Can money earned from a fundraiser be put into an individual account under 501c3 rules? For example, we have parents working at a horse track. The horse track is willing to pay $10/hour to each parent working which goes into their dance kid's account to pay future fees. Or does all the money earned need to be put into the general fund and divided equally among all dancers whether their parent worked or not?

I think this is OK. If I understand the situation the track is essentially paying a bit of tuition for certain students, right? These payments are not donations to the school (hence are not tax deductible as donations) but rather are tuition payments to the school.

I will be the devil's advocate on this and I may not completely understand what is happening.

If the horse track is paying for the parent's to work, the horse track is going to deduct these payments as a business expense. I am assuming the non-profit is some sort of dance club. The dance club gets the earnings from the horse track and credits the student's private account. If I was an IRS agent I would attack this on two fronts. Since the money is going to a private account, the earnings by the parent should be income to the parent. The parent receives no deduction since they are receiving a benefit (assuming dance lessons). I would also attack the nonprofit since the funds are not going to a public benefit, but are going into someone's private account and therefore, it is not operating as a charitable organization. Depending on how large a scale this was, I may be able to argue that the organization should not be a nonprofit.

If the money was deposited into a general account and the Board determined who was to benefit, my arguments above would be much more difficult depending on how the Board allocated the benefits. Now if the Board is made up of the parents I would still try to advance the above arguments.

The parents are working, and in fact that 10 dollars a hour is income. It should be taxable as such. It is not money merely being given. Since they are paying the money, in actual transfer of money they can do so treating the working parent as as 1099 worker. The non profit does not have to pay any taxes, but the parent working and receiving 10 dollars per hour would be liable to include this income when they file taxes.

Also what is the purpose of the 501c3. At this point it sounds like a dance school ? If they have a school, charge fees for students to attend, how is this related to a charity ?

If a charity operates a "for profit" business the money from that business and the business is not itself non profit, and the charity would be liable to report that income separate and it is taxable.

Please explain the entire charity and business of dance school. And how this fund raiser is benefiting the community

It IS possible to work at a stadium or (in this case) a horse track to "raise money" for an activity such as dance class.

I know this because I did something similar to "raise money" for my daughter's soccer team, working in the concession stand at the Georgia Dome during Falcons games. The money goes directly to the team (or dance school), and the parents are "checked off" as having performed their share of the fund-raising. The payment is NOT taxed as income.

The parents who did NOT work at any of the three Falcons games were then billed for their share of fund-raising.