Sounds like you have a mess. I agree with JHB that you probably need some legal help. I would also try contacting the IRS's Taxpayer Advocate Service. I've attached a link for that. They can help you track down the person in the IRS that can help you. Also, you have the right to appeal penalties. The folks in this area of the IRS are much more reasonable and can make settlements that other IRS employees cannot make.

I would follow JHB's advice on asking for specific rules, laws, etc. and reading them. I would supply this my lawyer if I hired one, but I would make sure I understood it myself.
www.irs.gov/tax_edu/teletax/tc104.html

If you want some help with this, please contact me directly. I am a CPA (in Michigan) and I work with the IRS every day. Good luck.

Again, just my personal opinion....

I think legal advice will be better than mine. And, my first choice is definitely resolving the current sitution in a fair manner.

However, if you are just stuck between a rock and a hard place, and need to move forward with your intent to help the school and students, then you may have to start a fresh organization. As far as starting another organization (if your counsel advises you to), I think it would be just like many of the discussions we've seen here about PTA units wanting to disband and become a PTO. The old institution stays in place as long as needed, spending the treasury down to zero before dissolving. Meanwhile the parents start a new group, going through the whole process - new name (and acronym) new bylaws, applying for an tax ID number, starting dues and fundraisers, etc. You may even want to discuss being a PTA this time around. They definitely have more structure, processes, and resources to avoid problems like you are having now.

It would have been nice and clean to have this new organization coincide with the start of the school year, but maybe things will work out and you won't even need that strategy.

Hey, thank you for the information. I did take a look at the web site you suggested and even found a local office that gives free legal advice. I'm goint to contact them to see if its possible for them to help us out. About beginning a new organization? How would you disolve one PTO and begin another with similar functions? It seems to me that once disolve an entity of this sort the IRS and Franchise would have you ear marked, becuase lets face this could happen once again. Especially when you have a bourd that turns around every 1 or 2 years.... If you or anyone else has any further info on this subject I would appreciate it. Maybe that is the only way out! Thank you so much,JHB!

I'm a "do it yourselfer" on most things, but I really think you need professional legal advice, and specifically someone who deals with non-profit law! Here's a website from the California courts that's a guide to free and low cost legal help: www.courtinfo.ca.gov/selfhelp/lowcost/ . Maybe that's at least a starting place if you don't have your own sources.

It sounds like your entire board may have exposed itself to personal liability on this. It may be too late, but I would at least look at starting a whole new, unrelated organization. New name, new checking account, new bylaws, no transfer of funds, etc.

As far as all the "stuff" people are telling you, make them give you specifics. Ask them to show you the statute. Even if you don't understand it - get a copy. People (even in good faith) will cite you chapter and verse of things that don't actually exist. Also, "policies" often get stated as "laws". Not the same thing at all.

I guess it's possible there's a state law prohibiting the use of PTO funds for penalties and such. (anything is possible). But it seems highly unlikely. The PTO is a legal entity. How can anyone say it can't pay duely owed taxes and penalties? We paid the state a (small) penalty this year for a late charitable bingo tax filing.

My guess would be there are some rules/policies on use of SCHOOL funds in such matters. Make them show you these restrictions in print.

But, also, cut the school officials a little slack, even if they are wrong. PTO's are wonderful, valuable groups. But the fact is, each school district has a fair amount of disasters each year in the form of financial messes, PR nightmares, and ticked off parents due to all these volunteer groups being run with good intentions but sometimes too little understanding of the cold, hard facts.

I'm really sorry you are having to deal with this, but at least let us learn from your experience. Please keep us posted, and good luck.

[This message has been edited by JHB (edited 11-02-2001).]

Like Chris99, we have a similar situation going on with out PTO. I have been dealing with the IRS and the Franchise Tax and most recently with the Attorney Generals office, because I recieved a notice of cancellation for our non-profit status. We have penalties continueing to accrue since the SY 96-97, and have had problems with every tax year since including most recent 2000. I have spoken to reps. and submitted correspondence trying to get them to forgive the panalties, since they were incurred from a previous board (which is no longer around or available) and have bluntly informed that as the most recent and active board we are legally reponsible for complying with the activities of the prior PTO board and if they decide they (IRS & Franchise) can legally hold our own personal accounts until the fees and penalties have been satisfied. Ofcourse, they will seese the PTO accounts first, but if the monies are not sufficient they will take all other necessary actions. I have tried to gather any information that I can possible get but even the school board won't help. I have been adviced the the superindent that I cannot use PTO funds to satisfy tax panalties, she states the the State laws have an outline to that effect. I say if the PTO incurred the expense, the PTO fund pays. Does anyone know of any such law or statement (federal or state) that outlines PTO funds not to be used for tax penalties or for that matter, to pay for legal advice, or for services rendered as such paying for a CPA? I believe the reason our PTO is in this mess is because we did not have the knowledge in this area, and someone messed up!! I have bumped heads with the pricipals and school board on this issue and I don't know where els to go. Help! Anyone....