MicheleC's comments are on target, but let me add a bit of clarifications to the comments. The 501(c)(3)is a Federal non-profit status applied for via the IRS. The fee is either $150 or $500,d depending on your revenue level. The most important benefit is that donations to your organization are deductible as charitable contributions by the donor. Often 501(c)(3) status may be required when applying for grants.
To be tax exempt, you need to apply with the appropriate agency within your state. It usually costs nothing, or a small administrative fee. This designation generally allows you to purchase items without paying sales tax and may exempt you from collecting/paying sales tax on your fundraisers. In many states, you must be a 501(c)(3) before they will consider your application.
Regarding insurance, there are several areas to research. Leaders in volunteer organizations are frequently advised to get an umbrella policy added to their personal liabity policy. As an organization, you would want to contact an insurance company that understands non-profit insurance. There's still a lot of scope here, because a parent group (usually) has few assets and mostly wants liability insurance. Another option is "event insurance" when you take out a liability policy specifically to cover an event, such as a carnival.
We have been told by our district that our PTO is covered by the insurance carried by the town for the same amount of liability coverage as we had when we were a PTA. The only other cost incurred would be the amount to establish yourselves as a separate entity (501c3 non-profit). I believe the cost is a one time $500 to the state government, here anyhow. Plus the lawyer/accountant consultant fees to review the application to be sure everything is done correctly. Once this cost is paid that one time, your status as a separate entity is all set as long as your PTO exists and you pay your associated taxes. This is expecially true if your PTO raises more than $25,000 in fundraisers each year. OR should I say "moves" $25K worth of money in or out of the budget per year.
The problem with PTO's sometimes is that there is the oversite not to apply for tax exempt status through the 501c3 application process. This is imperative, otherwise you are misrepresenting yourselves as a tax exempt organization when you really arent'. Then the vendors are in trouble (and likewise you are with the vendors you work with i.e. printers, etc.)when they are God forbid auditted and are told that XYZ school PTO does not have tax exempt status. When you were a PTA, your number was issued as part of that entity. When you leave the PTA to become a PTO, you are on your own and must apply for a new number solely dedicated to your organization/PTO.
We've had so many requests for this info that we're researching it now. Initial findings are that the price will be far, far less than the $1600 you were quoted. We're finding that a policy specifically designed for parent groups (a policy that most brokers will have no knowledge of)is the best way to go. More as we learn it -- but trust that the price tag will be well under $500.
We are currently a PTA researching the change to a PTO. I have read on this site that it cost one group $80 to buy an insurance policy when they switched. I have shopped this policy and the current price I have is $1,600 for a Liability/Director & Officer/Automibile Liability/Member Theft comprehensive policy. The liability portion of this policy is the same coverage level that national PTA offers. We feel strongly about the D&O and Theft portion of the policy in the litigious society we live in. How do we make the switch and spend less on a policy and keep ourselves and the PTO protected?
