PfISD Financial Information Resource Manual: Parent Organizations
Parent organizations, such as PTAs, PTOs, Booster Clubs and Foundations – are separate entities from the school district. Parent organization officers are solely responsible for ensuring that their organization is in compliance with all federal regulations. Therefore, the district, including any district employee, is not responsible for an organization not being in good standing with all federal agencies. However, the district has provided the following information that includes steps parent organizations should take to comply with federal tax regulations.
FORMS AND REGULATIONS
Although not required, parent organizations are encouraged to incorporate under the Texas Business Organizations Code. By becoming incorporated, the organization will become formalized by adopting Articles of Incorporation and Bylaws which provide standard operating procedures. In addition, it helps shield the individuals governing and operating the non-profit organization from liabilities incurred by the organization, unless the individuals are negligent in their duties.
A non-profit organization is created by filing articles of incorporation with the Secretary of State in accordance with the Texas Non-Profit Corporation Act. A non-profit corporation is characterized by the fact that none of the income of the organization is distributable to members, directors or officers.
The completion of Form 202 – Certificate of Formation for Nonprofit Corporation is necessary to incorporate a parent organization. This form is available on the Secretary of State’s website: www.sos.state.tx.us. Upon acceptance, a certificate of incorporation will be issued which serves as conclusive evidence of corporate existence.
Employer Identification Number
All parent organizations must obtain a unique Employer Identification Number (EIN). PTA/PTO’s, Booster Clubs and/or Foundations are not permitted to use the District’s EIN. Apply for an EIN online through www.irs.gov
, enter “EIN” in the “Search” feature and follow the instructions.
After Receiving an EIN, organizations can then open a bank account and obtain a state sales tax permit. Individual’s Social Security number should never be used to conduct the business of PTA/PTOs, booster clubs and/or foundations.
Application for Federal Tax Exempt Status
Formation of a non-profit corporation does not necessarily entitle an organization to be exempt from federal taxes. In order to be exempt from federal taxes, the parent organization must apply for this status on Form 1023 – Application for Recognition of Exemption Under Section 501(c)(3). General instruction on the rules and procedures can be found in IRS Publication 557 – How to Apply for Recognition of Exemption for an Organization. These documents are available on the Internal Revenue Service website: www.irs.gov
Upon acceptance of the organization’s exempt status by the IRS, a determination letter will be received as evidence of approval. The letter should be kept in a safe, permanent place as it will be used time and again to prove the organization’s exempt status. In addition, a copy of the letter should be shared with the school’s bookkeeper and principal.
Application for State Tax Exempt Status
The organization must apply for a State Sales & Use Tax Permit. The District exemption status cannot be used to secure exemption from sales taxes under any circumstances. The application – AP-201 – can be completed online by going to the Texas State Comptroller website: www.window.state.tx.us/taxinfo/sales.
Open a Bank Account
Once an EIN has been received, use it to open a bank account. Parent organizations are not authorized to use PISD bank accounts or the district’s tax identification number for any purpose and must comply with the following guidelines.
a. The name on the account must state “Booster Club”, “PTA/PTO”, or “Foundation”.
b. Physical control over the account and checks must be maintained by a non-PISD employee. However, the school address can be used for the address of the organization as long as the name on the account includes “Boosters”, PTA/PTO”, or “Foundation”.
c. No PISD employee may be listed on the account’s signature card as an authorized check signer.
Annual Federal Filing Requirements
Every parent organization exempt from federal income tax under section 501(a) is required to determine the necessity of filing an annual Form 990, Return of Organization Exempt from Income Tax. Changes made to IRS regulations effective Jan. 1, 2008 affects not-for-profit organizations and their requirements for financial reporting.
- 990-N – Gross Receipts are $50,000 or less
- 990-EZ – Gross Receipts are greater than $50,000 and less than $200,000
- 990 – Gross Receipts are $200,000 or more
Consult with your tax professional or the IRS for additional assistance.
Even though parent organizations are recognized as tax exempt, they may be liable for tax on the portion of income deemed to be unrelated business income (“UBI”). UBI is income from a trade or business activity, regularly carried on that is not substantially related to the charitable, education or other purposes that are the basis for the organization’s exemption. An organization that has $1,000 or more gross income from UBI must file Form 990-T, Exempt Organization Business Income Tax Return. This form is filed in addition to Form 990, 990-EZ or 990-N and is required regardless of the level of the income received.
Parent organization fundraisers are defined as fundraising sales/events where the PTO/Booster parents are the sellers of fundraising merchandise or actively participate in the fundraising event. Examples of such fundraisers include, sock hops, carnivals, t-shirt sales, school supply sales, concession sales, raffles, silent auctions, etc. Funds raised from such fundraisers belong to the parent organization responsible for raising these funds and must be deposited in the appropriate booster/organization bank account. On campuses where all parents are members of a PTA/PTO, if every child on campus received an order form to sell merchandise, this is classified as a “fundraising activity in the name of the school”, and as such, all funds collected from that fundraiser must be deposited into the Campus Activity Fund of that school.
Parent organizations cannot require a member to participate in fundraising activities. Coupled with this, members cannot be required to sell or raise a certain amount. Both of these practices may jeopardize an organization’s tax-exempt status with the IRS.
Booster Clubs and other supporting parent organizations cannot credit “individual” student accounts based on a parent’s participation in fundraising events. This practice jeopardizes an organization’s tax-exempt status with the IRS. Tax-exempt organizations must benefit a group as a whole instead of benefiting individual members of a group. Booster clubs may not maintain individual accounts that are earmarked for a particular individual.
Texas Sales & Use Tax Bulletin
Per Gregg Abbott, Texas Attorney General, non-profit organizations can hold a raffle if the organization:
- is at least three years old;
- elects its governing body;
- has a 501(c) tax exemption;
- has members;
- does not distribute income to its members; and
- does not participate in any political campaign.
A parent organization should consider all applicable regulations for bingo. Detailed rules may be obtained from the Texas Lottery Commission by requesting a copy of the Bingo Enabling Act, the Charitable Bingo Administrative Rules and Bingo Operations Manual by calling 1-800-BINGO77 or visiting the website: www.txbingo.org.
Athletic Booster Clubs
Booster clubs cannot give anything to students, including awards. Check with school administrators before giving anything to a student, school sponsor or coach.
Athletic booster club funds shall not be used to support athletic camps, clinics, private instruction or any activity outside of the school.
Booster groups or individuals may donate money or merchandise to the school with prior approval of the administration. It is a violation for booster groups to cover the cost of commercial transportation or out-of-town meals directly. Athletes are restricted by the Athletic Amateur Rule. Individuals should be informed of the seriousness of violating this rule.
Academic Booster Clubs
UIL academic students are restricted by the Awards Rule so as a general practice booster clubs should not give gifts or awards to UIL contest participants. Booster clubs may raise money to provide an annual banquet for academic participants and coaches. With prior administrative approval, boosters may also purchase equipment for programs and assist with expenses for travel to academic competitions or educational trips. Trip expenses may include food and refreshments for students on these trips.
Booster clubs should exist to enrich students’ involvement in extracurricular activities without endangering their eligibility. For more information on University Interscholastic League (UIL) Booster Club Guidelines, please visit www.uiltexas.org.
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