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Is My School or PTA/PTO a 501(c)3, and Why Should I Care?

It’s not unusual to misunderstand the difference between a school or PTA/PTO being tax-exempt and being a 501(c)3. Many, many people think they are one and the same. It’s not unusual to misunderstand the difference between a school or Parent-Teacher Association (PTA)/Parent-Teacher Organization (PTO) being tax-exempt and being a 501(c)3. Many, many people think they are one and the same.

I recently did a series of webinars for and we briefly discussed why some schools have applied for 501(c)3 designation from the Internal Revenue Service (IRS) and some have not. In fact, if you’re wondering if your school or your PTA/ PTO has 501(c)3 IRS designation, you’re certainly not alone. You might be asking:

  • If it isn’t already, should my school or PTA/PTO apply for 501(c)3 status with the IRS?
  • What are the benefits to being a 501(c)3 organization?

Let’s take a quick look at these two questions and dissect them just a bit.

But here’s one very important caveat. I didn’t graduate from law school and I’m not an attorney. Rules, regulations, and laws change, and they also vary from state to state. If either your school or PTA/PTO is considering obtaining 501(c)3 status, you should research your state’s rules and regulations and also verify all the necessary information, perhaps with a qualified attorney, before you proceed.

Schools and 501(c)3 Status

Let’s start this discussion by looking at a few pieces of information.

  • Schools have a tax identification number, or TIN, issued by the IRS. This is just an identification number, much like a social security number, and doesn’t imply any sort of tax exemption. But because the Internal Revenue Service (IRS) generally treats public schools as government entities, they are automatically exempt from federal income tax, meaning they are “tax exempt.”
  • Schools are not automatically considered to be 501(c)3 organizations. They must apply for a 501(c)3 designation from the IRS.
  • To apply for 501(c)3 status, the school must complete Form 1023, the formal application. Once the school’s application is approved, the IRS sends a “determination letter,” which formally identifies the school as a 501(c)3 organization.

If you’re interested and want to know if your school has 501(c)3 status, ask your principal. The chances are he/she will know the answer.  The IRS determination letter that is provided when an organization is awarded 501(c)3 status is probably filed somewhere in your school or district office.

PTAs/PTOs and 501(c)3 Status

PTAs and PTOs that want 501(c)3 status go through the same application process as schools. But, there are a few different considerations for PTAs/PTOs.

  • A PTA/PTO that operates independently from a school is not automatically tax exempt. If your PTA/PTO is banking under the school’s tax identification number (TIN) then it becomes a subset of the school. Some PTAs/PTOs and schools decide that’s the best way to handle the situation. Other PTAs/PTOs innocently use the school’s TIN, thinking it applies to their organizations as well.  Just be advised – at least it’s our understanding – that if the PTA’s/PTO’s money is held in a bank account that was opened using the school’s TIN, the money technically belongs to the school, not the PTA/PTO. This may not be an issue, but you should be aware of it. If they wish, PTAs/PTOs can get their own TIN from the IRS and then keep their money totally separate from the school’s money.
  • PTAs/PTOs that join Parent Booster USA (PBUSA) are automatically registered with the IRS as 501(c)3 tax-exempt organizations under PBUSA’s group ruling. They don’t have to complete Form 1023 or pay the associated IRS filing fees. And, if your organization already has its own 501(c)3 status, associate memberships with PBUSA are also available. According to its website, PBUSA also offers help with getting your federal TIN, incorporating your organization, and complying with your state’s registration requirements and filing your annual IRS 990 return, if you’re a 501(c)3.
  • Sometimes, when asked to donate, individuals or companies request a copy of your PTA’s/PTO’s “determination letter” that was issued to your organization when it received 501(c)3 status from the IRS. This letter assures them that your PTA/PTO is a federally recognized charity. This means charitable contributions to your PTA/PTO are tax-deductible.

Benefits to Acquiring 501(c)3 Status

You might be wondering if it’s worth pursuing a 501(c)3 designation from the IRS.  In addition to what’s already been addressed, there are other benefits to organizations that apply for, and receive, 501(c)3 status.  Among them are:

  • Public and private grantors often require that organizations have 501(c)3 status to apply for funding. From this perspective, schools and PTAs/PTOs that have acquired 501(c)3 status are generally able to apply for a larger number of grants. This can translate to a greater chance of bringing more money and resources into your school, helping students and teachers alike.
  • 501(c)3 organizations exist as a separate legal entity. In the event of legal proceedings, creditors and courts are limited to accessing only the assets of the organization. With a few exceptions, founders, members, directors, and employees are not personally liable for any debts of the organization. (Again, check with your school attorney regarding the exceptions.)
  • PTA/PTO purchases may also be exempt from state sales tax.  Again, rules vary from state to state, but it’s likely your organization could benefit in this way as well.

Is your school or PTA/PTO currently a designated 501(c)3 organization?  Or, are you considering becoming one?  Share your experiences – both good and bad – with our readers!  Perhaps your information can help your colleagues and friends as they decide the best route to take for their organizations.

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