Sandy's Blog Answering Your Booster Club Questions

PBUSA is pleased to announce that we have created a new, no-cost membership class just for school administrators, including school superintendents and principals.  The school administrator membership allows school leaders to access the tools, tips and information PBUSA provides on how to legally operate school support organizations.  PBUSA provides information to school administrators to assist them in supporting their school support organizations which provide much-needed funding in these days of school budget cuts. 

The school administrator membership provides access to PBUSA's information and resources.  However, only the school booster club membership provides immediate federal tax-exempt status under PBUSA's Internal Revenue Service group letter ruling.

PBUSA is pleased to announce a new partnership with AIM-Companies, a leading provider of nonprofit booster club insurance.  AIM has a developed a specially priced insurance program just for PBUSA members.  Through the program PBUSA members may obtain directors and officers, general liability, and property insurance, and bonding for your financial officers.  We feel this insurance is one of the best values around for school support organizations, and another great benefit to PBUSA members.  For more information check out the information linked at "Risks and Insurance" on this website, and/or go directly to the PBUSA/AIM insurance page.

Many officers and directors of nonprofit organizations are concerned whether they must spend all the money that their organization's raise each year, or if the organization may carry-forward funds to the next year.

It is common practice, and generally a good idea, for nonprofit organizations (and us as individuals as well!) to maintain some "reserves".  School booster clubs often carry-forward a certain amount to help the incoming officers get the first programs of the next school year started.  Some booster clubs also set-up savings accounts to save up for big expenses - such as playgrounds or new uniforms or equipment.  These special funds may take several years to accumulate the total needed for a special project.

In summary, booster clubs and other nonprofits do not need to spend all the money raised each year.  They may carry-forward funds to start the next year, or save funds over a period of years for special projects, or simply maintain "reserves" for a "rainy day".

Sandy

A federal EIN (employer identification number) is needed by every organization -- nonprofit or for-profit -- to identify the organization to the IRS.  The EIN for an organization is similar to how a social security number identifies an individual to the Internal Revenue Service.  Banks generally require an organization's EIN to open a bank account. Parent Booster USA must have each our member organization's EINs to identify the organizations to the IRS and register our members with the IRS as federal tax-exempt organizations under 501(c)(3).  Booster clubs should have their own EIN, and NOT use the school's EIN, unless, in the rare instance the booster club is an actual committee of the school rather than an independent organization.

EINs may be easily obtained online at the IRS website located at http://www.irs.gov.  Search for "EIN online".  You MUST provide the personal social security number of one of the booster club's officers or directors when applying to obtain an EIN for the organization. 

Sandy

When new booster clubs register for membership with PBUSA we ask for the school address.  We do this for several reasons including (1) ensuring that each booster club is connected or related to a school, and (2) providing a "permanent" address for the booster organization.  We also provide optional fields that allow booster clubs to enter a separate address, unrelated to the school.

Booster club officers and volunteers turn over fairly rapidly as students move on from one school, or one activity, to another.  As a result, if a volunteer's personal address is used for the booster club, and contact information is not updated when new officers take over, information and correspondence can get lost.  School addresses change less frequently.

PBUSA primarily corresponds with its members by email.  Information is sent to the primary contact person listed by your organization.  The school is not generally contacted unless we can not locate a current officer for an organization.  It is important, however, for all PBUSA members to log-in to their PBUSA membership records and update their information each time officers change, or the information otherwise changes.

All organizations -- whether they are nonprofit, for-profit, incorporated or not, must have an EIN.  An EIN (employer identification number, sometimes also called a federal tax ID number) is the number that identifies an organization to the IRS (Internal Revenue Service).  The EIN for a business is similar to how a personal Social Security Number (SSN) identifies an individual to the federal government.

An organization's EIN DOES NOT indicate anything about tax-exempt or for-profit status.  It is merely an identifying number.

Booster clubs should keep in mind the following rules about EINs:

1) School booster clubs should have their own EIN.  DO NOT USE the school's EIN.

2) Members of PBUSA should use their own EIN.  DO NOT USE Parent Booster USA's EIN.

3) If your booster club is unincorporated and becomes incorporated, you should OBTAIN A NEW EIN for the new corporation.

 

All PBUSA members are listed on the IRS Master File.  New PBUSA members are added to the IRS list periodically as they join PBUSA, and as the IRS periodically updates its list.  Finding tax-exempt organizations exempt a group letter ruling, however, is complicated.

To find a PBUSA member on the IRS Master File you must:

1) Go to the IRS website at http://www.irs.gov

2) Click on the tab "Charities & Non-Profits" at the top of the page.

3) Then click on the tab "More topics" in the left column of the page.

4) Scroll to the bottom of the center column and click on "Statistical Information About Tax-Exempt Organizations"

5) Next select "lists" and then, under the STATE in which the PBUSA member is located, select the Excel file that includes organization names beginning with "P" for Parent Booster.

6) Scroll down column "B" until you reach the first listing for Parent Booster USA in the this state,

7) Next scroll or tab to the right to column "AE" to find the names of the PBUSA members recognized by the IRS as tax-exempt under PBUSA's group ruling.

 

Guidestar (www.guidestar.org) is a nonprofit, tax-exempt, 501(c)(3) organization that provides detailed information about organizations recognized by the IRS as tax-exempt.  Guidestar pulls the information that it provides on its website from IRS (Internal Revenue Service) records.  In addition, organizations may update and add additional information to the searchable records included on the Guidestar website.  Guidestar is intended to provide more and better information to the public about charities so that individuals may make informed decisions about the nonprofit that they support.

Parent Booster USA members are listed on Guidestar first under the name "Parent Booster USA" and then under the individual booster club name.  This is because the IRS, in its "master file" of exempt organizations, lists organizations this way -- with the "parent" organization (PBUSA) listed first, followed by the "subordinate" organization (all PBUSA members) listed second. (See also my post of finding PBUSA members in the IRS Master File).

To find a PBUSA member on Guidestar go to www.guidestar.org and search for "Parent Booster".  A list of organizations named "Parent Booster" comes up, each with a different EIN (employer identification number).  To find a particular PBUSA member, you must know the organization's EIN.  Click on the member and the Guidestar record will show the booster club's name under "AKA" or "also known as".

To find the record for PBUSA, the parent organization, you may click "View Parent Organization" under any of the records for our members.

Recently an officer of a new booster club asked us if their booster club could wait until they had $5001 in the bank before getting federal tax-exempt status.  Five thousand dollars is a magic number because it is the threshold at which the Internal Revenue Service (IRS) states that any individual or organization must file an annual federal tax return.

Booster clubs should obtain c3 tax status as soon as possible, and before they have $5001 in the bank.  First, you should know that the $5000 threshold is based on GROSS RECEIPTS - or the total income earned rather than how much your booster club has in the bank.  This means that every dollar you bring in -- even if a majority of the funds go right back out the door in expenses -- is used by the IRS to determine if you are required to file a tax return.  For example, if your booster club sells $10,000 worth of gift wrap, pays the gift wrap company $6000 for the cost of the gift wrap sold, and keeps and puts only $4000 from this fundraiser into the bank, the total the IRS looks at as being earned by your booster club is $10,000, not the net receipts.

Second, without c3 tax status, there is no guarantee or confirmation from the IRS that donations to your booster club are tax-deductible to the donor.  With recognition of 501(c)(3) charity status, your booster club can legally collect donations from individuals, participate in grocery store and other programs that require c3 status, and apply for foundation and other grants.

Finally, obtaining c3 status allows your booster club to file the IRS Form 990 information tax return and be exempt from paying taxes on your net earnings.  Without c3 status, your booster club could be required to file a corporate tax return and pay tax at current corporate rates on your net earnings.  Or, if you don't file a tax return at all, the IRS may assess penalties for the failure to file.

The $5001 question is a good one.  It points out the difference between gross and net earnings, and the need for school booster clubs to ensure that they are properly recognized as 501(c)(3) organizations.

 

Yesterday I received a call from a PTO in a school in Michigan.  Until this year, the PTO used the school's EIN (federal employer identification number) and deposited funds in the school's bank account.  The school administration told the PTO that it must get its own EIN and bank account, which the PTO has done.  However, because the PTO has such a good relationship with the school and its principal, and because the PTO has heard that the paperwork associated with obtaining and maintaining incorporation and tax-exempt status is so extensive, the PTO was trying to decide whether or not to proceed with incorporation and tax-exempt status.

I had to tell this new PTO leader that, because her PTO brings in over $5000 a year in funding, it really has no choice but to get the PTO organized legally and properly.  IRS rules provide that any organization -- for-profit or nonprofit, incorporated or not -- that raises $5000 or more MUST file a tax return.  If your booster club does not file a tax return, you are risking future penalties and interest for failure to do so.  If your booster club DOES NOT have federal tax-exempt status, filing a Form 990, the tax-exempt return, will raise questions with the IRS.  An organization cannot even file the online IRS 990 e-postcard unless it is a registered tax-exempt organization with the IRS.  So, to be legal and operate under IRS rules, you and your PTO really have no choice.  You need to pursue federal 501(c)(3) tax-exempt status.  We also recommend that you incorporate.  Incorporation provides liability protection for your officers, directors and volunteers.  When you incorporate, you form a new entity which is liable and responsible for the actions of the PTO.  If you are not incorporated, all responsibility rests on the shoulders, and personal assets, of the officers, directors and volunteers because there is no legal body or entity that is responsible.

Don't believe the horror stories about the paperwork nightmare once your organization incorporates and obtains c3 status.  The requirements are basic.  Most states require that you file a report once a year that updates the state corporation commission on your booster club's address and current officers.  I've never seen a complicated state form.  The filing free is generally low -- typically not more than $100 and usually $10 or $25 in most states.  We suggest that you use the school's address for the organization, and the officers and directors.  This way the state should send the annual report to the school and whoever the current officers should get it and fill it out.

The IRS 990 online e-postcard also is nothing more than name, address and confirmation that your group's income was less than $25,000.  This threshold for online 990 is expected to go up to $50,000 in the next year or so.  The 990 EZ that may be used for most other PTOs is a bit longer.  You may want a nonprofit accountant to help you complete it the first year.  However, after that, many PTO's can follow the form and complete it for subsequent years.  And remember, you MUST file a tax return anyone if your PTO or other booster club brings in $5000 or more in income each year.

That's about it for the legal requirements of maintaining your booster club's corporate and tax-exempt status.  We have other recommendations to help you and your treasurer set up good financial practices.  A complete step-by-step guide is available to all PBUSA members.  It's all part of our mission -- to make life easier for parents and other volunteers of booster clubs so that you can focus on raising money and helping your children's schools.

Sandy