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What is / Why need 501(c)(3)?

23 years 1 week ago #94358 by JHB
Carolyn, I'll try to answer your question. However, since this exchange has gotten so long, I'm going to start a new thread. Look for a new posting within this section.
23 years 1 week ago #94357 by Carolyn
Replied by Carolyn on topic RE: What is / Why need 501(c)(3)?
We are in the process of getting the 501(c)(3)status and we're still confused as to what this means. We realize it gives us the non profit status but does it make us exempt from having to pay taxes on money that we earn such as interest in our bank account? Do we need to get a tax exempt number? Do you have to have the 501(c)(3) status before we can get the tex exempt number from the IRS? We consulted an attorney who told us we had to become incorporated to get this status. After talking to others we were told we didn't need to become incorporated.
I read above that this status also relieves volunteers and the executive board from any liability. Our school ditrict just made us provide them with proof that we have a liability insurance policy in effect. If we get the 501(c)(3) status does that mean we don't need the policy?
23 years 1 week ago #94356 by Krippe
Replied by Krippe on topic RE: What is / Why need 501(c)(3)?
This is to update all of you on the question that I had earlier.

I went to our attorney's office and asked him the questions that I asked here. He told me the following two reasons why you would want to be a Not-for-Profit Corporation and needed the 501(c)(3).
(1) When holding a fund-raiser and there should be an accident the 501(c)(3) keeps liability suits away from the PTO members helping with the event and also the Executive staff.
(2) That if we get donations, specially if they are big donations then the person giving the donation can write these off as tax write offs.

He told me that a lot of booster clubs uses the school status for their fund-raisers. They should also file for the 501(c)(3). They don't, but they also don't have the school comming to them asking for their money to be spent on certain things thats not related to their club events.

In our situation when we filed to be a corporation our articles say that if, "Upon the dissolution of the Corporation, the Board of Directors shall, after paying or making provisions for all the liabilities of the Corporation, transfer all remaining assets to the School District or its foundation." Our attorney told me that since the corporation had disolved because we had not been filling our annual registration report. That our school board could come in and tell us the money is their's and what to spend the money on without the consint of the PTO members. He told me that if we got re-instated and was a corporation that we follow our article of incorporation and by-laws, and our school board could not direct our money. We have a good school board, and I don't think they would do this to us. But you never know...

I also wanted to tell you that what I thought was our tax number to purchase items tax-exempt. Is not. Its our Federal Identification Number (FIN). Which is like yours and my SS#. Every business or corporation has one. Its what the bank sends to the IRS to let them know how much money is in the account. Our attorney told me that our tax status is a 509(a)(2) and we are not required to file Form 990, Return of Organization Exempt From Income Tax if our gross receipts each year are normally $25,000 or less. We are way less. Our FIN number has not been keep updated and we need to do this in order not to file taxes every year.

We had our PTO meeting tonight and I addressed the members with our problem. That is one reason why I am just now getting back to you (JHB). We are going to get back our NOT-FOR-PROFIT status [501(c)(3)]. It should cost us around $197.00 if I figured the filling fees right. When we get back into compliant then we will get our FIN number back to date and try to get a tax exempt number. Our attorney told me that the NOT-FOR-PROFIT status I can fill out and file, he would help if I needed. He showed me everything to do on these forms. He will then help us with our FIN number. He's a good guy and is not going to charge us for any of his work...

Hope this helps... And thanks for all of your help. Specially you JHB.

Just a note to all of you NEW president's: It never hurts to read old minutes of past years and to check out old paper work. I talked to alot of our past presidents they did not relize that we needed to do some of this paper work. They thought that us becoming a PTO (we use to be a PTA) got us away from paying dues. I relize now and some of them do to that this is not "dues" its keeping in compliant with our articles of incorporation and is part of our goverment's laws.

Tim, thanks again for this web-site. It has helped me out alot this school year....

[This message has been edited by Krippe (edited 02-14-2001).]
23 years 1 week ago #94355 by Critter
When our PTO was established in 1995, the treasurer got a federal tax id number (Form SS-4). Everyone always assumed that meant we were non-profit/tax exempt.

Because of this forum, I have begun to research our PTO's official status. We are not a registered non-profit/tax-exempt organization, a.k.a. 501(c)(3). We have never filed the proper IRS forms. There is one key form we need to complete (Form 1023), we must write "Articles of Association", and pay a $500 filing fee in order to apply for 501c3 status. Call the IRS at 1-800-829-3676 and ask for a copy of Publication 557 (how to file 1023), Form SS-4, Form 1023, and Form 8718. That should be plenty to get you started.

For us, registering for 501c3 status is just the right thing to do. No longer can we plead ignorance -- nor can you if you are reading this post! Our school holds an auction in the fall and next year, our donors will be able to (legally!) claim their donations as tax-deductible to a registered non-profit organization.

Coincidentally and very fortunately, our district's accountants have been asked to help all our PTO's and Booster clubs with their 1023 filing. I keep you updated.

Check out www.irsform1023.com for loads of advice on this issue.

[This message has been edited by Critter (edited 02-13-2001).]
23 years 1 week ago #94354 by MO2
Replied by MO2 on topic RE: What is / Why need 501(c)(3)?
One advantage that I have found in being a 501(c)3 is with grants. Our PTA has received 5 big grants in the past couple of years for vaious projects( handicap playground, and covered play structure-very expensive) that we have done. All of these foundations required a copy of our 501(c)3 status to receive funds. We have always been a 501(c)3. I would not want to risk not being one. I am one who likes to play it safe and follow the rules. It is just too risky not to.
23 years 2 weeks ago #94353 by JHB
Okay, despite (or maybe because of) Tim's teasing, I did some more do-it-yourself investigating and had a nice long chat with a rep from IRS Exempt Organization customer service (amazingly helpful people!).

Assuming you are NOT an 501 exempt org, here's how it supposedly works:

Any org like we are describing should be filing a tax return if they have more than $5000 gross receipts per year. (Example: if you just have one sale which make $8000, pay catalog company $5000 and keep $3000, you are supposed to file. Gross receipts were $8000.)

If they aren't a 501, then they are a business and need to file a Form 1120 Corporate Tax Return. (Now maybe you have income and then expenses and then everything you gave to the school is a deduction and nothing's left or maybe there is something left over when you do the math. Whatever.) Anyway, just like personal taxes, whatever amount ends up on the taxable income line at the bottom of the form is what tax due is calculated on.

If you have income, don't file, and get caught, then the officers at the time the income was earned are liable. Even if there wouldn't have been any income tax due (had it been figured and filed properly), you could still get into penalties and fraud charges.

In a nutshell, those are the RULES. However, the IRS isn't likely to go on a massive witch hunt to track down rogue booster clubs and PTO's. So maybe the risk for some doesn't seem large enough to go through the hassel of filing.

Note though, some things might increase your risk. If you are a PTO grossing large amounts - that might attract attention. If you have an angry constituent, they may call and turn you in. If you got into some sort of scrape, say a lawsuit or maybe you ran raffle or bingo game and that turned out not to be legal, then one thing could lead to another...and on top of everything else, you have IRS problems.

I'd still like to hear from someone who's consulted a tax professional and back from Krippe after the visit to the lawyer on Monday. Again, good luck!

P.S. And remember, if the org is NOT a 501, then generally donations are not deductible for the donor. If supporters think it IS, they may claim them and later have the deductions on their personal taxes disallowed if audited. (Somr grey area, because if given to the school - not the PTO- maybe it was okay).


[This message has been edited by JHB (edited 02-09-2001).]
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