Tax Law (Questions About Taxes)/Gifts to teachers

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Question
Dear John,

There has been a Christmas fund at my children's school for years.  In the past the money was collected by the PTA (which operated under the school's EIN), the money was allocated among the teachers based on a formula developed by the parents. The formula was based on position and not seniority. So a classroom teacher got more than an aide.
In prior years the school never taxed the teachers.  Last year our PTA dissolved and the principal handled the distribution of the funds.  The school taxed the teachers, which I believe to be proper.
This year we once again have a parent led organization similar to a PTA.  I have suggested that we return to the old method, allow a group of parents to determined the allocation or spilt the money evenly between all of the staff. So that we could make the gifts non taxable to the teachers.  I have been told that this would be unethical and illegal.
Other facts - the letter to the parents is distributed by parents to the children at school.  The administration does send the parents written letter out via e-mail.  (the school can't release all the e-mail addresses to the parents, and this is the policy for all communications from room parents, coaches, etc.)  Parents can send their contribution to the parent group through school mail.  The parent group has also set up a website for credit card donations, there is a link on the school's website.

My question - can we restructure this program to be non-taxable to the teachers that will be ethical and legal?
Thanks so much
A concern parent (who happens to be a CPA)

Answer
Meredith,

Thanks for your question.

The key here is the independence of the organization.  The law is clear that if the funds come from or through the school, they are taxable.  Similarly, if the funds come from an individual given to an individual, they are not taxable.

This is somewhat in between and there is not much information on it. Several points here. 1. The organization is not the employer, so it is not additional compensation. 2. The monies cannot be kept in a school-controlled account. 3. The funds cannot be disbursed by the school. 4. The school can have absolutely no control over the organization. 5.In short, the school can have nothing to do with the money, or how it is handled.  

You state is is an organization similar to a PTA.  If the organization has no regional or national affiliation, but is totally independent, you do not have to worry about organizational restrictions.  I know there are certain things a PTA cannot do.

I am somewhat concerned at the school's involvement in the letter to the parents and that the contributions come through school mail.  I think these are critical issues that must be overcome in order to make it legal, ethical, and tax-free.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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