One addition to TT's note's. The "limited liability" isn't a function of becoming a 501(c)(3), but one of being incorporated.

Organizations that go through the effort to formalize often complete all these steps:

* Organize good processes, bylaws, procedures
* Incorporate as a non-profit corporation in your state
* Apply for 501(c)(3) status with the IRS
* Apply for state tax exemption

Each is a separate step and not all organizations go through them all.

As a matter of fact, if you plan to incorporate, you'll want to do that before you file your 501(c)(3). Incorporating sets you up as a new corporation - so basically a new organization. If you previously got your 501(c)(3), it wouldn't apply to the "new" organization and you would have to apply again.

Some are interdependent. You can't get your 501(c)(3) until you have good bylaws. You probably can't get state tax exemption without a 501(c)(3).

Here's the advantages we used when presenting to our group:

Advantages of forming a nonprofit organization include:

Tax exemption: Those organizations that qualify as public charities under Internal Revenue Code 501(c)(3) are eligible for federal exemption from payment of corporate income tax. Once exempt from this tax, the nonprofit will usually be exempt from similar state and local taxes. Tax exemption is not automatic for those agencies that incorporate as nonprofits; they must apply to the IRS and to appropriate state and local governments for tax-exempt status.

Eligibility for public and private grants: Nonprofit organizations are allowed to solicit donations from the public. Contributions to public charities offer tax benefits to individuals. Many foundations and government agencies restrict their grants to public charities.

Formal structure: Although a person or group of people created it, a nonprofit organization exists separately from those individuals as a legal entity in its own right. Incorporation puts the mission and structure of the nonprofit above the personal interests of individuals associated with it.

Limited liability: Under the law, creditors and courts are limited to the assets of the nonprofit organization. The founders, directors, members, and employees are not personally liable for the nonprofit’s debts. (There are exceptions. A person cannot use the corporation to shield illegal or irresponsible acts on his/her part. Also, directors have a fiduciary responsibility; if they do not perform their jobs in the best interests of the nonprofit, and the nonprofit is harmed, they can be held liable.)

In my opinion, the biggest "pro's" are more credibility, the fact that you are handling things legally, and that donors can count donations as a tax deductable contribution.

But I've gone full circle on this one - being a real evangelist for formalizing a few years ago to being more cautious now giving that advice.

I belong to two PTOs. One is a 501(c)(3). They are tax exempt at the state level, registered with the proper authorities, pay sales tax on the activities not exempt, have an annual audit, etc. I think that the 501 status helps them and is a good thing.

The other PTO operates very informally, has a hard time even getting a full slate of officers, and has a much smaller role within the school. In my opinion, it would be a nightmare if they set up all the formal pieces, as I have no confidence that the proper forms and taxes would be filed in subsequent years. It's better for them to continue as they are.

One pro that I know of, if you have your own 501c3 status you control your funds, fundraising, etc. Otherwise you fall under the schools non profit so technically they "own" and have to have some type of control or input into how those funds are used. We went round on this issue for the past few years and ultimately voted not to file. If you have a good administration, your fine but if you get someone who wants the PTO's money, you could run into trouble.

Good luck!

Our group faced the same questions you pose, and decided to forge ahead and do it. What convinced us was the fact that Administration "gave" us their legal staff to take us through it. Although this part is free, the filing fee - we just discovered - is $500. Ouch!

If I had it to do over again, I would thoroughly research the pro's and con's of actually BEING a 501c3, and weigh those results against the following: LOTS of work to get through it, tons of legal-ese that your group now must interpret or constantly phone the attorney about, much confusion about individuals providing their signatures, drivers license numbers and social security numbers to all the filing paperwork, and costs lots of money to do it!

When it is all said and done, all I can see is the one "con" outcome, which is that our Treasurer must be someone who will file the correct IRS reports, correctly and on time, and always be mindful and on top of our new regulations. I can't see any pro's at this point. Maybe someone else can tell us the pro's.

I am the president of a small school PSO ( less than 250 kids) and we are trying to decide if we should get our 501(c)(3)? We are getting a lot of resistance from past presidents because they feel that we've went this long without it and don't need it. I think they are upset that the new board is trying to make changes, and people resist change. I'd like to know if any of your groups are nonprofit or have your 501(c)(3) and how you convinced your members that this is a good thing. Or is it? I'm so confused now!!