Of course the IRS will provide the correct answer ( and sometimes if you call 3 times in a row, and get 3 different people, you will get 3 different answers...)
But, it would be my understanding that the quote given by Sue in the original post really refers to protecting a non-profit from people ( execs or shareholders) who skim money, or who take bonuses off the top, based on income. I don't think it is as literal as not allowing a PTO to " manage" distribution of all incoming funds.. as I assume you are just tracking, and each child isn't receiving dividends based on PTO income.....
This I am not sure about, but perhaps in order to pass the money to 6th grade, it's as easy as sending one lump sum check , and you turning over a tracking record so they can allocate accordingly....
to me, it seems no different than any other 501(c)3 who has 100 different departments to manage, and they allocate funds to each dept, based on what is raised....
Please call the IRS at 1-877-829-5500 with your question and then report their answer back here. It's a topic that could apply to many PTOs in some form. I'd be very curious to hear how the IRS interprets your situation.
I'd interpret the individual funds to be in direct conflict with the 501(c)(3) rules, but - of course - you'd have to consult the IRS to be sure.
I don't know what an "outdoor ed" program is or why the PTO would be holding money in the first place. If it's a school activity, why isn't the school managing it?
We'd need to know more about this Outdoor Ed program and how the individual funds are handled. For example our swim team, which is also a 501, requires each family to either participate in fundraising or donate at least $50. It goes into the general pool of funds to run the group, but we do track per family who has completed the requirement. That's similar, yet different to what you are describing.
However, I personally believe that if those funds were explicitly raised to be dedicated to specific students, that status should should be preserved if you hand the funds over to someone else.
We recently completed the process of becoming a 501(c)(3) organization. Now we have a question re: compliance. In the past we managed "student accounts" where certain fundraisers could be applied to an individual's account; not the general fund. When this student leaves our school after fifth grade, any funds they have in their student account goes with them to pay for 6th grade outdoor ed.
The following statement in the IRS regulations leads us to believe we can no longer manage these accounts: "To be tax-exempt under section 501(c)(3) of the IRS Code, an organization must be organized and operted exclusively for the purposes set forth in section 501(c)(3) and none of its earnings may inure to any private shareholder or individual."
So, is it true that as a 501(c)(3) organization, we can no longer manage individual student accounts?
And, if we are going to stop managing these accounts, how do we handle the funds that are currently in next year's fourth and fifth grade individual accounts?
