Operating under a 501(c)(3) status comes with many benefits. The taxes the organization pay are limited. Donations made by the community may be tax-deductible for the person making the donation. Further, acting as a 501(c)(3) organization can limit the liability of the organization to the assets of the organization.
But organizations created under the 501(c)(3) status have additional costs, paperwork, and rules to follow.
There are five main rules each non-profit 501(c)(3) organization must follow:
- POLITICAL ACTIVITY IS LIMITED – making financial contributions to a political party or promoting specific candidates for office is strictly prohibited. The CSB has filed the appropriate paperwork, however, to allow CSB and its groups to support the CUSD overrides and bonds, both financially and through providing information to our parents and community. CSB specifically notified the IRS that CSB would allow the members to “opt to financially support an independent political action committee supporting Chandler Unified School District bond and override special elections” and “offer independent political action committee members the opportunity to present information regarding the special elections. Information would be presented by political action committee members at member booster group meetings or at Chandler School Booster meetings or Board meetings for the purpose of educating meeting attendees about the specific details surrounding the election measures. Individual Chandler School Boosters, Inc. representatives (or alternate representatives), officers or directors may further share election measure information and promote support amongst other parents and guardians of students attending district schools.” Remember, this does not allow us to push a specific political candidate.
- STICK TO YOUR PURPOSE – this 501(c)(3) is specifically organized to support our schools and students. The funds raised by our organization are required to be used for that purpose. Spending funds raised for another purpose, even another charitable purpose, is prohibited. Therefore, the funds you raised need to be used for your students, club, or school.
- PERSONAL BENEFIT IS PROHIBITED – a conflict of interest may arise when PTOs or Boosters allow shareholders, board members, or other “insiders” to receive personal benefits from your fundraising. Therefore, be very careful about spending fundraising dollars on activities that pay for board members participation in activities, as this appears self-serving and will subject the entire organization to scrutiny. So if your organization typically pays the costs for parents to chaperone overnight trips, you should make sure these payments are approved by the members of the organization (not just the board), or require parents to pay their own way. In addition, if payments are going to be made, you need to provide an opportunity for all members to be chosen to attend the activity. Limiting these types of opportunities to board members only is a conflict of interest.
- BUSINESS INCOME – the income generated from each 501(c)(3) is required to be primarily related to the activities of the organization. Keep the funds you earn related to furthering the exempt purpose of the organization, and you’ll be fine.
- TAX REPORTS – a 501(c)(3)’s tax exempt status does not eliminate the need to file regular reports and pay some taxes. CSB does not fall under any special exemption and is required to file annual and quarterly reports. In addition, it is obligated to pay certain taxes which can include employment tax, excise tax, unrelated business income tax on advertising revenue, and state and local taxes. Organization of everyone’s information, uniformity of information, and timeliness of receiving the information is vital to allowing reports to be filed as required.