Nonprofit Law/Question of
The PTO had a meeting to fund a student academic club that competes in competitions. These kids won their regional event and were advancing to nationals. There was a big up raw on funding and one parent stated that if they funded the trip for these students that they could lose their Non Profit 501c3 status.
The PTO originally wanted to reimburse each of the 7 students $200.00 each. The school district already gave them $285 each. But the school district also mandated that one parent for each student also had to attend. Those parents wanted assistance from the PTO.
I agree what funding the parents would not have been the right call, and would have been an issue. But with the threat of loosing the 501c3 status lead the ground to vote against the $200 per child, so now they get nothing.
So my question for you if you would not mind, would be as follows:
Would the PTO have been in jeopardy of losing their status if they would have voted to fund $200 for each of those 7 students?
I thank you in advance for all you do to volunteer your time.
The IRS rule for what nonprofits may spend money on is similar to
the standard that the IRS uses when determining what is a valid
business expense for an ordinary business. For example, at
the IRS refers
extensively to the regular business expense rules and applies them
to 501(c)(3) organizations. On page 32 we see "Reimbursements are
technically covered by Regs. 1.62-2. However, for administrative
purposes, all TE/GE [Tax Exempt & Government Entities Division]
administrative personnel will treat reimbursements of a business
expense the same as if the expense were paid directly by the
employer, as long as the employee complies with the substantiation
on page 3, under "What Can I Deduct":
--start of excerpt ---
To be deductible, a business expense must be
both ordinary and necessary. An ordinary ex-
pense is one that is common and accepted in
your industry. A necessary expense is one that
is helpful and appropriate for your trade or busi-
ness. An expense does not have to be indispen-
sable to be considered necessary.
--end of excerpt ---
Giving the students each $200 is not a problem as long as along with the $285, that total of $485 is accounted for in a proper way. In fact, because the school district mandated that one parent must go with each student, the funding of the parent's expenses is also valid.
See page 41 of IRS Publication 535 at
starting in the first
column under the heading "Accountable Plans" which the organization
must have. That section is written for employees but also applies
See the section under "Volunteer Officers/Workers" at
which is written specifically for Exempt Organizations and refers
to that Publication 535.
---Start of Excerpt--
A plan under which an employee or volunteer is reimbursed for
expenses or receives an allowance to cover expenses is an
accountable plan only if:
* There is a business connection for the expenses;
* The employee/volunteer adequately accounts for these
expenses within a reasonable period of time; and
* The employee/volunteer returns any amounts of excess
expenses within a reasonable period of time.
---End of Excerpt--
Details follow on from that page 41 of Publication 535.
Attorney at Law
P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.