LUVMYKIDS has the gist of it right, but the terminology is a little off. Being nonprofit or for profit is a legal term to describe an organization's corporate status with the state. Being nonprofit does not mean that you are tax-exempt; only the IRS can label you tax-exempt by giving you 501(c)(3) status. There's an article here, which, although it addresses associations specifically, is still a pretty good summary:
www.venable.com/publication.cfm?publicat...2&publication_ID=484
If you get your tax-exempt status, the probability of having to pay income-type taxes is virtually eliminated. Depending on the state, you may also apply to be exempt from paying state sales tax on things you purchase. And, people who donate $$ or goods to you are generally able to deduct them as a charitable donation. The only cons I can think of are the fee you pay to the IRS to apply for the tax exemption and filling out the application form, but those are one time things that really aren't a big deal. Also, I guess if you do a lot of lobbying you might need to modify what you are doing to qualify for 501(c)(3) status, but that's probably unlikely.

You don't say whether you're incorporated, or just kind of a loosely structured group of individuals banded together to do things for the school. Personally, I think that incorporating is even more important than getting the tax exempt status--in some cases, depending on how much money your group takes in, your income level may be too low to pay taxes even if you are not tax-exempt.
For a good article on the pros of incorporating, take a look here:
www.venable.com/publication.cfm?publicat...2&publication_ID=472

As I understand it, if you are operating as fundraising but not for profit oraginzation, you have to file for this status with the government. If you do not, you are expected to pay taxes on all you income and charge taxes on all your sales. Also, if someone donates money or an item to your organization and wants to take it as a tax deduction, they would not be able to if you are not a recognized non-profit. Therefore, some individuals and businesses would eventually stop donating to you and fundraising could become more difficult. You can still run "informally". Having your non-profit status just makes you "legal" in the eyes of the government, it doesn't regulate how many meetings you have or how you run them, or the positions on your board. You do have to have a constitution, by-laws, and articles of association or incorporation(which you can get samples of on this site). There are some rules that the IRS has about what constitutes a non-profit oraganization and you can read those on the IRS website(irs.gov). Good luck.

Our PTO has been run informally since its inception several years ago.
Consideration is now being given to establishing it as a 501(c)(3).
Can anybody give me the pros and cons of this status for a PTO.
Thanks for your assistance.