LEGAL AND TAX ASPECTS OF PTA NOTES

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LEGAL AND TAX ASPECTS OF PTA NOTES 1. PTA as a Nonprofit Organization (ERIKA) California Corporations Code Section 5000 if the primary purpose of the businesses is for charitable reasons can apply for an exemption from federal and state taxes o Internal Revenue Code Section 501(c)(3) governs the federal tax requirements for charities and nonprofit o register with the California secretary of state and o the California Franchise Tax Board o with the Internal Revenue Service 2. PTA as a Public Charity (MARILYN) organized and operated for charitable purposes limited legislative activity no political activity not more than incidental private benefit no private inurement 3. PTA as a Noncommercial Organization (MARILYN) do not make a qualitative judgment do not include comparative language do not permit the sponsor to write the acknowledgment of thanks do not ask your members or the public to buy the products or services of the sponsor do not advertise a product or service do not endorse a product or service Permissible Activities Give the corporate sponsor an acknowledgment of thanks in return for the donation. Identify the sponsor s name, a picture of their product, an address, phone number, web page. Include the logo or slogan of the sponsor for example: Ford, Where Quality is Job One or Ford, Makers of Lincoln Mark VII Provide free product samples. Specific Sponsorship Contracts PTA may agree to an exclusive sponsorship PTA may receive payments structured as royalties PTA may not enter into a partnership (share of NET PROFITS) of a business PTA may provide a hypertext link to a sponsor; do not endorse 4. PTA as a Tax-Exempt Organization (CHERYL; ERIKA) the Internal Revenue Service the California State Franchise Tax Board 5. PTA Funding and Revenue (MARILYN) Unrelated Business Income Taxation (UBIT) o sales profits from business income: 1) related exempt; 2) unrelated taxable o receipt of advertising income is taxable o four ways to avoid UBIT from sales activities at your local PTA sell donated merchandise substantially all help is donated activity is not a regularly carried on trade or business 2014 California State PTA Convention #102 Page 1 of 3

in furtherance of PTA s exempt purpose (help children mature: confidence, skills, scouting) Qualified Corporate Sponsorships o Acceptable Acknowledgments (Good Word) o Unacceptable Advertising (Bad Word) Gambling o allows certain gaming for nonprofits that are exempt under sections 23701(a)(b)(d)(e)(f)(g)(k) or (w); PTA is 23701d o register annually with the Division of Gambling Control o pay a registration fee of up to $100 o only one fundraiser per calendar year o no more than five (5) hours in duration o only four (4) events per location o prohibits cash prizes or wagers from being awarded to participants o winners may be entitled to a donated prize o individual prizes must not exceed a cash value of $500 o total value of prizes awarded must not exceed a cash value of $5,000 o at least 90% of the revenue to go directly to the eligible nonprofit organization Alcohol o Alcohol and public schools o Alcohol at a non-school location o Auctioning donated bottles of wine o Use of PTA funds for alcohol SCRIP o generally not deductible Professional fundraising organizations 6. PTA Responsibilities to Donors (MARILYN) The Pension Protection Act of 2006: o substantiation of a contributions received o record-keeping requirements for donors o notification requirement for tax-exempt organizations charitable deductions are claimed by donors on their individual tax returns (IRS Form 1040) PTA must comply with any substantiation and documentation requirements never give a donor specific legal or tax advice on donations misleading: "your contribution is tax deductible" state that your nonprofit is a Section 501(c)3 nonprofit and their gift may qualify as a charitable deduction for federal income tax purposes 7. PTA as an Employer (MARILYN; TIM) Anytime PTA pays a person rather than a business there are important considerations and legal requirements. a. Paying for a School Staff Position (TIM) o Gift the designated funds to the school district. o Complete and sign a Fiduciary Agreement form. o Form signers include the president, treasurer, principal and school district administration. o Fiduciary Agreement form 2014 California State PTA Convention #102 Page 2 of 3

b. Employee V. Independent Contractor (TIM) o Federal and state laws define workers as either employees or independent contractors. o Employment tax requirements are different for each of the two categories of workers. o Levels of control and independence are important factors. o The IRS, U.S. Department of Labor, and State of California EDD websites provide guidance for determining whether a worker is an employee or independent contractor. c. Paying Independent Contractors (TIM) o Request IRS Form W-9 and a Certificate of Insurance from the worker. o Pay for Workers Compensation Insurance if needed. o Report payments of $600 or more to the IRS using IRS Form 1099-MISC. o Send Forms 1099-MISC and 1096 together. o Report payments of $600 or more to State of California EDD using EDD Form DE-542. d. Paying Employees State Requirements (MARILYN) o Register with the State of California Employment Development Department (EDD) within 15 days. EDD will send the newly-registered PTA an eight-digit employer account number as well as a New Employer Packet. o Report new employees to the New Employee Registry within twenty (20) days of employee s start-of-work date. o Withhold from employee pay Personal Income Tax (PIT) and State Disability Insurance (SDI) o Pay Employment Training Tax (ETT) and Unemployment Insurance (UI). o Employment Tax payments must be submitted to the EDD with a completed Payroll Tax Deposit form. o File Quarterly Contribution Return and Report of Wages (DE 9) form. e. Paying Employees Federal (MARILY) o Withhold Federal Income Tax, SSI and Medicare from employee pay o Deposit Federal Income Tax, SSI and Medicare with IRS electronic deposit is required. o File Quarterly Federal Tax Return with the IRS (Form 941) o Send Wage and Tax Statement to each employee (Form W-2 and W-3) 8. PTA and Schools (TIM) PTA must abide by the school or district s vendor policy Facilities Use Hold Harmless Gifts to Schools and Fiduciary Responsibility o PTA members must approve the expenditure with a motion and vote at a general meeting of the membership o record in the association minutes of the meeting o funds cannot be committed from one year to the next o benefit the largest number of students possible o significant gifts should be in the form of a donation, presented and accepted by the school board at a school board meeting and recorded in the school board minutes o at the next PTA meeting report the school board s acceptance; record in Minutes 9. Insurance and Loss Prevention (KATHY) PTA s coverage Risk and Loss Prevention Incident reporting 2014 California State PTA Convention #102 Page 3 of 3

Legal and Tax Aspects of PTA 1 Workshop Agenda Part 1: PTA as a Nonprofit Organization Part 2: PTA as a Public Charity Part 3: PTA as a Noncommercial Org. Part 4: PTA as an Exempt Organization Part 5: PTA Funding and Revenue 2 Workshop Agenda Part 6: PTA Responsibilities to Donors Part 7: PTA as an Employer Part 8: PTA and Schools Part 9: PTA Insurance & Loss Prevention 3 2014 California State PTA Convention Fundrai$ing Fundamental$ 1

Part 1 PTA as a Nonprofit Organization Part 2 PTA as a Public Charity Part 3 PTA as a Noncommercial Org. 2014 California State PTA Convention Fundrai$ing Fundamental$ 2

Part 4 PTA as an Exempt Organization Part 5 PTA Funding and Revenue Part 6 PTA Responsibilities to Donors 2014 California State PTA Convention Fundrai$ing Fundamental$ 3

Part 7 PTA as an Employer Part 8 PTA and Schools Part 9 Insurance and Loss Prevention 2014 California State PTA Convention Fundrai$ing Fundamental$ 4

END 2014 California State PTA Convention Fundrai$ing Fundamental$ 5