A Briefing on Our Tax Exemption Issues

April 15, 2022

EDIT 9/21/2022: Our tax-exemption has been reinstated.

Summary #

The IRS revoked Abingdon Elementary PTA’s tax exemption years ago. Despite efforts by previous PTA officers, the tax exemption has not been reinstated. However, we believe we are close to having the issue resolved, and we hope to have it reinstated in autumn or winter 2022-2023.

Background #

Every PTA is required to file a Form 990 with the IRS annually. The IRS uses the Form 990 to gather information about tax exempt organizations, including PTA’s. However, Abingdon PTA did not file Form 990’s two years in a row (or they were lost in the mail, or IRS misplaced them). As a result, the IRS revoked the PTA’s tax exempt status, which they are required to do by Internal Revenue Code section 6033(j).

It is not clear when the tax exemption was revoked. The IRS website claims it was revoked in 2010, however the IRS accepted our Form 990 as recently as 2015, which indicates that they believed the PTA was tax exempt at that time. The PTA learned of the issue in 2017 upon receiving a revocation letter from the IRS.

Effect #

This means that any revenue brought in by the PTA after the revocation is potentially subject to taxation. It also meant that contributions by businesses and individuals to the PTA were not tax-deductible.

Attempted resolutions #

Attempts to resolve the issue between 2017 and 2021 were not successful. On January 22, 2022, the PTA filed a Form 1023 with the IRS, which is an application for (re)-recognition of a tax exemption. Unfortunately, the IRS has a backlog of about nine months for reviewing this type of form. As a result, the IRS will likely not begin to review our application until late October 2022 at the earliest.

What this means for us #

The good news is that if our application is approved, our tax exempt status will be reinstated retroactive to the date of our application — January 22, 2022. We believe our application will be approved, and that fundraising conducted from this point forward will not be subject to taxation.

However, the IRS may require us to pay taxes on our income between the revocation and the reinstatement. We don’t know whether this will happen, how much the IRS would ask of us, or whether we could dispute such a bill.

Additionally, we are limited in our ability to funds from businesses until our tax exemption is formally approved by the IRS. Businesses typically expect that their contributions to PTA’s will be tax-deductible; their bottom line may depend on it. For that reason, most businesses explicitly require that the PTA have a tax exemption before working with us on fundraising. We can only partner with businesses who do not mind that their contributions may not be tax-exempt.

We look forward to resuming full fundraising activities as soon as our tax exemption is formally approved by the IRS. We will keep our membership updated on the status of our application.