Is It Legal?

Our former president is running for school board. Can we send out a letter urging parents to vote for her?
No. The IRS strictly forbids charities like PTOs and PTAs from getting involved in elections for public office. The most you can do is hold a candidate forum in which all candidates are invited to attend, or to publish statements from all candidates in your newsletter. Anything you do must be balanced and not favor any one candidate.

Our town is voting on a bond issue for a new school. Can we campaign in favor of it?
Maybe. Under IRS rules you can endorse it, but any serious campaigning should be done by individual members and not in the name of the PTO. The IRS prohibits public charities like PTOs and PTAs from spending a “substantial” amount of time on lobbying and campaigning. That’s not very specific, but the safest thing to do is to work as individuals. In addition, some states have rules that are much more stringent and that prohibit tax-exempt charities from any campaigning.

You should also consider that some of your members may not feel the same way you do. Taking a political stand, especially where taxes are involved, can ultimately cause friction in your group and derail you from your primary mission: helping the children and the school. That’s why we recommend that parent groups stay out of politics as much as possible. Take action as individuals, but leave the PTO to concentrate on building the kind of supportive school community where students and teachers alike can do their best work.

Some children can’t afford the cost of their class field trip. Can we pay the fee for them?
Yes. This clearly falls within a PTO or PTA’s mission, so it’s OK to spend money for that purpose. The best way to handle this is to have the principal or school counselor decide who needs the help. That way, the whole process can be kept confidential. It also allows active PTO members to apply for assistance without worry­ing about whether providing funds to them creates a conflict of interest.

Can we donate money to a family at our school whose house burned down?
The best way to do this is to take a collection among members for that purpose rather than donating funds directly from the group’s bank account. Other things you might do include organizing a bake sale with the proceeds going directly to the family (and not through the PTO account), gathering clothing and food donations for the family, and even helping them locate an apartment or another place to live temporarily.

The IRS is wary of charitable organizations providing “private benefits” to people close to the organization. In general, that means you’re probably OK if you write a small check from the PTO account in this situation. The larger the check and the bigger the role the person you are donating to plays in the PTO, the more problematic it becomes. In other words, writing a $50 check to help a family is one thing, while writing a $1,000 check to your president’s family is another.

Can we run a 50-50 raffle?
Raffles are regulated by the states, so you need to check with your state attorney general’s office or gaming division for the rules where you live. Most states allow charitable groups to run raffles, but rules regarding permits and prizes differ from state to state. For example, California requires 90 percent of the proceeds from a raffle to go to the charity. Thus, 50-50 raffles, in which 50 percent of the money goes to the winner and 50 percent to the charity, are not legal in California.

Can we run a poker night fundraiser?
Like raffles, rules on gaming nights differ greatly from state to state and even from town to town. The best place to start is at the town clerk’s office. They should be able to provide information on rules and permits, or at least steer you in the right direction. At the state level, the attorney general’s office or state gaming division usually regulates this kind of fundraiser. In many states, you are OK as long as no actual money changes hands. In other words, you can play for chips and the chips can be exchanged for prizes or be used to bid on items at the end of the night. But some states do prohibit any kind of casino-type fundraisers, and virtually all states require some type of permit.

Can we give a $50 gift card to each teacher?
The IRS requires you to spend your money in a way that is consistent with your group’s mission. You certainly can give $50 to each teacher to purchase classroom supplies. In that case, you should require them to give you receipts once the supplies are purchased. Teachers commonly spend $500 or more of their own money on classroom supplies, so they will be very pleased if you do this.

Giving a $50 gift card to each teacher for their personal use is more of a gray area. If the total amount represents a significant portion of your total budget, you shouldn’t do it. Spending $500 on personal gifts out of $3,000 in annual revenue could get you in trouble—and the parents who supported your fundraisers may not like it, either. But $500 out of $80,000 in revenue is probably OK. Either way, we recommend that you spend very conservatively on personal items and save larger expenditures for items that directly benefit the school.

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The school no longer has an art teacher because of budget cuts. Can we hire one?
It’s difficult. You don’t want to become an employer—that adds complications that PTOs aren’t really set up to handle, like payroll taxes. You can donate the money to the school for the position, and the school can become the employer. But chances are the school district won’t go for that. One reason is that if at any point your group can’t come up with the funds, the district will have to assume that obligation. They won’t want to take that risk.

What you can do is create an after-school art enrichment program, create art-oriented family nights and assemblies, or even supply volunteers to help run a weekly or monthly in-class art program. With the school’s approval, you might be able to hire an art teacher on a contract basis for an after-school program. Hiring a contractor (vs. a regular employee) means you don’t have to deal with benefits and payroll taxes, making it a much easier process.

We donated electronic whiteboards to the school. Now the district is moving half of them to another school. Can they do that?
When you purchase something for the school, one of two things happens. You might donate that item to the school, as you did with the whiteboards. It then becomes the property of the school, which is responsible for maintenance, and it can be used in any way administrators see fit—including moving it to another school. Alternatively, the PTO can retain ownership of the item. That makes sense when the PTO is likely to be the primary user, such as a popcorn popper for family events.

Before you purchase an item, it’s helpful to work out who will own it, who will maintain it, and any expectations about how it will be used. For large items in particular, prepare a simple document noting that the item is being donated to the school and for what purpose, to keep with your tax records.

Can we use the school’s tax ID number?
It’s a common misconception that a tax ID number issued by the IRS indicates that an organization is nonprofit and doesn’t need to pay taxes. In fact, the tax ID number (called an employer identification number or EIN in the case of organizations like schools, PTOs, and businesses) functions like a social security number for businesses. It identifies your individual business or organization, but it doesn’t indicate any special tax status.

For your PTO itself to be exempt from taxes, you must apply for tax-exempt status with the IRS. Typically, PTOs file to become recognized public charities under section 501(c)(3) of the federal tax code. When your application is approved, you receive a “determination letter” from the IRS, which you then can use as proof of your tax exemption. The process is time-consuming, but it is worthwhile. Donations to your organization are only tax-deductible if your group is officially tax-exempt, and most grants require your organizaiton to be a 501(c)(3) charity to consider your application.

If you don’t want to go through the application process, your PTO can function as a committee of the school. In that case you do not have your own EIN or bank account. Money goes into a school account created specifically for the PTO. Your group loses some autonomy this way but is able to operate under the school’s tax exemption.