue Service, this situation was distinguishable from the circumstances described in Revenue Ruling 57-119, C.B. 1957-1, 331. In that particular instance, the IRS held that "an athletic association composed of colleges and universities is the employer, for Federal employment tax purposes, of individuals who officiate at intercollegiate athletic contests participated in by members of the association."

There the athletic association was organized to control and manage intercollegiate athletics in the institutions comprising its membership. One of its functions is to engage, train, and supervise the officials. Here the association's membership consists entirely of the officials and its purpose is to provide a public service organization through which competent officials may be engaged by the various high schools. In Revenue Ruling 57-119, the officials are engaged by the athletic association and are compensated by the association on a fixed-fee basis.

However, under the circumstances of this particular case, the IRS found that "the association does not exercise or have the right to exercise over the officials in the performance of their services at athletic contests the direction and control necessary to establish the relationship of employer and employee under the usual common law rules." Specifically, the IRS found that "the officials are engaged by and perform their services for, the high schools rather than the association of which they are members." The membership of an association consists entirely of individuals who have been trained by the association to serve as officials of athletic contests. Through the association, the individuals are engaged by various schools, including the members of a high school league, to officiate at contests in which the schools participate. The individuals are paid on a per game basis by the respective schools for which they perform their services.

Held, the individuals are not employees of the association, for Federal employment tax purposes, with respect to the services they perform as officials.

Accordingly, the IRS concluded that "the officials are not employees of the association for purposes of the Federal Insurance Contributions Act [Social Security] with respect to such services performed for the schools which engage them." Similarly, this same determination applied to federal unemployment and income tax withholding, i.e., "the Federal Unemployment Tax Act and the Collection of Income Tax at Source on Wages."

I am a new board member on a local baseball association. Upon my acceptance, I realized the association had not filed as an 501 C3, but is operating as such. The income from fundraising was in excess of $40,000. I assume you are either for profit, or not for profit. I understand many organizations run like this and do not file with the IRS concerning there activity. I am adamant about doing things right. I have filed with the state of Texas and am ready to file with the IRS. Isn't an organization violating law if they run under the radar? Is there any reason why an organization would not want to file with the IRS for their 501 C 3 status? Please advise. Board member

An organization that does not comply with the IRS requirements for acquiring and maintaining exempt status has the risk of losing exemption retroactively and would be treated like a normal, for-profit organization and may be asked by the IRS to file corporation annual income tax return (Form 1120) back for years. I don't know of any good reason why an organization that wants to be treated like a 501(c)(3) organization does not comply with the IRS regulations.

Thank you for asking.

Harvey Mechanic, Attorney at Law

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