At the September Hauser PTA meeting, a committee was formed to study the possibility of converting our Parent Teacher Association chapter to an independent parent teacher organization. In District 96, Central’s parent group recently voted to become a PTO. This is the third in a series of articles discussing PTA and PTO.

Would a PTO be the same type of legal entity as a PTA? A PTO could have the same type of legal organization as our current PTA. The steps necessary to accomplish this are:

1. Draft PTO bylaws;
2. Apply for federal employer ID number (FEIN);
3. Incorporate as an Illinois not-for-profit corporation;
4. Apply to the IRS for tax-exempt status;
5. Apply to the state Department of Revenue for a sales tax exemption.

FEIN - To open a bank account an organization needs a federal employer identification number, even if the organization has no employees. There is no cost involved in obtaining an FEIN.

Incorporation – A PTA (or a PTO) can choose whether to become a not-for-profit corporation. Although this is not a requirement, in District 96 most parent groups have opted to incorporate. Hollywood PTA has not. Likewise, for many years the RB Patron’s Council has operated as a PTO and is not incorporated. There is no reason all parent groups in District 96 need to be all PTA or all PTO. Other neighboring school districts have mixtures of PTAs and PTOs. The primary reason to incorporate is to protect the officers and members from being held personally liable in a lawsuit against the organization. In addition, most grants for which a parent group might apply are only available to not-for-profit corporations. The one-time filing fee to form an Illinois not-for-profit corporation is $50.

Tax-exempt Determination – Not every not-for-profit corporation is also ”tax-exempt.” To become tax-exempt an organization must file for tax exempt status (501(c)3) with the IRS. Hauser’s PTA is ”tax-exempt” because the Illinois PTA has been determined by the IRS to be ”tax-exempt,” which confers those benefits to the local PTAs. Some of the advantages of tax-exempt status are: (1) no federal taxes are owed on earnings of the organization; (2) most grants are available only to 501(c)3 corporations; and (3) supporters who donate to your group can deduct donations from their own taxes. For a PTO to receive the same ”tax-exempt” determination from the IRS, the PTO would need to file Form 1023 and pay a fee to the IRS. Based on the size of Hauser PTA’s annual budget, the filing fee to the IRS for a tax-exempt determination of a PTO would be $750.

Illinois Sales Tax Exemption – Some organizations (charitable, religious, educational) qualify for an exemption from paying Illinois sales tax on goods bought for the use of the organization. Similar to the federal tax-exempt determination, Hauser PTA is now covered under the Illinois PTA’s exemption. A PTO would need to apply for a sales tax exemption. There is no cost to apply for a sales tax exemption.

Costs – The cost to become a PTO would be approximately $1,000: $750 for the IRS tax-exempt status determination, $50 to the Illinois Secretary of State for incorporation, and additional costs up to $200 for preparation and review of the forms. The one-time $1,000 cost would be offset by annual savings in dues paid to the PTA ($1300 budgeted for 2009-2010), so the cost would be recouped within the first year.