Saturday, September 22, 2012

Donating to Another 501(c)3

Some members of our local unit’s board of directors would like to donate $500 to another advocacy organization whose activities include endorsing candidates for public office.  Is this something we can do without jeopardizing our 501(c)(3) tax exempt status?  If not, how is this different from donating to a levy or bond campaign?
The first step with respect to any proposed expenditure is to review the PTA’s 1023—the form that was submitted to the IRS to obtain the PTA’s tax exempt status.  If the 1023 does not include making donations to other groups as one of its purposes, the form should be updated before any such donations are made. 

The next step is be to review the PTA’s budget and make sure the expenditure is consistent with the budget, i.e. is there a line item for the expenditure or is it within the discretion of the board under the language of the budget or the PTA’s standing rules. 

Finally, you must consider whether there are legal or practical implications to the proposal.  In the case of the donation you described, both the federal tax code (with respect to 501(c)(3) organizations) and the WSPTA Uniform Bylaws prohibit the PTA from supporting candidates for public office.  In order to be consistent with those limitations, the PTA would be satisfied that the receiving organization could keep the donated funds separate from those that are used to support candidates for public office.  

With respect to bond and levy elections, PTAs can support or oppose ballot propositions (as opposed to candidates).  However, such support constitutes lobbying and as a 501(c)(3) organization your PTA can only devote an insubstantial part of your resources to such activities.   If the PTA has filed the Section 501(h) election with the IRS, its compliance with the “insubstantial” limit can be measured based solely on the amount of the contribution, using a formula that allows up to twenty (20%) percent of the first $500,000 of revenue to be expended on lobbying.  On the other hand, PTAs that have not filed the 501(h) election must limit lobbying expenditures to between 3 and 5 per cent and the PTA’s resources, including both financial resources and volunteer time spent on behalf of the PTA.