Fortunately, our members voted unanimously to allocate the $500 for the application fee and we moved forward. (The fees have gone up since then—$850 for groups with annual gross receipts of $10,000 or more, and $450 for groups with revenue of less than $10,000.)

Luckily, I had several months between my aha moment and our auction. Good thing, because it took me nearly that long to get the application together. Do not despair if you are just starting the process; it probably will not take you as long as it did me. Today, there are great resources available to help you through the application—specifically the PTO Startup Toolkit and the wonderful knowledge pool on the ptotoday.com message boards.

The effort and time it takes for you to complete the application is also influenced by other issues. Good record-keeping, help from fellow officers, and how long it takes to finalize key decisions will affect your timeline. Though the process should not become your full-time job, it could, realistically, spread over several weeks or even months.

Based on the amount of financial information required in the application, the treasurer is the logical person to complete it. However, if your PTO has another volunteer who is willing to take on an important and complex task, someone who will not give up until the job is done and is not afraid of numbers, writing, or the IRS, then you might choose to delegate the application process.

Incorporation—Yes or No?

Our PTO actually had two decisions to make. In addition to deciding to apply for federal nonprofit status, we also had to decide whether we wanted to incorporate in our state. I learned that if a PTO incorporates, a primary benefit is a form of protection for the officers, although the rules vary from state to state. In our state, when a corporation is sued, only the assets of the corporation are at risk; the assets of the officers are protected in most cases. That grabbed my attention when I realized the “assets of the officers” could be my house, my car, my savings.

Very quickly incorporation sounded like a great idea. For a fee of $20, the PTO was incorporated by fax in less than 24 hours. Not a big deal. Check with your state’s department of commerce or secretary of state’s office for information about incorporating.

But wait! If your PTO is considering incorporating, do this before you complete Form 1023 for the feds. As far as the IRS is concerned, a newly incorporated organization is a brand new organization, even if nothing else has changed. That means the new corporation would need to reapply for 501(c)(3) designation—another Form 1023 and another application fee. If your unincorporated PTO already has its 501(c)(3)status, you could go ahead and reapply with the IRS after you incorporate.

Advice From the Trenches

I have had the pleasure of completing Form 1023 for two different PTOs. In the process, I bumped into a few obstacles that slowed things down. Here is some advice that may help you avoid some of those same pitfalls.

Ask for help from fellow officers. There are several questions on the application about your PTO’s mission, purpose, structure, and activities. Try to delegate the writing of these answers to other officers so you can focus on the financial data required.

Read the instructions carefully. Spend some time poring over the instructions for Form 1023 with a highlighter and a clear head. You should also read IRS Publication 557, titled "Tax-Exempt Status for Your Organization." It talks about the rules and responsibilities of a nonprofit, plus it explains key terms. You can order the materials from website www.irs.gov at no cost.

Contact the IRS for help. There will most definitely be questions in the application that do not make sense. Before giving up or guessing, call the IRS at 877-829-5500. Also, www.irs.gov is jammed full of information and is easy to navigate. Look for buttons to direct you to “charities and nonprofits.”

Be sure your articles of incorporation or constitution has all the required language. The IRS requires specific language in your organizing document. (This is separate from your bylaws). See the PTO Today Startup Toolkit for lots more information on filling out the form.

Make copies of everything. Keep a complete copy of the application with all attachments for the PTO’s files. There is a lot of financial information required, so also keep a copy of the reports you used to substantiate the details in case you ever need to explain your answers.

Approved!

When you get a Determination Letter from the IRS that says your application has been approved, it is a cause to celebrate. But that’s not the end of your responsibility. Each year, 501(c)(3) organizations are required to file Form 990, Form 990-EZ, or Form 990-N (depending on the amount of gross receipts collected) with the IRS. This form is essentially a tax information return, without any taxes owed.

Although the form is not due to the IRS until several months after the end of your fiscal year, it is a good idea to download the form and instructions as soon as possible. As you familiarize yourself with the form’s requirements, you might decide to restructure some of your financial data to make it easier to complete the form for you and future treasurers.

If your PTO is incorporated, you may also be required to complete an annual renewal form. Check with your state on its specific filing requirements and any fees that might be necessary.