Question: Lots of Trouble for our PTO Group

So I am a President of an Elementary PTO. We have not had a 501c3 status since 2012 and have been, I guess, operating illegally. We have new member this year and need to know what we need to do in the State of Texas to become incorporated, get an EIN, and then eventually once all else is done our 501c3. Should and could we dissolve the PTO and start from fresh? Should we go ahead and file for the incorporated status? Also if filing for an incorporated status, then EIN and then 501c3 since nothing has been done since 2012 will that tie a red flag to us to getting audited? Thanks.

Asked by Anonymous

Answers:

Advice from PTO Today

Rose H writes:
So, you must feel overwhelmed, but if you take this one step at a time, you will get through it. So, here's our advice to groups when a 501c3 status has lapsed:
What if we haven’t filed returns for a few years?

If your group has 501(c)(3) status but hasn’t been filing returns, don’t panic. Your next step depends on how many years you’ve missed and what your annual income is.

If you have missed only one or two years of annual returns, and your PTO takes in $50,000 or less in gross receipts each year, you just need to file this year’s report, Form 990-N, on time. It is due by the 15th day of the fifth month after the close of your PTO’s fiscal year (Nov. 15 if your fiscal year ends July 1). Filing Form 990-N is done online. If you have only missed one or two years, you don’t need to submit the missing reports, but you do want to establish good record-keeping practices and financial controls to ensure that your group doesn’t miss future deadlines.

If your 501(c)(3) PTO earns more than $50,000 in gross receipts each year, then you must file Form 990-EZ instead of 990-N. It’s a bigger deal to the IRS if a group your size forgets to file the return; your PTO may be subject to late filing fines. If your large PTO has missed filing Form 990-EZ, call the IRS at 877-829-5500 and discuss your specific situation. Don’t wait. The IRS has been known to waive or reduce late filing fines, but you must act with sincere effort to correct the situation.

If you know your PTO is, or was, a 501(c)(3) organization and you’ve missed at least three consecutive years of annual returns, then it’s likely the IRS has revoked your group’s tax-exempt status. Search the IRS’ Select Check system to locate organizations that “were automatically revoked.” If your PTO shows up on the list, your group’s 501(c)(3) status has been revoked and you will need to take steps to reinstate it.

The IRS is not interested in squeezing penalties out of well-meaning but organizationally challenged charitable organizations like a PTO. Unfortunately, it’s just as much work to file for reinstatement as it is to file for tax exemption in the first place. In fact, your PTO would submit the same form, Form 1023, along with the standard application fee ($400 or $850 depending on the size of your group) to request reinstatement.

You also need to submit paper copies of the missing annual returns using Form 990-EZ instead of the easier 990-N. The benefit of reinstatement versus creating a brand-new entity is that your PTO would retain its same EIN, and all history of your group stays intact.