Thanks!!! I'll give it a try!!!

There's loads of info here on the message boards and the IRS has instructions of course, but your best bet for concise advice is probably the PTO Today Start Up Guide that you can order from this site.

Our PTO is not tax exempt and would like to become tax exempt. No one is sure what we need to do. We do have a tax ID number. Can anyone tell me how to go about this? Thanks!!!

You're in a gray area. You have hit the $5k mark for two years. Does that mean it's "normal"? Does that mean you should register for 501c3? Maybe this year, maybe next or maybe not at all. It takes a certain level of sustainable organizational maturity to be a 501c3 organization, specifically because you have to file the annual Form 990/990EZ or face stiff fines. Are you a business, then? Sorta, but the IRS allows very small non-profits to be tax-exempt automatically. Should you be paying federal income tax? Maybe.

It might be worth another call to the IRS to specifically ask if an organization who is operating as a non-profit, who hasn't hit the "normally > $5k" mark must pay federal income tax. The answer might ease your mind.

One thing is for certain: if your PTO doesn't have it's 501c3, you can't declare that donations to it are tax deductible on their federal tax return. (don't know about state). For what it's worth, donations to a public school ARE federally tax deductible becuase the school is automatically a 501c3.

For the record, someone does my taxes and I am so very glad. No telling what kind of mess I'd be in.

Federal taxes = income taxes? So if we do not have a 501(c)(3) and we make about 10K this year then we will have to pay federal taxes? We are officially tax exempt (by the state) and we officially have our EIN. At the other PTO I was president of all that had been done for years. I would tell people that donations were tax deductible because I knew we had the 501 and all that other stuff. Since we do not have the 501 for this PTO then people can't take donations off of their taxes, right?

The 5K mark was hit last year. Right now we have about $6K in the bank with more fixing to come in. The treasurer talked to the IRS on the phone and that guy said all of our paper work was in order, we didn't need to do anything else. Why didn't he suggest the 501?

I'm not an expert either, but I've had to dig into this stuff a few times. A little knowledge is a dangerous thing, perhaps [img]smile.gif[/img] Here's my best assessment...and if JHB wants to chime in, she's very eloquent and knowledgeable too.

Technically, if you get an EIN, it's to set up a business of some sort. Maybe a shoe store or maybe a non-profit parent group. People don't get EIN's, businesses do. So, technically, once you've set up a business, the IRS would like to stay abreast of your activity. However, the IRS doesn't want to know about little tiny businesses that may never really get off the ground.

In the case of a new philosophically non-profit organization, you are not expected to apply for 501c3 until your group hits that $5,000 threshhold. The criteria is that your group's annual GROSS receipts are NORMALLY greater than $5,000. So...you're not required to apply the first year your group hits that mark since that's not proof that this level of income is NORMAL yet. Once your group crosses that threshhold on a normal basis, the IRS expects you to file for 501c3. Until then, your group is assumed to be tax-exempt in the IRS's eyes. They simply don't have the interest or resources to require applications from every new organizaiton that gets an EIN. You get a grace period until you get big enough ($5k) that the numbers are meaningful.

After your group files for 501c3 status, you are known to the IRS and they will send you Form990/990EZ to complete each year. Here is the criteria for that:

If your 501c3's annual GROSS receipts is NORMALLY LESS than or equal to $25,000, then you really don't have to file any form at all. However, it's good business practice to go ahead and fill out the address portion of Form 990EZ, check the appropriate box and send the form back on time. This establishes a pattern of reporting for both the IRS and your future treasurers.

If your 501c3's annual GROSS receipts is NORMALLY GREATER than $25,000, but LESS than $100k, then you need to file Form 990EZ every year.

If you are over $100k, you file Form 990.

Ok, so let's say your little business (i.e. PTO) never files for 501c3 status. Then, yes, in the IRS's eyes, you are a business that should be paying federal income tax, maybe. I don't know the threshholds here, but perhaps there's a grace period, too, as a business is growing. In any event, if your group is not a non-profit charity, then it's a business in the IRS's eyes. (that's probably an oversimplification, but you get the idea)

There are tons of PTOs who have their own EIN but for many reasons haven't applied for 501c3. It doesn't appear that the IRS is going around "catching" PTOs and assessing federal income tax - although it certainly is possible.

Personally, I think as our (the nationwide PTO community) knowledge grows, so does our exposure to the IRS. 5 years ago, I bet the IRS never got calls from PTOs who were struggling with the 501c3 application. In the past 3 years, I know they've had at least 50 from me alone! The IRS is a big organization, slow to change, and non-conforming PTOs probably aren't at risk. But when you gain knowledge about what's "right", it's hard to ignore it for too long. That's what spurred our two PTOs into applying for 501c3 - knowing that we should.

Fun dialogue!