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Your Group's Legal Status

Is your group tax-exempt? Incorporated? Does it have its own tax ID number? How to find out, and keep your legal records up to date.
by Sandra Pfau Englund

When I was elected president of the grade school PTO this past spring, I was told that the group was a nonprofit, tax-exempt corporation. I soon learned not to take anything for granted; neither the state nor the IRS had ever heard of our PTO. I learned a valuable lesson: It's important to check the legal status of your parent group and to make sure all the records are up to date.

Corporate Status

To find out whether your group is incorporated, you can first check to see whether a corporate database exists on your state's website. I typically start at Findlaw.com, a great legal portal.

On this site you can click on "Browse by Jurisdiction" under the "For Legal Professionals" column. Next, click on your state and then "Government Information." From here you'll need to look for the state's corporations office. Frequently the corporations office is found under the Secretary of State. Other times it's a stand-alone office. In Virginia I find it by clicking on "Independent Agencies" and then "Corporation Commission."

Once at the corporation site, you usually can find a searchable corporate information database. In Virginia it's called the "Clerk's Information System." That is because often (but not always) it is the job of the clerk of the corporations office to file and keep records of corporate documents.

If you're less Internet savvy, call your state's office of the Secretary of State and ask how you can find out whether your PTO is incorporated.

Federal Tax-Exempt Status

It's also a good idea to check whether your PTO has applied for and received recognition from the IRS as tax-exempt under the federal tax code. Federal tax exemption excuses the group from paying federal income tax on the organization's net income. IRS rules require that all individuals and organizations file the appropriate tax return if gross income is $5,000 or more. Without IRS recognition of tax-exemption, an organization cannot be sure whether it is exempt from paying federal income taxes on any net income.

To check federal tax-exempt status you can go to the IRS website. Once there, type "Publication 78" in the search box and then click on "search now." Note, however, that the IRS search does not always produce accurate results.

You also might want to call the IRS Exempt Organizations Unit at 877-829-5500. A warning: It may be difficult to get through. The IRS suggests that Tuesday through Thursday afternoons work best.

EIN

Each organization should have its own employer identification number, regardless of whether the PTO is incorporated or tax-exempt. This is true even though the group has no paid employees.

An EIN generally is required to open a bank account. Frequently, however, PTOs use the school's EIN. To check whether your PTO has its own EIN, ask the school for its EIN. Then check the EIN being used for your bank account. If the PTO is using the school's EIN, you can easily get your own online at the IRS website, www.irs.gov. Simply type "EIN" in the search box. You may also apply by telephone or fax. Complete instructions are available at the IRS website.

Sales Tax Exemption

Exemption from sales tax is granted at the state level by the state taxing authority. Most states provide a sales tax exemption number that allows nonprofits to purchase things without paying sales tax. Frequently, however, PTOs use a school's sales tax number incorrectly.

While it may be legal to use the school's number for items purchased directly for the school, the PTO generally should not be using the school's sale tax exemption to purchase items for use by the PTO: materials for the fall fundraiser, refreshments for PTO meetings and events, and the like.

Ask the school for its sales tax exemption number to check whether the PTO is using the school's number or has its own. If the PTO does not have its own and wants to apply for one, go to the state website to check for information on how to apply.

Again, you might want to start at Findlaw.com and search the government information available for your state. States all differ on what types of organizations may obtain a sales tax exemption. Check the rules for your state carefully.

It's a good idea to start a corporate PTO notebook to keep legal documents. You'll create a valuable corporate memory for your successors.

Sandra Pfau Englund is an attorney specializing in PTOs and other nonprofit groups.

 

Comments   

#24 Craig Bystrynski 2012-10-26 13:57
Amy -- Thanks for the heads-up. The IRS now has a search function to check your tax-exempt status. It's available here:

http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check
#23 Amy Skultety 2012-10-25 20:32
I check the irs.gov site and searched for Publication 78, but as of Aug 2012, they no longer publish it.
#22 Sally 2012-10-10 21:08
Hi do any of the PTO things posted here apply to a Charter school or is this just for a Public School? I have my Charter School Board wanting to have our funds going into their account and they don't want us to be a separate entity. Is this possible?
#21 Dixie Sturgeon 2012-09-28 16:21
I would like to no about the president for pto .I am the vice president. our president dose not show up for any thing we do at school .me as vice president i do mose of it all so what can we do about get a new one . since school start no p.t.o meeting. because he would not make a date . so i did that I have been at my school for 14 year . i love helping our kids all teacher and i have been vice president for 4 year so could you please write me thank you ms sturgeon
#20 Meredith 2012-09-19 00:49
I am the new PTO treasurer and just discovered that though we have been acting as an exempt organization (incorporated, filing 990's, giving it deductible receipts) we have in fact missed the 27 month deadline by not filing the form 1023 with the IRS. I have contacted the IRS and know nex steps to get the paperwork in, however my question is about liability. Is the current board to be held liable even though none of us were on the board when the deadline passed? This would be in the case of a corporate tax lien for the last three years (since we're not exempt) and possible lawsuits if a donor is audited and they present a donation receipt from a non-exempt organization. Any help would be appreciated!
#19 Vanessa Braaksma 2011-07-30 21:51
Thank you Craig - I appreciate the help!
#18 Craig Bystrynski 2011-07-29 14:08
Vanessa-- My comment was too long, so here's part 2 (part 1 below): Filing form 1023 may be enough, but it does take several weeks to a few months to get a determination. If they indicate you may be subject to fines or back taxes, I'd recommend consulting with an attorney experienced in nonprofit law or a CPA who has been through this situation. In general, the IRS is seeking to get all PTOs to file form 1023 to become tax-exempt. They're not necessarily trying to penalize you, as long as you have acted and continue to act in good faith. Good luck.
#17 Craig Bystrynski 2011-07-29 14:07
A letter of determination is what you receive from the IRS to show that your group is tax-exempt. To receive a letter of determination, you fill out IRS form 1023. It's quite detailed, but you can do it yourself -- many groups have. (Our PTO Startup Toolkit walks you through the form question by question.) I'd recommend calling the IRS -- if they gave you a specific number, call that. Otherwise, use the nonprofit help line: 1-877-829-5500. Explain your situation -- that you're an all volunteer PTO, the leadership has changed over, you're unsure of your tax status, and you received this letter.
#16 Vanessa Braaksma 2011-07-29 00:45
Hello, I am the incoming PTO president at our intermediate school and was handed a letter that came from the IRS letting us know that we are in default and can no longer conduct business until resolved. According to the IRS we need to provide a letter of determination by our parent organization - I have no idea who that may be and neither does the previous president. According to our files we do show a group exemption number but I am clueless on how we came to be under that number. Is there a way I can find out who that exemption number belongs to? Any help would be greatly appreciated.

Thank you,
Vanessa
#15 Ruth Sanchez 2009-08-31 18:08
Hi, we changed from a PTC to a PTO last year. the previous board dismantled and threw everything they had away. We had trouble opening a bank account among other issues. The President resigned and I kind of began to take over in March of last school year. We have an account but are not sure what we are suppose to do with appling for taxes and all that stuff. The VP took the treasure position and has kept an account of what we have taken in. We are unsure of what to do for last school year and don't want to make the same mistakes this year.

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