IMOVEPEOPLE,

Okay, with 100K you really do need to have a formal structure. Here are your justifications:

</font>

• An entity that has an income in the USA is basically either an individual or a business and should be reporting that income to the IRS - subject to whatever rules apply. If you have PTO that's bringing in 100K a year, one would hope you are running it as a non-profit business.</font>
• The general rule of thumb for a non-profit organization is that if it earns more than $5000 gross, it should formalize and apply for 501(c)(3) status.</font>

501(c)(3) status
</font>

• Allows you to operate legitimately as a non-profit</font>
• Exempts you from being liable for most federal income tax</font>
• Enhances the credibility of your organization</font>
• Allows people to declare their donations to your organization as charitable contributions on their tax return</font>
• Is required for some grants</font>
• Is required to get state tax exemption status in Texas</font>
• May offer other benefits such as the ability to utilized non-profit postage rates</font>

Questions to Ask
</font>

• What kind of example are you setting for the children if you are essentially running a $100K illegal business?</font>
• What liability/risks exist for your officers and board members to be part of such an organization?</font>
• How are you purchasing goods? Are you paying sales tax? You are probably either breaking the law if you are buying things on a tax exempt basis (maybe using the school's ID) or you are paying about 8% sales tax on goods that could be funds re-directed to your programs.</font>
• What are you doing about remitting sales tax? An exemption in Texas allows you two free events per year. But most PTO's and schools still owe sales tax for other things(T-shirt sales, school supplies, etc). Is your group illegally dodging payment of state sales tax?</font>

The school is part of bureaucracy. And I don’t mean that as a criticism – it’s just a fact. Any given action might be governed by federal law, state law, state regulations or policy, school district policy, the principal’s decision, and just plain ‘ol tradition (that’s the way we’ve always done it).

Most of these people are simply in the business of teaching. IRS rules, insurance requirements, gaming laws, charitble contributions are not their areas of expertise.

So when they tell you something HAS to be done a certain way or CAN’T be done, that may not be true. And the person providing the misinformation usually has no ill intent.

Sometimes just wording, presentation, or timing can make all the difference. “Oh, we can’t do raffles here? Okay, about if we just have a drawing instead?” Depending on who you talk to (and how you define those activities) they may be seen as completely different or exactly the same.

It’s generally not going to do you any good to belligerently challenge every statement, but you can diplomatically investigate and chip away at the layers of misinformation. Note – you want to do this with a “face saving” approach for everyone – proving they are wrong/stupid doesn’t help. And sometimes uncovering the real reason for something helps you understand and support that “rule”.

JHB - THANK YOU. I knew you'd have all the right words. I went through this with an elementary school in another state - but that was a brand new school with a brand new building, administration, PTO, etc - it was SOOOOOOOOOOO much easier with no back financials to give them.

Our PTO has over $100K go through it every year - YES - we need to do this - I just needed to be able to tell them why. The structure is in place to have it be totally separate, bank accounts, great financial documentation, fantastic volunteers, etc. - the words just were not flowing for me - and the parents make their checks out to blah blah blah PTO, not blah blah blah (the school) so we NEED to change this!

Thanks JHB, I've always wondered that too. Charter schools are that weird wrench in tax laws. We do have a CPA on our board this year so I hope to learn a little more about this!

Good to hear from ya, I move!

Quote: [P.S. And be aware that most of your school officials do NOT understand the issues and legalities of a PTO. There are a lot of myths, miscommunications, "policies" that don't really exist. So once you start discussing options with your principal or others, be patient and be prepared to (diplomatically) question any barriers thrown at you.]

I too reside in Texas and this caught my eye...the myths stuff. I think that this would be a great topic to expand upon, of course, if you had the time.

Ah, the murky waters of charitable contributions... For the record, I'm not a lawyer or tax professional, but here is how I understand it (and I checked with the IRS about this again today):

Per the IRS
You [the taxpayer/donor] can deduct your contributions only if you make them to a qualified organization

To become a qualified organization, most organizations other than churches and governments must apply to the IRS.

So, no, they cannot claim the contributions are legit if given to the PTO. But here's the twist, if the contribution is given to the school (and it's not for the benefit of a specific person -especially their own child) then it could be deductible.

Public schools are by definition charitable organizations. Parochial schools are probably okay as part of a church, but you should check. Others (private/charter) would probably have to be set up as qualified non-profit.

So who's issuing the receipt and who is the donor listing on their tax return? If the (non-qualified) PTO is acting on behalf of the school and the school is the charitable organization, the donor could claim it.

For those of you who have been around the Forum for awhile, you know my views have mellowed over the years. For some PTOs - especially middle school where they may only hold a niche position and deal with relatively small amounts of money, I'd probably advocate them not becoming a big, separate organization, but instead just acting as a volunteer organization within the school's domain.

The key questions are:
</font>

• How much money is flowing through your group? If it's more than $5000 (gross) per year, the IRS says you should file for 501(c)(3) status.</font>
• How good is your relationship with the school? Would an alternate relationship work?</font>
• How much independence do you really want? Is absolute control over funds a necessity?</font>
• Would your school agree to allow you to operate as a dependent organization?</font>
• Do you have the structure, the leadership, and the volunteer support to run a 501(c)(3) - which is a type of business? Parent volunteers are quite capable of performing these tasks (filing taxes, setting up good accounting practices, maintaining insurance, etc.) But do you want to? Will you?</font>

If you have a strong, fairly formal organization with substantial funds flowing through it, then you should set it up legally as an independent entity (incorporate, get tax exempt status from your state, apply for 501(c)(3) with the IRS.)

As long the goals are clear and the parent group and the school agree on the structure, I think either way can be successful.

But what shouldn't happen (and so often does) is the group continues operating on semi-independent basis, but not following best practices and ignorant of laws in this area.

This is purely my opinion....

P.S. And be aware that most of your school officials do NOT understand the issues and legalities of a PTO. There are a lot of myths, miscommunications, "policies" that don't really exist. So once you start discussing options with your principal or others, be patient and be prepared to (diplomatically) question any barriers thrown at you.

[ 08-27-2004, 10:37 AM: Message edited by: JHB ]