Question: Consequences of not having 501c3 status?

what are the consequences of our PTO not having 501c3 status? Are we considered "Non-Profit" without 501c3? Do we need to pay federal and state taxes? (the benefits of donor deductions and applying for grants doesn't seem to be relevant for our situation)

Asked by Anonymous

Answers:

Advice from PTO Today

Craig writes:
You basically have two choices to be operating legally. You can file for 501c3 or you can operate, essentially, as a committee of the school. In the latter case, you wouldn't have your own EIN and the money would go in a school bank account -- sometimes a separate account administered by the PTO. That can work, but you have little real independence. The school can take the PTO money whenever it wants, it can dictate your bylaws, control the board, etc.

A third option is to be independent, with your own EIN, but not file for 501c3. You operate like a nonprofit, but you don't have official tax-exempt status. A lot of groups operate this way, but there's a risk. The IRS wants to keep track of even the smallest nonprofits. In recent years, they've been strongly encouraging all nonprofits to file. Even if your group has been around for a long time and you file now, there's no penalty for not having filed previously. But if you come to the IRS's attention first and haven't filed, they tend to levy significant fines, and you likely will be required to assemble years of back financial records.

If you do file for 501c3, it's extremely important to set up a system to make sure the annual filing is done each year. Enlisting the help of the school secretary, for example, to at least put it on the calendar is one way to make sure someone is aware of it even if the information isn't communicated from one set of officers to the next.