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Bylaws/Nonprofit PTO vs. PTA Treasurer

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Tackling Your PTO Tax Return

It’s a common misconception: Because our PTO is a nonprofit group, we don’t pay any taxes. Thus, we don’t have to file a tax return.

Not true.

Your group must report annually on its finances and basic operations. This is true whether it is incorporated or not and whether or not it is officially certified by the IRS as nonprofit under section 501(c)(3) of the federal tax code.

The IRS collects this information by way of the “Return of Organization Exempt From Income Tax,” commonly called Form 990/990-EZ, and a supplementary form called Schedule A. The forms let the public understand how much money your group handled this year and what you did with it. Anyone, PTO member or not, must be given a copy on written request. And your three most recent tax returns must be kept available for public inspection at your main office (the school office for most groups).

If you step back and think about the implications of this disclosure for other types of nonprofit charities, you can see the value and importance of the information on the form.

The prospect of tackling a tax return might sound depressing. After all, few people instantly have a positive response to the IRS. But with a little preparation, you should be able to understand the IRS lingo and complete the form with confidence.

Some people simply call Form 990 a “tax return.” It does go to the IRS, but typically there are no taxes due. That said, there are exceptions to every common situation. So if your PTO has unique business or financial arrangements—you have paid employees, for example—you may need professional advice, and your situation is outside the scope of this article. But for the vast majority of parent groups, the form is fairly straightforward. You just need to take some time to match your financial data to the lines on the form.

Which Form To File

First, you need to determine whether your group must file Form 990 or Form 990-EZ. This distinction is based on annual gross receipts, not net profit. For example, your only fundraiser takes in $28,000 in sales and you pay the fundraising company 50 percent, or $14,000. Thus you made $14,000 on the fundraiser. Your gross receipts are $28,000 because that’s how much money your group handled, even though you kept only half.

If your PTO’s annual gross receipts are normally less than $25,000, then you do not need to file a return with the IRS. Even though you can ignore the detailed questions in the form, the IRS still recommends completing the basic information at the top of Form 990-EZ, from items A-K, and mailing in the form anyway. This practice establishes a history of reporting in the IRS’s files and makes your future treasurers aware of the responsibility of filing.

If your PTO grows above the $25,000 annual threshold, your group’s filing status will change and you will be required to fill out the entire form. Be sure to calculate your gross receipts carefully. If your PTO acts as the banker for a booster club, student council, or the book fair, for example, the money handled counts toward gross receipts, even if it is not “owned” by the PTO.

On the high end, if your group is lucky enough to have annual gross receipts over $100,000, you may be required to complete Form 990 instead of the simpler Form 990-EZ. However, since the vast majority of PTOs are not in such a high income bracket, this column will focus on Form 990-EZ. So if your PTO’s annual gross receipts are typically over $25,000 and less than $100,000, download a copy of Form 990-EZ and Schedule A from www.irs.gov, grab your latest treasurer’s report, and let’s talk.

IRS Wants To Help

The IRS provides Form 990-EZ and Schedule A, along with detailed instructions, on its website and by regular mail. The forms are only a few pages each and can be downloaded easily off the Internet. The instruction packets, however, run more than 20 pages each, so you might prefer to order those by phone at 1-800-829-3676. Allow about a week for the information to arrive by regular mail.

If you are registered with the IRS as a 501(c)(3) group, your PTO should receive the Form 990-EZ packet in the mail automatically at the address on your application for tax exemption. However, the group is required to file even if the packet never arrives.

Telephone assistance for tax-exempt organizations is available at 877-829-5500. Although many people automatically assume calling the IRS will be a frustrating experience, I found every representative to be extremely helpful, and I rarely waited on hold more than three minutes. It is far better to wait a few minutes on the phone than to make an invalid assumption that may cause your form to be rejected.

The IRS also provides a fill-in form on its website that allows you to enter the data using your computer. This feature lets you to print out a very clean document, with all of the information typed. However, it will not do mathematical calculations, and you cannot save the form and resume later. So complete the form by hand first, then head to the website to prepare the final copy.

The IRS requests that you fill in every entry on the forms, using “0” or “N/A” for items that are not applicable to your group. Although the IRS allows you to round off your numbers to the whole dollar, it may be easier to cross-reference the form to your PTO’s financial files if you use the exact numbers, including both dollars and cents. And one final piece of advice from the IRS: Don’t forget to mark the box at the top of Form 990-EZ in area H, indicating you’re not required to file Schedule B (a list of contributors). Otherwise, your return will be kicked out and held until the IRS contacts you. This kind of delay could make your return miss the filing due date and possibly subject your group to penalties of $20 per day.

Form 990-EZ is due to the IRS by the 15th day of the fifth month after the end of your fiscal year. For example, if your fiscal year ends July 31, your form is due by December 15 of the same year. Because of this delay, the form may have to be completed by a new treasurer, not the same person who presided over the financial activity being reported. If you are the current treasurer, do your successor a favor and get the data in order now so completing Form 990-EZ will be as easy as possible.

One idea is to cross-reference every account on your treasurer’s report to the associated line on the form. As you dive into the details of Form 990-EZ, you will see that it requires both gross and net amounts for income-producing activities. Be certain that your committee chairpeople and your financial transaction system track that level of detail or you will have difficulty completing the form accurately. It might also be a good idea to tell yourself the form is due a month earlier than required so there’s a cushion in case you run into complications.

For a typical PTO, the complete return will consist of Form 990-EZ, Schedule A, and supporting attachments. These attachments, called “schedules” by the IRS, include details specific to your group’s activities for the year. See Lines 6, 10, and 31 of Form 990-EZ for information about the supporting schedules that apply to most PTOs. Every attachment must include the form number, the tax year, your PTO’s name and employer identification number (EIN), and the applicable part/line number.

Organize the final packet in this order: Form 990-EZ, Schedule A, attachments to Form 990-EZ and, finally, attachments to Schedule A (if any). Before you mail it all off to the IRS, be sure to make a few copies for your files. Keep any spreadsheets or worksheets that you used to help calculate the numbers, and jot down any advice for the next preparer.

It’s a good idea to give the PTO president, secretary, and even your principal a copy so that next year’s treasurer can find at least one copy to use as a reference. And, of course, keep a copy in your treasurer’s archive. The IRS requires that supporting documentation be kept for at least three years.

The Guts of Form 990-EZ

Part I: Revenue and Expenses

Part I asks for the detailed financial numbers that support your PTO’s activity for the past fiscal year. Completing Part I will be straightforward if your PTO reports against a budget with individual categories for each major activity.

You will need your year-end treasurer’s report to answer the questions. Ideally, this information is stored in a computerized format so you can sort, total, and verify the numbers easily. If your PTO does not use a budget or there is no comprehensive year-end report, you may need to analyze the checkbook entries for the entire fiscal year and classify every transaction according to the lines on the form. Form 990-EZ may be reason enough to adopt an annual budget.

Part II: Balance Sheets

You will need information as of the first and last days of your fiscal year to complete this section of the form. Basically, this section gives the reader an overview of the financial position of the PTO. In the simplest case, the only number reported here is the balance in the PTO’s checkbook.

Part III: Statement of Program Service Accomplishments

Part III of the form gives your PTO a chance to boast a little about your accomplishments for the year. In accordance with the directions, list your top three activities based on total expenses, including a brief description of the impact of each project. It is not necessary to write more than the space allows on lines 28-30. The IRS encourages you to be “clear, concise, and complete.”

Total the expenses for all other activities on Line 31, and create a simple list of those activities as an attachment to Form 990-EZ.

Part IV: List of Officers

In this section, the IRS asks for the names and addresses of your group’s officers. You can use the school’s address in lieu of the personal addresses. Attach an extra page if your group has more than three officers.

Be sure to enter the number of hours each officer devotes to the position each week. This number can be an estimate, but it must be a specific number. The IRS frowns on entries like “as much as necessary” or “at least four.”

Part V: Other Information

The typical PTO will answer “no” to the questions in this section. If you think one of these questions applies to your group, you may need professional advice to ensure your return is accurate. This section also asks for the location of the PTO’s financial records.

Be sure to sign the form! The IRS will not accept an unsigned form. If your group paid a professional to complete the form, the preparer will also sign.

The Guts of Schedule A

Although Schedule A is six pages long, the typical PTO completes only a small portion of the form. Enter the heading information on page one and check box 12 in Part IV. The Support Schedule in Part IV-A must be completed also. Elsewhere, enter a zero or “not applicable” to indicate you consciously skipped over the sections.

Part IV-A asks for detailed numbers about your PTO’s annual income, which you figured out already for Form 990-EZ. In this section, the IRS is determining the amount of public support for your group. In most cases, a PTO will be 100 percent publicly supported.

Part IV-A also asks for data going back three additional years. If your group was established for the first time or was newly incorporated this year, then you have no prior history as far as the IRS is concerned. In that case, you will report data only for this year and can enter zeroes in the prior years’ columns.

If your PTO is not new, you will need to report the historical information as requested, even if you have not previously filed a return. Hopefully, the treasurer’s old files are complete and organized so you can gather the necessary details without frustration. Ideally, if your PTO has filed Form 990-EZ in the past, you can simply pull the numbers off the old forms. In either case, you quickly will realize the importance of good record-keeping to your sanity and that of future treasurers.

Note: The IRS publishes detailed instructions for Form 990/990-EZ and Schedule A. Though every attempt at accuracy was made for this article, information and advice from the IRS supersedes any information presented here.

Christy Forhan is an experienced PTO treasurer who has filled that role for two parent groups serving West Bloomfield, Mich., schools.

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