Your best bet for a good answer is to call the IRS helpline, but I'll share our experience.
Last spring we incorporated, which in the IRS's mind creates a new organization, even though our PTO had existed for 15 years. So, when I filled out our 1023 this summer, I used form 872-C (at the IRS's direction), and used financial figures at the budget account level. I was "projecting" the financial data since we are a "new" organization, but obviously the info was based on the actual recent experience of our PTO. For a new group, the Part IV of the form requires 2 or 3 years of projections. Projecting can be much easier than reporting actual past data for an "old" organization, because the records might be hard to find or incomplete. I have had to fill out form 1023 both ways, and found it easier to file for the "new" PTO. Good luck!
A couple more questions on this PTA/PTO thing...
I am in the process of completing our Form 1023. Thanks to PTO Today and your wonderful guide, this was effortless and painless, but I do have 2 questions.
1. When listing the financial data such as your Attachment G. Do we keep that very simple, intentionally, or do we give them a copy of our line by line, item by item Excel spreadsheet data?
2. We are changing from a PTA to a PTO, hence the need to complete the form 1023. As a PTO, we are a new organization. Should I use the form 872-C. Or can I use the past financial data as an existing PTA organization and go for the more definitive ruling?
Thanks for the help and guidance...it's been amazing.
PS On the spending down issue, we did consult an attorney who told us we could transfer to our school -- another nonprofit corp. as a gift or spend it down, legally. In his words, what are they going to do, sue you?
Nothing wrong with a PTA having an employee. Example: national PTA has approx. 70 paid employees. Many state PTAs also have paid staffers.
The restriction you're referring to is typically referencing the elected officers of the group serving as volunteers. So, for example, Linda Hodge -- the national president -- isn't paid. But Pam Grotz -- the national Exec. Director -- makes something like $120,000. That's pefetly legal and fine.
Would love to see the exact language on the MD dissolution stuff. 1. Those sound like some of the strictest, most specific dissolution suggestions that i've run across; 2. I think it would be very hard to enforce most of those.
There's a big difference sometimes between what the state PTA says a group "must" do and what the law says the group must do.
This is all very interesting, because I have never heard of a PTA paying a salary for anyone. In fact, it states in MD PTA's handbook that all members and officers here shall serve without compensation. Is this person an employee of your PTA or of the district, whose salary you just happen to be paying? How does the district handle reporting that person's salary and tax info, or is that up to you? Benefits?
Also, according to MD PTA (your state may very well be different), all assests become frozen and are relinquished to the state and national PTA immediately upon voting to approve the resolution to dissolve. Plus there are, according to PTA, steps through which one must go before adopting such a resolution. It explicitly states that funds may not be transferred to any other organization with the intent to "spend down" the account. However, it can be inferred that donations can be made, purchases, etc. without penalty.
Definately check with a lawyer, but review your state and national PTA leadership guide and handbook. There should be a section from your state about dissolution.
Sorry but I needed to know where the source of funding was coming from and the comittment of the organization to the employees. It is a tad unique to find a Parents organization to be funding an employee in public education.
That said, Tim is on the mark from my veiw point here! I would recommend you talk to a rax or better yet a corporate lawyer about this transfer. Generally you can transfer the assests, obligations and debt of one organization to another without too much of a problem. Your existing by laws and articles of incorporation provide for this transfer. But the amounts you are talking about will raise a red flag with the IRS and possibly your state tax board as well. What that means is they may well schedule you for a full audit in which case you will probably send the same amount of money on a lawyer as you would to get all the i's crossed and t's dotted before the case with a lawyer.
I have talked with one of our founders of our PTO about this when we changed over from a PTA. We transfered assets amd obligations in a large amount (You have a HUGE amount). They took advantage of certain laws regarding the change that may or may not exist in your state to minimize this risk on advice of a good corporate attorney. It seemed to pay off because we were never audited.
Where your budget is so significant -- and you're talking about an employee -- I'd recommend using an attorney a bit here.
I see a couple of key concerns/ have a couple of thoughts:
1. With your budget so high, whatever moves you make may invite scrutiny. As opposed to donating, say, your last $1500, your group is trying to do the right thing with more than $100,000. IRS would likely take your transaction more seriously (and expect all i's and t's to be just right).
2. Go by what an attorney or IRS says, not what your state PTA says. That's almost always my advice, but with your $$ it's even more important. You wouldn't believe the variety of false "you must do this's" and "you can't do thats" that we've seen from various state PTA in this situation.
3. A key question is whether the Assistant is an employee of your PTA or not. If he/she is, then you'll be dealing with a tricky transition when he/she goes from an employee of the PTA to PTA going out of business (in effect) and then being an employee of the PTO. I'd want a lawyer making sure all was well there.
On the other hand, if the employee is a district employee and you folks donate the funds to district to pay her salary, you might have a good solution staring back at you. Perhaps you could donate two year's worth of salary, etc. now in a written agreement with the district. Not sure.
What I wouldn't do is just sort of guess. It's too much money -- and you have a key employee involved.
