Has anyone who's gone through the process of doing the work to become a tax exempt, nonprofit PTO faced consequences from the IRS or their state for NOT having done or had the proper paperwork in the years prior?

We want to correctly establish our legal status this year, either by staying as a PTO and doing the legal and tax paperwork right, or by affiliating with the PTA. If we stay independent, incorporate, establish ourselves as a 501C3 and start filing the necessary 990 forms, are we going to have to address all the years where we weren't doing any filings?

Naturally those old records are non-existent for the most part; our old president just discovered a set of bylaws from 1993, but we've never had the tax id number. We have some minutes and a couple of treasurer's reports from 1999 and 2000 but nothing earlier. W've been trucking along, fat, dumb, happy and financially ignorant as a PTO, taking in about $30K in donations and wrapping paper gross receipts (netting about $12K), then spending everything down each year to practically zero. The old treasurer had relied on 'folklore' that if we didn't NET $25K we didn't have to report anything!

I've talked with one lawyer who's advised we basically start anew this year by incorporating and ignore the past. Does that make sense to anyone who's been in the same boat as us?

We are in the same boat and just starting the process of incorporating and filing for §501(c)(3)status. I have heard from others that the IRS is not really looking to go back and penalize PTO's. As a practical matter, most penalties for filing late corporate tax returns are based on the percentage of tax due. If you always pay out what you make, you generally have little or no tax. There are also rules that allow you to carryback or carryforward a loss in the event you save money for a few years and then spend it all at one time. There are also provisions in the tax code that allow the IRS to abate penalities when you show reasonable cause. If you do get into this situation, you can contact me directly and I could help you out. I am a CPA with lots of experience in working with the IRS, although I did not have much experience in non-profits until just this past few months.

As far as states go, they are probably all different. I know my state is much more agressive on penalties and it is harder to get them abated. You may have a state sales tax issue with the wrapping paper sales, although it doesn't sound like you have much in the way of records. When I took over as treasurer, I just went forward and fixed things that were not done correctly.

Good luck.

Our PTO hasn't filled its first tax return last year. We have been a 501 (c) 3 for three years. The IRS assessed a penalty for filing late for the year we filled and is currently assessing a nonfilling penalty for those prior years. The state fee is 25$ per day for each day last. Their are caps based on income etc.. We are currently requesting abatement of these penalties based on reasonable causes. It is my understanding that filing requirements begin when you apply for 501 (c) 3 status. Hope this helps.

The IRS sent us a letter last summer (2000) saying they had not received our Form 990 filing. This was the first notice I am aware of since our inception in 1996. I wrote back a letter, with supporting information, showing that we had not averaged more than $25,000 a year since we formed our PTO and that we did not make more than $25,000 for the year in question. I did not receive a similar letter this year and have heard nothing more from them.

Our 5 year grace period on the initial 501 (c)(3) ruling was up this year and I did have to file a form to finalize that.

Chris,
We have the same situation here, going on for years and years, never filing anything, making over $25K....

I'm treasurer now and I don't feel comfortable 'ignoring the past'. To me, that's unethical, to say the least. As someone else in this forum said, 'how do we teach our kids....'.

I don't believe that we can not get in trouble if we ignore the past.
If we have to take our lumps, so be it. I doubt we'll get severely punished, but want to be prepared in the event of a fine, or back taxes.

If you find anything more, let me know. I'm still looking for something on the web. irs.gov is very helpful for forms and such, nonprofit.law helps too.

good luck!!!! I'm doing what I need to so I can sleep at night.

I think there are 2 separate issues going on regarding penalties. In Chris's case, it sounds like her PTO was never a §501(c)(3)entity. To be one, you have to request it from the IRS by filing a Form 1023. If your PTO never did this, then you are a taxable entity, probably an association. In this case, you would be required to file an annual Form 1120 and pay income taxes if you had income. Any penalty you would have is based on the amount of tax you owe - in most cases, little or none. Over time, most PTO's will pay out all their earnings so they will have zero income. In this case, I would consider going forward and getting the future straightened out. The IRS is not out any money, and you cannot retroactively apply for §501(c)(3) status.
The second situation is if you are a qualified §501(c)(3)organization with over $25,000 gross receipts and never filed a Form 990. The penalties for not filing in this case are based on a certain amount per month which I do not recall the exact amount. If you have the records to file these, I would probably go back at least 3 years and file them. I would expect to get a penalty notice on this, and then I would write to the IRS and request abatement based on reasonable cause. If they are not abated, there is an IRS problem resolution department that I would contact. If that did not work, I would contact my Congressional representative. Assessing penalties on small PTO's that are trying to now do the right thing is not what Congress intended.