5013c Help
 

Our team (5107) mostly payed for our robot outside of the registration costs came out of pocket for our rookie year (last year). This year we are much more involved in fundrasing thus establishing our relationship with our nonprofit much more. The way they have it set up currently is they accept any and all money for us then put it out ASB account. We had no issue with that until we went to get the money they put in there. Our ASB has set up a system where you have to propose to them what you want to purchase then once the ASB has approved that, one or more week later, you have to give them a receipt of purchase so they can reimburse you if you buy it out of pocket or an invoice so ASB can order the part for us. We were very frustrated because we can not afford to buy it out of pocket. When we asked why we can not get out money out of ASB then put it in a team controlled checking account so we have direct access to it, I was told it was illegal. What are your thoughts on that? Is it illegal? What is your teams relationship with your nonprofits?

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Wha does ASB mean?

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School financial systems can be difficult to work with for FRC, as they aren't used to the lightning speed at which purchases must be made after the team has decided what to buy. It's a large part of what lead 1687 to fold this year. It's well intended -- as a public agency they must protect themselves from misuse of funds, but it can be frustrating. I highly suggest trying to find a nonprofit partner to work with for financial management. My rookie team is set up with 4-H, and we've been very happy with the system they have. It's very much "make purchases now, and give us an audit to verify compliance later," rather than the other way around.

Short of that, become best friends with the people who are in charge of financial management at your school. Make sure they understand the constraints you operate under. Rather than forming an "us vs them" relationship where you're bugging them constantly to get work done, get them as excited about your program as you are, so they provide the support it needs.

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I am by no means an expert or a tax lawyer, but here is what I believe to be true.

What your 501c3 is telling you is correct. For them to give you unlimited access to the funds and dispersing them, without them having any oversight, is to act as a "fiscal agent".

It is not necessarily illegal, but essentially, you are "using" their tax free status for your own purposes, and they are legally responsible to make sure the funds are dispersed properly (for a charitable purpose).

If you had 100% control of the checking account, what keeps you from being able to receive a grant from FIRST to a legal 501c3, then turn around and write a check to yourself and keep the money? Your best bet is to either work within their system as best you can to have them order on your behalf, or float the charge on a credit card waiting on the reimbursement. To have more unlimited control over your funds, you basically need to either start your own 501c3, or be high enough up on an existing one to have purchasing power.

Just my 2c.

Re: 5013c Help
 

We have our own 512(c)3 organization for our robotics program. If you are interested in information ours or the process we went through, send me a PM.

We chose to get our own for a few reasons:
1. Handle finances easier
2. We can qualify for more grants since we have our own non profit not associated with our high school and/or district.
3. We have a Board of Directors from industry professionals that serve and guide our non profit.

Good Luck to you,

Norman

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Associated Student Body

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Thank you for that and from what is sounds like is I need to contact the head of ASB and probably CC the principal because he understands FIRST (kinda). If we could find a law firm to donate their services to write up a legally binding contact saying that we will spend all funds on club related activities and there would be a punishment if it is violated then have that signed by all of the team leaders? This way we can have direct access to our money that we raised. What do you think?

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I think that is a bit overkill, and might not even help. The liability the 501c3 takes on by acting as a fiscal agent for your team is not transferable, and if the funds are under their umbrella, ultimately they are responsible. Only a subset of people in a normal 501c3 are allowed to touch funds, and larger ones might even carry insurance that protects against financial impropriety... so that insurance contract wouldn't allow them to give you access to the funds. Also, keep in mind, that legally, those funds are not yours. The funds are 100% owned by the 501c3.

If it's a smaller 501c3, once again, your best bet is just having an honest conversation with them. Let them know why the faster turn-around is important to you, and be prepared to compromise a bit. Maybe you can get a quicker (24-48h) turn around on orders during build season, but you wait for the normal cycle the rest of the year when you don't need things as quickly. For this year, we'll be paying for things out of our school account, and it takes me 2-3 weeks to get a new vendor approved, and about 2 weeks to get an order processed and in hand. I just have to work further ahead, and I'll be ordering a lot of "standard material" in November that I know I'll need.

As Coach Norm said (and our team will probably do), starting your own tax exempt organization is doable and has been done by teams. This will introduce overhead, as you'll be filing tax reports, paying some fees, and filling out a lengthy application. It can also take up to 12-18 months. However, all that headache may be less than working with your existing 501c3 or school, and it gives your group full control. It isn't something I'd consider lightly, but it also shouldn't be so intimidating that you not consider it as an alternative.

Steven

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Not a lawyer, but I imagine that the primary concern would be not so much punishing you guys, but freeing the ASB of any liability should privileges be abused (which as mentioned above, is likely not possible). Definitely brainstorm solutions with your ASB before taking any actions -- run this by them and see if they think.

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The 501C has an obligation to sure that the funds under its control are used for tax exempt purposes & track them in an auditable manner. While what you propose is not "illegal", I can see why they would have a problem with that. They have a lot of freedom on how that is done. It sounds like the ASB has thought through its policy and is probably set in its ways. If it is associated a school, it might well have policies dictated by the school. They probably have a limited ability to deal with different rules for different clubs. Definitely worthwhile to talk to them, but do not be surprised if the answer is 'we have to follow our policy". You might be able to work out a "petty cash" fund that would be refilled as receipts are turned in. Or maybe a budget they can preapprove.
The advantage of having your own 501C is they can more nimble in the way they handle funds.

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A proposal that might work:

Discuss with the ASB the restrictions you're under (particularly emphasizing the 6 weeks AND the FRC robot budget constraints, I think they'll be interested in those). Note that while 1 week is long enough for some items, say team T-shirts, for critical robot parts you need a faster turnaround, say 1 business day.

Then propose the following: Have one ASB approver designated for robotics, with a list of "normal" purchase types (metal, wheels, motors, etc.), locations (AndyMark, VEX, McMaster...), and let's just say a reasonable cost ceiling per order. For any purchase on the "normal" list, that person ought to be able to approve it QUICKLY (say, 1-2 business days), provided that a reason is noted on the request for funds, if the team is in build or competition season. For any purchase not on the "normal" list (let's just say, a drill press) or over a certain dollar amount, the approver may request more information from the team and/or a full review.

In essence, you're requesting a "fast-track" approval for certain items in a certain timeframe, and any item not in that list or larger-than-normal amounts of such items are subject to extra scrutiny. And you're asking that one of the approving parties be a point-of-contact, and thus relatively familiar with what the team tends to purchase, so that person can spot "funny" items even more easily.

I don't know for sure if they'd go for it, but it's worth a shot.

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We've been doing this for 13 years and I still float everything other than registration on my personal credit card, even $7,000 airfare or hotel bills. Having someone quick with a credit card and a high limit has become a necessity for FRC, and it's the simplest way to do things. I get reimbursed through the school ASB account usually within 10 days time. Logging and copying the receipts ias a pain, but we have the process down. In a typical season, I'll make on the order of 120+ different purchases.

We'd like to do a 501c3 to qualify for more grants, but we haven't got it done yet. I would be interested in hearing more from others who have.

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2220 has had our booster club incorporated as a 501c(3) since 2011 or so. I'd recommend looking at Section 6 of the FIRST Fundraising Toolkit. Specifically the associated webinars, which have more personal opinions on the process.

The 2220 structure is that the team itself isn't a 501c(3), but the booster club is. This enabled us to avoid the red tape associated with filing all the associated paperwork by using Parent Booster USA, which has a startup fee and then a recurring ($100) fee. We use this in conjunction with an online part ordering system to keep track of funds that go through the organization. We've gotten several grants via our nonprofit status that we wouldn't have been able to get otherwise.

I don't want to sound like I'm plugging it too much, but the FIRST Fundraising Toolkit section has a lot of great information and I'd recommend that you read those whitepapers and watch the associated webinars (they're a total of about an hour, and definitely worth the time). Good luck!

Re: 5013c Help
 

4215 has non-profit status from our school and they have set up an account for the robotics team. when we get money from a sponsor, we always request that the sponsor rights us a check so we can give it to the school's business administrator and he handles the depositing stuff for us. Not sure about the process for receiving grant money though.

When we want to order something, we use the head mentor's personal credit card and he gets reimbursed by the school from the robotics account.

We have found this system to be effective in getting parts quickly. I would recommend a mentor personally buying the parts and seeing if the ASB can reimburse them

Re: 5013c Help
 

have you thought about requesting blank PO's? Set an ammount at the beginning of the year and purchase away. You have the benefit of quicker turn around times and the ASB gets the control they need as well.

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4967 is a 501c3 and it certainly makes things much easier. I'm not familiar with the details, but I do know it was a long process for us. Don't expect to have it this season if you go for it. By next year, perhaps.

Re: 5013c Help
 

What a luxury your team has in having you around. Let's hope they never loose you for the program.

As I mentioned earlier, we have set up our own 501(c)3. It is for not only our FRC program but also for our FLL, FTC and now some VEX middle school teams. Our eventual plan is to be a support organization for any STEM related group/activity within our school district/community.

We are in continual search of improvement and reorganization since our program continues to grow each year.

Here is the link to our nonprofit: www.westaaustin.org.

If I can help with any requests or information, please feel free to respond here, send me a PM or you can request more information on our non profit website as well.

Norman

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Could you elaborate on this...what takes a long time? I was sincerely hoping to have ours set up by February before we travel. We've got our bylaws written, and an application ready.

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Approval of the 1023 form takes months, and that's if everything's in order the first time. Receiving the consultation to ensure that everything goes smoothly can also be time consuming.

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The IRS can take ridiculously long amounts of time to approve your 1023. Over a year is not unheard of. I've heard that recently they started streamlining the process, so it might be better now, but that was a key reason why 2220 took an alternative route-- we weren't willing to put 100 + hours into an application, wait 12 months, and then maybe get nonprofit status.

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As others have said, it can take many months. I believe it took about a year for ours, maybe more. Find another option for this season, but I think it is worthwhile for the future.

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There are two steps to set up a 501c3. First you need to form a corporation, then you need IRS approval of your nonprofit status. the corporation step is very dependent on your state - different states have very different laws and procedures on incorporation.

MOE gave a talk many years ago on how to form your own 501c3 at the Championship robotic conferences. It's a little dated but the basic information is the same. It can be found at the bottom of the MOEU page at this link. There's been other talks, more recently, but i don't have the links handy.

http://moe365.org/moeu.php

Re: 5013c Help
 

As far as how long it takes, I believe the one that I'm treasurer of took ~4 months between state & federal (and you can't do anything until you're accepted in both jurisdictions). We had some monumental help from people who have stood up small businesses before, so that type of support may be something for you to consider.

Another nifty idea which helped us in the beginning (consult your accountant first):

Set up your fiscal year to be from Feb. 1 to Jan. 31, rather than following a calendar year. This will allow you (in Virginia at least) to submit your taxes by May 15th rather than April 15th. It is much easier to find a pro-bono accountant for a May 15th deadline than a April 15th deadline.

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we are in the process right now. We in informed two weeks ago that we passed the first hurdle by the IRS but the final decision will take another 90 days. Also remember that there is a $700 application fee for this as well.

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We used to use the school's ASB but the process was too slow, as you identified. Instead, we use the school's Educational Foundation (a 501(c)(3) org that parents are involved with to distribute funds needed across school programs). For the Ed foundation, our school can approve purchases after purchase (unlike ASB which needs to pre-approve).

Educational Foundation checks are only dispersed on a monthly basis, however, so as a mentor I usually put everything on personal credit card then get it reimbursed in the following month. Do you have a mentor willing to do this for you?
Regardless, look into the Educational Foundation offerings at your school.

Re: 5013c Help
 

90 days until it gets assigned to an agent. They didn't tell us that the first time.

It took us over a year to get growingSTEMS processed and approved, but we had also been very active. We did not have to make any changes to our documentation.

The process is not bad. When filing the 1023, answer every question, even if you put N/A within it. The wait... the wait is unbearable :)

We are currently in the process of aiding two FRC teams and will be pulling in several FLL and FTC teams over the next few years.

Re: 5013c Help
 

It seems that many of us who researched or went through the process in the past are unaware of recent developments by the IRS. The 1023ez form is available for organizations which expect gross receipts of less than $50,000 in each of the next three years. Estimated as taking 2-4 weeks to be processed.

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From what I understand, boosters have been given a bit more scrutiny as of late regardless of the form used.

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Scrutiny, auditing, you know the whole gamut. Thanks goodness our books are so simple.

Only having to fill out the Postcard is nice too, for now.

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Thanks for the information on the EZ form. I think this would suit a small number of FRC teams, however. Many routinely pull in $50,000 or more a season. I feel it would be in the best interest of any team or group of teams looking to form a 501(c)(3) to file the full 1023 form.

Re: 5013c Help
 

Sorry, mistyped my post. The 50,000 is per year, not a total of three years. Still not applicable for some teams, but for most smaller programs, it should work fine.

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Thanks for the clarification. That's quite a bit of difference ;)

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Is it possible to start with the EZ form and then convert to the other if and when you exceed $50,000 in annual gross income?

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By my understanding, yes, as long as it's three fiscal years out from filing. The annual filing of form 990, 990-ez, or 990-n will confirm that your 501c3's activities are compliant. The philosophy with the 1023 is to analyze all edge cases in depth and approve activities before the organization begins their operations as a nonprofit, where the philosophy with the 1023ez is to get organizations not likely to be a problem a fast start, approving first and analyzing activities in depth as it becomes necessary.

Definitely consult a professional on this though.

Re: 5013c Help
 

Oooh, three years out huh? I could see us with 12-24 months under the $50,000 cap, and (hopefully) surpassing that about two years after establishing the organization. Hrrmmm.

Thanks for the help though. This has been VERY informational.

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I would definitely recommend you do the normal 1023 form. It really is not bad. It just takes a few of the organizers/founders to sit down and hammer through it for a day to make sure you've answered every question on the document. If you think you may engage in any of the activities listed (scholarships, etc.) identify it and establish a policy or policy document that will detail the operations process.

Assuming you've already established a nonprofit business entity in your state, you can collect funds and operate, however, donations are not tax-deductible at this point.

Once you build momentum, you don't want an IRS process to halt you from being more aggressive in raising funds and establishing partnerships with donors.

Set yourself up for the long term. We (FIRST family) want you around for a while :)

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Although the impact right now is probably pretty minimal, since the 1023ez has only been available for a few months, I believe the intent is that the existence of the 1023ez will also drive down the processing time on the full 1023. Since less 1023's will be being submitted, the IRS will be able to go through them quicker.

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If you are part of a pre-existing 501(c)3 then it's officers and organizers are officially responsible for your finances. There is no real way to change that legally.

If they do not wish to allow you to operate in a way that is conducive to robotics education / design and construction then I would recommend you have a very nice and polite conversation with them to let them know you will be getting 501(c)3 status through other means. Like others have said, there are plenty of resources here on getting 501(c)3 status on your own (though it is typically arduous). You could also attempt to partner with a 4H organization or other that will get you 501(c)3, but the school might not be so keen on that.

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That's a very good assessment. If it does indeed work (yes, some things in the government do work!) it will be very welcomed. I'm sure many school athletic booster programs would opt for the 1023EZ, as well as a number of other smaller school and other civic organizations that really just want nonprofit status to accept a few donations a year to cover their lower expenses.

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I saw a statistic somewhere (can't find the source right now), estimating that as many as 75% of the 60,000 currently pending 1023 forms would have been eligible for the 1023ez.

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Being a life-long 4-H'er & now alum, I'm kinda biased on this issue. I heavily suggest becoming a 4-H club, because you would become your own entity/club and would automatically (just have to fill out like 1 form) gain 501(c)3 status under the 4-H Organization umbrella. This would probably separate yourself from your school (which may or may not be a good thing - It would potentially help to gain the support of sponsors who are already contributing to your school, but may lose your school space/support). Another financial/legal advantage is that by being involved with 4-H is that your members would receive liability insurance, all volunteers get background checked, and would have the support of your land-grant university.
Plus the member aspect is really nice, since you can draw members from multiple schools/towns, which can lead to many more opportunities for sponsorships as compared with a school based club drawing a specific town.

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If you do have to form your own corporation, I strongly suggest that you get the advise of a professional to set up a system to track and report your finances, and what can and cannot be deducted by individuals (like money spent for food at meetings). It will save a lot of grief later on.

Re: 5013c Help
 

It sounds like the biggest problem is cash flow. That you don't have a mentor with (or at least willing to use for any number of reasons) a credit card for the larger purchases. For us, this was more key than whether we were using ASB or a 501(c)3.

We've been dealing with an ASB at our school for four years, and we've been able to get by just fine. Yes there is a process, but most of the time that is fine.

We have an Open PO that covers a large category (tools & parts, marketing supplies & food) that provides for a quick reimbursement (well within the span of a credit card billing period). Because the PO has already been approved, we don't need to worry about potentially getting denied on the purchase.

For larger purchases that we don't want to cover, we just play the system and get a check in advanced (because for large purchases, you should have been planning it out and giving yourself plenty of time .. right?). Then you have a nice check that can either be made out to a mentor who will then in turn pay the vendor, or written directly to the vendor.

If you still are interested in trying to make ASB work, let me know and we can give you all the tips we've learned using it. The simplicity of having someone else do it has really paid dividends for our team because of our limited number of mentors.