Question: Lost 501c3 and are having to file 1120. Can we even deduct school funding and teacher appreciation?

As a new Treasurer, I discovered we had lost our 501c3 3 years ago and have filed the 1023 and all the 990s and have asked for retro active status, etc. In the meantime, I'm trying to figure out what we would owe in back taxes, penalties and interest if we don't get the retro active status. I started to work on the 1120 forms for the 3 years we weren't exempt so I can figure out how much we need to leave for the next board to cover any potential back taxes, etc. I don't understand how teacher appreciation lunches and money given to the school can be deducted. They have a 10% limitation for charitable deductions, which means we can only claim a small fraction of what we gave to the school. I don't see how hardly any of our expenses are deductible. Please help clarify. We have already spent $5,000 in back sales tax and the $850 app. fee for the IRS trying to clean up the mess. We can't afford much more!

Asked by Anonymous



Advice from PTO Today

Craig writes:
Who are you working with on this? I'd strongly recommend finding an accountant or tax attorney who specializes in nonprofits to help you through this process. If you've applied for reinstatement, you may get most of your money back from the IRS. But it will help to have an experienced advocate. In addition, one of the challenges with the IRS on tax-exemption questions is that you often get a different answer depending on which agent you're talking to. You want someone who can help you interpret at this critical juncture.

Another issue is that he IRS is incredibly far behind at the moment in processing applications -- we've heard recently of groups waiting 10 months or more for their determination. This creates a real hardship for groups like yours that are forced to file corporate returns in the meantime.

I don't have an answer for your question on deductions, but I hope you will find someone to help you through this difficult situation. Best wishes from all of us at PTO Today. Please let us know how things go.

Community Advice

mum24kids writes:
Assuming you gave the money to the school for a specific purpose, the expense would be listed by that purpose, not as a charitable gift. For example, if you gave the money to the school to cover the cost of field trips, then your expense line is listed as "field trips," not as a charitable contribution. Teacher appreciation is probably a little bit trickier, depending on what you spend your money on--most of that will probably fall into meals/entertainment, and there are limits on that.

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