It depends on what the gift cards are for. You absolutely can give a teacher a $1,000 gift card to buy classroom supplies. If you do that, it's important to get receipts to verify what the money was used for.
If you're giving teachers a $1,000 gift card for personal use, that's another story. There are several issues. First, teachers need to declare that size of a gift on their personal income tax returns. Second, if you're in a public school, the teachers are government employees and many government entities limit the value of gifts that their employees can receive. I believe the accepted federal limit is about $25, and a lot of state and local governments follow that standard.
Third, you might indeed be risking your tax-exempt 501c3 status. The IRS prohibits tax-exempt organizations from providing some types of "private benefit" to individuals. I'd recommend that you get an opinion from an attorney experienced in nonprofit law or an accountant who deals with nonprofits if you decide to continue this process.
And finally, I wonder if parents would be surprised that their donations are not being used to benefit the classroom or school. That's a lot of money to raise -- it can be a win-win if teachers spend in on improving their classrooms and the school.
- Craig
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