Thanks to everyone who replied to my inquiry. We are going to incorporate and apply for tax-exempt status.

Thanks for the replies. I appreciate the input and will let you know how things go.

Do we need to apply for tax-exempt status or can we simply be an "unincorporated association"?

This is an apples and oranges question--whether you decide to incorporate is somewhat unrelated to your tax exempt status.

Incorporation is a question of how your group is set up to govern itself--you can be tax-exempt whether you are incorporated or an unincorporated association. The benefits of incorporation have to do mostly with legal liability issues. Incorporating is usually fairly easy and inexpensive, but it depends on your state.

You need to make the decision on whether you are going to incorporate before you file for your tax exemption, otherwise it can get a little messy if you decide to later change your corporate structure. And, as JHB said, there are two different types of exemption--Federal tax exemption which you apply for through the IRS, and state tax exemption. The order in which you apply for those exemptions somewhat depends on the laws of your state. Sometimes you do it concurrently, sometimes you need to have your Federal exemption first, sometimes there's no relation between the two.

By the way, there are different levels involved.

Incorporation is done at the state level (and you want to do this first). And you probably want to apply for state sales tax exemption. There are two parts to sales tax, paying sales tax on things you purchase and remitting sales tax you are obligated to collect on certain things you sell (like T-Shirts). Depending on the rules in your state - you may have to be a 501(c)(3) first to get that exemption.

At the Federal level, you file to be classified as a qualified 501(c)(3) non-profit organization. That exempts you from most income tax as well as providing other benefits, such as making contributions deductible for donors.

There's lots more posted on the Forum on this topic, especially under the "management" and "rules" area. But the bottom line is:
if the PTO has income it's a business - ideally a non-profit business. The IRS rule of thumb seems to be that if you are bringing in more than $5000 per year (gross, not net), you should be filing a tax return. According to them, you should either file for non-profit status (501c3) or file a commercial return (which I've never heard of a PTO actually doing )

At $80,000 gross revenue you are way beyond any gray area. I personally wouldn't be involved in an organization with funds of that magnitude that wasn't set up legally.

At the state level, you also probably owe sales tax, depending on what kind of activities you run.

It's good that you are checking into it.

Hello -- We are a new PTO at a newly opened school -- just over a year old. Do we need to apply for tax-exempt status or can we simply be an "unincorporated association"? I understand the benefits of tax-exempt status, but I am not sure we want to deal with all of the paperwork that will be required at the beginning and annually thereafter. If we don't incorporate and file for tax exempt status, do we still have to file a tax return? (In our first year we had gross revenues of about $80,000). We like the loose structure we currently have but don't want to be violating any laws! Thanks for any advice and information. (Note: I have already been to the PTOLaw website -- very helpful...and I have downloaded all necessary forms and workbook. So we are ready to go if it's necessary.)