Novi High School Band Boosters Case Study

The Novi High School Band Boosters is a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code of 1986 (the “Code”).  In an effort to raise funds for the marching band, band boosters convinced several local banks to make a contribution of 1% of the customer fees they earned for each new customer who mentioned the organization.

In 2020 and 2021, the band received $75,000 and $100,000 in contributions from these banks.  Following a recent audit, the Internal Revenue Service (the “I.R.S.”) determined that the contributions were unrelated business taxable income and subject to the income tax.  The I.R.S. is of the opinion that the band performed services (e.g. public “flash mob” concerts in the banks’ lobbies) in exchange for the income.

Q/ What facts and legal authorities would you develop to defend the Novi High School Band Boosters’ position?

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