Question: Independent 501(c)(3), or part of the school?

We are a fairly new school. Our principal informed us that we have to obtain our own 501(c)(3) status as a nonprofit organization. I heard that this can be a drawn-out process. I also thought that we as the PTO would go under the school since we are fundraising and doing things to benefit the school. Could you direct me on this matter?

Asked by

Answers:

Advice from PTO Today

Elly writes:

The decision to obtain 501(c)(3) status is really your board’s to make; your principal cannot force it on you. But Elly will say that obtaining 501(c)(3) status sure makes helping your school a whole lot easier. Being a registered 501(c)(3) nonprofit means donations to your group are tax-deductible. It also makes you eligible to apply for federal grants. And many businesses will only donate to organizations that have 501(c)(3) status because of the tax deductibility issue.

Technically, your group could exist under the umbrella of the school, but it sounds like your principal would like for your PTO to be a separate legal entity—and that’s not a bad thing. In fact, lots of groups want to be recognized as such but often find their principals unwilling to grant that sort of autonomy.

To obtain tax-exempt status under section 501(c)(3) of the Internal Revenue Code, your group will need to fill out IRS Form 1023, the Application for Recognition of Exemption. Yes, it’s long—25-plus pages—and it will take one or two officers a few hours to complete. But if you have all your records organized, it’s a pretty straightforward process. PTO Today's Start-Up Toolkit walks you through the process step by step and the application line by line. Information also can be found on the Internal Revenue Service website and in the bylaws/nonprofit resources section of ptotoday.com.

There’s also a one-time application fee of $300 or $750, depending on your group’s yearly revenue. (If your group’s gross annual receipts have exceeded or will exceed an average of $10,000 annually over a four-year period, the fee is $750. If they will not exceed $10,000 over that period, the fee is $300.)

The approval process usually takes six to eight weeks. When your application is accepted, the IRS sends you official proof of 501(c)(3) status, called a “determination letter.” Be sure to make copies for your records and to have them on hand in case donors need one.

Community Advice

bythebook writes:
Follow up question, If the PTO is already linked to the school's EIN, hence acting as a committee under the school, how is revenue reported to the federal government? I can not find any info. explaining how such a situation works.