You're lucky to have an inside expert working with you. Most of us have to try to interpret IRS policies on our own. Good luck researching the big payment. Hopefully it's all legit.
Thanks everyone. Fortunately, we do have one member on the board this year who was on the board last year and can maybe help explain. We incorporated as a non-profit corporation last year (08/2004). Our fiscal year runs 6/1 to 5/31 which is why this is playing into our 501c3 app - we have completed our first fiscal year.
Our CPA worked in the non-profit & charities section of the IRS approving 501c3 apps until this past year when he retired. So, I'm thinking he knows of what he speaks and am following his lead. As he explained it to me, it's not that we have to provide detailed money info to them on our app., but if they decide they want it and we don't have it - or it shows this large pmt to an indiv. - it kinda makes our purpose seem to be making this person money instead of helping the school, and that they will not approve.
You have two problems. I'll address the 501c3 issue. When did you incorporate? The IRS views you as a brand new entity as of the date of yor incorporation -- an entity with no financial history. Did you just incorporate at the start of this new fiscal year? If so, that odd check from last year is a non issue with the IRS.
Good point, JHB. A disbursement like this to a specific individual (with no documentation) might be an issue later, after you've completed your first year as a 501c3. That's when you fill out your first Form 990/990EZ return. In that document you have to basically explain where all your money came from and went in the year. A large disbursement to an individual might be a red flag, depending how it is categorized. But, since this happened last year, it may not even enter into your first 990.
In any event, you should still try to get a breakdown of that check. I would want to know the details in order to properly budget for this year's activity (in addition to the other more obvious reason).
It does sound odd. I agree with ScottMom - see what you can find out from anyone who was around. However, be very careful to treat it as a routine matter and not to raise suspicions or incite gossip.
If you do have to call the person who received the check, I'd say something like:
The PTO is in the process of filing for non-profit status with the IRS, and we're having to document last year's budget items in greater detail. I need to be able to categorize the $1500 paid to you with check number XXXX. Can you please tell me a little more about that expense?
It makes sense to track down something questionable like that, although I'm not sure why your advisors think it would stand in the way of your 501(c)(3) filing. You don't get down to the point of listing individual disbursements and the IRS has no idea if an activity/program listed was intended as a big fundraiser or a break-even item. The budget you provide is pretty generic.
But "blaming" the IRS is sometimes an easy out for tightening policies or requesting extra documentation. So, in this case, it makes a good justification.
Can you ask another member that was there if they know about the expense or the last treasurer if she has a receipt for the supplies and what they were? That is a lot of money no matter what you are talking about and needs to be accounted for.
The irony of commitment is that it’s deeply liberating-in work, in play, in love. The act frees you from the tyranny of your internal critic, from the fear that likes to dress itself up and parade around as rational hesitation. To commit is to remove your head as the barrier to your life. --Anne Morris
I recently took over as the treasurer for our new PTO. We are a nonprofit corporation and are in the process of completing paperwork for our tax exempt status. We had a pretty good year last year and started off this year with a nice chunk of change to use for our back to school festivities. I finally received the checkbook and saw where one individual received almost $1500 (no, it's not a typo) from the PTO for supplies for our spring fundraiser. Problem is, the checks were made to the person individually and no receipts were received from her. This is more cash than the school even received from us. Granted we paid for things for the school, but the school received less than $500 from us itself.
Both the acct. and atty. that are helping with the application have said this will throw up a great big red flag with the IRS on our application. Problem is, because I wasn't on the board last year and I don't know this person who received the money, I'm not sure how to approach this.
I would really welcome any thoughts on how to handle this.
