Do we need an EIN? How do we get one?

“EIN” is short for “employer identification number.” It’s the number the IRS issues to keep track of businesses, including nonprofit organizations. Despite the name, it has nothing to do with whether you have employees or not.

There are a couple of different ways for parent groups to organize. You can function as a committee of the school, using a school bank account and the school’s nonprofit umbrella. Or you can operate as an independent organization, which typically gives you more say over your operations and finances.

Any independent PTO needs an EIN to set up a bank account. In fact, banks won’t let you open a business account without either an EIN or a social security number, and you should never use a personal social security number to open an account for your PTO.

Luckily, it’s quick and easy to get an EIN using the “Apply for an EIN Online” page on the IRS website. You can also request an EIN by phone—call 800-829-4933 during business hours or by filling out IRS Form SS-4.

How do we find our EIN? Whose EIN are we using?

Your group should have a computer-generated notice issued by the IRS that lists your EIN. If you don’t know the number and can’t find the form, check with your bank manager for help. The bank account your group uses was set up with either an EIN or, if your PTO is banking with a personal account, a social security number. If you find that your PTO is banking under a social security number, it’s important to get an EIN for your PTO and then move your account to a business account, which will be structured better for your needs.

If you still can’t locate your EIN, call the IRS business and specialty tax line at 800-829-4933 for help.

Do we pay taxes?

If your PTO is independent from the school and earns and spends funds then it is, in essence, a business that technically should be filing an annual IRS return (and possibly state or local-level forms, as well). Fortunately, PTOs fit the IRS criteria to become a tax-exempt public charity. The common shorthand for this is “501(c)(3) organization” because the exemption is spelled out under section 501(c)(3) of the federal tax code.

In order to obtain official 501(c)(3) tax-exempt status, you must file IRS Form 1023-EZ or possibly the longer Form 1023. This is a time-consuming process and will cost your PTO a one-time fee of $275 for Form 1023-EZ ($600 for Form 1023). As an exempt organization, your PTO must still file an annual return with information about your income and expenses, but you do not need to pay federal income taxes.

We’ve never filed a tax return. Now what?

If your group hasn’t been filing returns, use the Exempt Organizations Select Check (see “Check Your Status” at the bottom) to determine whether your group is a registered 501(c)(3) organization. If not, and you want to begin the process of becoming one, download Form 1023-EZ from the IRS website. This form is fairly involved, but you can get help from PTO Today’s Startup Toolkit, which walks you through the application question by question.

Many independent PTOs do operate without official tax-exempt status. However, the IRS has said that it wants all small nonprofits to register as 501(c)(3) organizations, and it has created a two-tier fee system and simplified the reporting process to make it easier to comply.

The IRS return for tax-exempt organizations is Form 990. Most parent groups file Form 990-N, a simple postcard. If your net revenue for the year is more than $50,000, you must file Form 990-EZ, a more complex version of the return.

What if we haven’t filed returns for a few years?

If your group has 501(c)(3) status but hasn’t been filing returns, don’t panic. Your next step depends on how many years you’ve missed and what your annual income is.

If you have missed only one or two years of annual returns, and your PTO takes in $50,000 or less in gross receipts each year, you just need to file this year’s report, Form 990-N, on time. It is due by the 15th day of the fifth month after the close of your PTO’s fiscal year (Nov. 15 if your fiscal year ends July 1). Filing Form 990-N is done online. If you have only missed one or two years, you don’t need to submit the missing reports, but you do want to establish good record-keeping practices and financial controls to ensure that your group doesn’t miss future deadlines.

If your 501(c)(3) PTO earns more than $50,000 in gross receipts each year, then you must file Form 990-EZ instead of 990-N. It’s a bigger deal to the IRS if a group your size forgets to file the return; your PTO may be subject to late filing fines. If your large PTO has missed filing Form 990-EZ, call the IRS at 877-829-5500 and discuss your specific situation. Don’t wait. The IRS has been known to waive or reduce late filing fines, but you must act with sincere effort to correct the situation.

If you know your PTO is, or was, a 501(c)(3) organization and you’ve missed at least three consecutive years of annual returns, then it’s likely the IRS has revoked your group’s tax-exempt status. Search the IRS’ Select Check system to locate organizations that “were automatically revoked.” If your PTO shows up on the list, your group’s 501(c)(3) status has been revoked and you will need to take steps to reinstate it.

The IRS is not interested in squeezing penalties out of well-meaning but organizationally challenged charitable organizations like a PTO. Unfortunately, it’s just as much work to file for reinstatement as it is to file for tax exemption in the first place. In fact, your PTO would submit the same form, Form 1023, along with the standard $600 application fee to request reinstatement.

You also need to submit paper copies of the missing annual returns using Form 990-EZ instead of the easier 990-N. The benefit of reinstatement versus creating a brand-new entity is that your PTO would retain its same EIN, and all history of your group stays intact.

Do we have to be incorporated to have 501(c)(3) status?

No. These are two different and unrelated steps. Incorporation is recognized at the state level, and 501(c)(3) is a federal designation. Incorporation usually offers your PTO and its officers some protection from certain kinds of liability. Typically, incorporation must be renewed annually with your state’s department of commerce or with a similar office.

Incorporation establishes the inception date of your organization, so you should incorporate before you file for 501(c)(3) status. If you decide to incorporate after you get your 501(c)(3) designation, you’ll have to start that process all over since in the eyes of the IRS, the newly incorporated organization is a brand-new entity.

Do we have to renew our 501(c)(3) designation each year?

No. However, your PTO must file Form 990-N or 990-EZ, the annual IRS information return, on time every year.

How do we get started filing?

The application for 501(c)(3) designation is called IRS Form 1023; most PTOs will be able to use the shorter Form 1023-EZ to apply. The form and instructions can be downloaded from the Forms and Publications section of the IRS website. PTO Today’s detailed, line-by-line Startup Toolkit is specifically designed to walk PTO leaders through Form 1023 and Form 1023-EZ.

How much does it cost to file for tax-exempt status?

The current one-time fee for applying for tax exemption is $275 using Form 1023-EZ, and $600 using the longer Form 1023.

Check Your Status

The IRS has developed a new tool that makes it easier to research your PTO’s status. It’s called the Exempt Organizations Select Check, and it offers quick access to three different searches:

  1. Whether your PTO is in good standing as a group eligible to receive charitable donations. This is essentially another way to say your PTO is a valid 501(c)(3) organization.

  2. Whether your PTO’s tax-exempt status has been revoked due to failure to file your annual returns.

  3. Whether your PTO has filed the annual return, Form 990-N, applicable to groups with annual gross receipts of $50,000 or less.

Depending on which search you want to perform, the screen will ask for different search criteria.

Originally posted in 2013 and updated regularly.