Is Our Local PTA Tax Exempt?
Utah PTA has secured a 501(c)(3) exemption ruling from the Internal Revenue Service (IRS), recognizing it as a public charity under Section 509(a)(2). Each PTA unit in Utah that is in good standing is covered under Utah PTA’s group exemption. (Utah PTA’s group exemption number is 7212.) The IRS requires Utah PTA, as a central organization, to submit annually a list of its subordinate units (local, council, and region PTAs) in good standing. If a unit chooses to no longer be affiliated with Utah PTA, it no longer has the benefits of tax-exempt status under Utah PTA.
Employer Identification Number (EIN)
Every PTA unit must have its own EIN from the IRS. This number is required for the PTA’s bank account(s) and is also used in conducting business with the IRS. Neither the school’s EIN nor an individual’s social security number should ever be used for PTA business. The PTA must also never “loan” its EIN to another group or organization. If a PTA unit needs an EIN, it should contact the region director or the Utah PTA office. To obtain an EIN, an IRS Form SS-4 must be completed. When the form is completed and signed, it must be returned to the Utah PTA Treasurer for processing. The IRS will assign an EIN to the PTA, and a letter will be sent to Utah PTA informing them of the assignment. Utah PTA will forward this letter to the unit, and this letter must be filed with the PTA’s permanent records.
Determination Letter
The IRS issues a “determination letter” to organizations that have qualified for tax-exempt status. Because Utah PTA, as a central organization, determines which units are included as subordinates under its group exemption ruling, anyone seeking to verify that a PTA in Utah is tax-exempt can contact the Utah PTA office. Utah PTA can provide a letter about the group ruling and a copy of its determination letter from the IRS for potential donors, sponsors, or grantors. According to IRS Publication 4573, “donors may rely upon central organization verification with respect to deductibility of contributions to subordinates covered in a Section 501(c)(3) group exemption ruling.” Email kids@utahpta.org with your school name and we will send you a letter. Since these expire as of June 30 each year, you will have to request a letter yearly.
Benefits of Tax-Exempt Status
As 501(c)(3) public charities, PTAs in Utah enjoy two substantial benefits:
- Contributions may be treated by donors as charitable contributions for income-tax purposes. Such contributions include programs like grocery store card programs and corporate sponsorships, as well as donations from individuals. PTA members who receive little or no reimbursement for their PTA-related expenses may also be allowed to deduct their out-of-pocket expenses as charitable contributions; current IRS rulings should be consulted for allowable deductions.
- Most income of the organization—income from activities that are substantially related to the exempt purpose—is exempt from federal income tax. As PTA fundraising efforts are often substantial, this exemption from paying income tax is very valuable.
What if a company requests a Tax Exempt Letter?
In your fundraising efforts, you may be requested by a company to have proof of your tax-exempt status. The IRS issues a “determination letter” to organizations that have qualified for tax-exempt status. Because Utah PTA, as a central organization, determines which units are included as subordinates under its group exemption ruling, anyone seeking to verify that a PTA in Utah is tax-exempt can email kids@utahpta.org. Utah PTA can provide a letter about the group ruling and a copy of its determination letter from the IRS for potential donors, sponsors, or grantors. According to IRS Publication 4573, “donors may rely upon central organization verification with respect to deductibility of contributions to subordinates covered in a section 501(c)(3) group exemption ruling.” Utah PTA will issue your PTA this letter if your unit is in good standing. This includes having paid membership dues this current fiscal year, have completed the required 990 tax filing and have current bylaws. If you need a letter, send an email to kids@utahpta.org to request a letter and copy of supporting documentation. Make sure you include the name of your PTA, city you are located in and the name and address to whom the letter and documentation should be sent. Keep a copy of the letter and supporting documentation until the end of the current fiscal year. It will be valid during the entire fiscal year.
What is a Form W-9?
Someone who is giving money to your PTA may ask you to complete Form W-9, entitled Request for Taxpayer Identification Number and Certification. The form is used simply to verify the PTA name, address, and EIN.
On line 1: You will put PTA Utah Congress, Inc.
On line 2: You will put your PTA name
On line 3: You will check “C Corporation”
On line 4: You will put “5”
On lines 5 and 6: You will put your school address
In Part I: You will put your PTA’s EIN number (**-*******)
The President or the Treasurer can sign and date the form
What are the Requirements for Acknowledging Donors or Sponsors?
IRS Publication 1771, Charitable Contributions – Substantiation and Disclosure Requirements, explains the federal tax law for charities (like PTAs) that receive tax-deductible contributions. The publication can be downloaded from the IRS website
Protecting Exempt Status
A Section 501(c)(3) organization will jeopardize its exemption if it ceases to be operated exclusively for exempt purposes. An organization operates exclusively for exempt purposes only if it engages primarily in activities that accomplish the exempt purposes specified in Section 501(c)(3). A 501(c)(3) organization:
- Must absolutely refrain from participating in the political campaigns of candidates for local, state, or federal office.
- Must restrict its lobbying activities to an insubstantial part of its total activities.
- Must ensure that its earnings do not inure to the benefit of any private shareholder or individual.
- Must not operate for the benefit of private interests such as those of its founder, the founder’s family, its shareholders or persons controlled by such interests.
- Must not operate for the primary purpose of conducting a trade or business that is not related to its exempt purpose, such as a school’s operation of a factory.
- May not provide commercial-type insurance as a substantial part of its activities.
- May not have purposes or activities that are illegal or violate fundamental public policy
Responsibilities of Tax-Exempt Status
- While conferring benefits on 501(c)(3) organizations, federal tax law also imposes responsibilities on organizations receiving that status. PTAs in Utah are required to do the following:
- Keep books and records detailing all activities, both financial and non-financial. This includes detailed information on sources of income and expenditures of funds, as well as minutes of the meetings where decisions are made about the activities of the PTA and such things as newsletters.
- File an annual information return with the IRS either Form 990EZ, if required, or Form 990N.
- Meet requirements for substantiation and disclosure for charitable contributions.
- File Form 990T if there is $1000 or more of gross receipts from an unrelated trade or business.
Important Note: It is the outgoing treasurer’s responsibility to make sure that the applicable annual information return is filed with the IRS.
The IRS suggests that organizations, like PTAs, that have frequent officer changes develop an information packet that contains the filing requirements, instructions for completing the applicable forms and for filing an extension, and any other pertinent information. The packet should be passed on to each new officer to ensure accurate and timely filing of returns and avoid penalty assessments.