Doing the right thing is always in the best interest of the children at any cost.

Let me clarify one point, we've been told by the IRS that any entity with income of over $5000 a year should be filing a return. (That's GROSS income, not what's left over after expenses.) If you aren't set up as a non-profit, you are basically a business and should be filing that way. If you are set up as a non-profit, you follow the rules according to what kind you are. As an established 501(c)(3) you must file a 990/990EZ if you make more than $25,000 per year (gross). You can voluntarily file one if you make less.

It's still your decision as to what to do. Believe me, I truly understand both sides. On the one hand, I believe PTOs should be set up legally as non-profits. On the other hand, especially when there isn't a lot of money at stake, I understand the temptation to just operate informally and hope nothing goes wrong.

This is just my two cents as a PTO president faced with these decisions.

We are not officially "filed" as a 501(3)c non-profit entity. We have forever just used our school's tax exempt number. We never even come close to having income of $25,000. I don't want to operate illegally but also don't want to create headache where there isn't any now. I have not had complaints on this issue.

I also agree with the other 2 responses. The IRS and accountants that gave you the information about this being a grey area were incorrect. It is very clear - black and white - that a PTO is either tax exempt by filing for this status and having the IRS grant it, or they are taxable. If they do not get tax exempt status, then they should be filing a Form 1120 as a taxable entity. If they are tax exempt, and over $25,000 of receipts they need to file a Form 990 or 990EZ.

If you hold yourself out to be tax exempt when you are not, that would be operating illegally. For instance, if you tell businesses that their contributions to your carnival are tax deductible, that would be incorrect if you have not filed for and received tax exempt status.

I discovered last year that all 12 PTO's in my district also had never applied for tax exempt status. I went through the process with our school, and then put on 2 presentations to the principals and the other PTO's about what needs to be done. So it can be done - I would suggest asking this "interested" mom to work through the process for you.

I agree also with the meddling mom- She may seem harsh, but she seems to have the right idea--maybe she has tried to get things corrected in the last and was always shut down by the past boards.
We are a non profit 501c3 PTA we have been charted since 1955 with Natinal PTA..We have never had a paid accountant do our taxes--We do them ourselves- they really are not difficult to do. You may also want to solicit an accountant to donate his servies. Ask your membership a parent may be able to help also.

First off, I'm no accountant, but I have successfully completed the 501c3 application process for our PTO, so I think I can offer some insight.

Your PTO should register with the IRS to become a federally-recognized non-profit, tax exempt charitable organization. It is not only the moral thing to do, it's probably the legal thing to do too. Besides being the "right" thing to do, having your 501c3 status exempts your PTO from paying sales tax on purchases (some limitations in your state may apply), and allows your donors to deduct their contributions as charitable donations. It also legitimizes your PTO in the eyes of grantors, big ticket donors, and the community at large.

The one-time IRS filing fee is $500 per organization. It does NOT require an accountant to complete the application, just someone with a nose for numbers and the proper documentation (i.e. past budgets and treasurer's reports). Maybe this is the perfect job for your "difficult" parent. If she is so anxious that the PTO file, she could lead the process! The IRS is very helpful and there are several postings on this site that provide advice for completing the application.

Once you are approved, you must file an annual tax return with the IRS (Form 990). You DO NOT PAY any tax since you are tax exempt, but you must file a completed return if your PTO grosses over $25000 per year. It is not a difficult form, and after the first year, it will be a breeze.

The annual audit is a great idea, whether or not the IRS requires it (I don't recall reading that requirement in any of the IRS paperwork). We had a parent volunteer who is also an auditor review our books for free. His firm gave us a clean review. Technically, it is not an "audit" in the legal sense, but it suffices for our purposes. Why pay an auditor when a parent, or even your own officers could review the files? All you're looking for is that all the checks and balances are in place and the numbers tie out. If you think you need more scrutiny, you may have a bigger problem than anyone wants to admit.

Take a deep breath and look at the situation from the eyes of the other mom. She seems meddling and confrontational. Maybe she's sincere and informed. Don't dismiss her simply because she's not gotten involved for the past 5 years. Maybe she has time now, or maybe she's finally gotten up the nerve to crack through the PTO clique. Be careful dismissing her enthusiasm or you may turn everyone else off. If you only wanted parents to get involved in their first year at your school, you'll be cutting off alot of valuable resources.

I happen to agree with your meddling mom. Maybe her style is abrasive, but I think PTO's could use more people not afraid to challenge the status quo.