LK Education Bulletin

School Directors hoping for significant relief or delays in implementing the provisions of the SSOFAA will view the recent enactment of three amendments as a cup half full. Most notably the amendments do clarify that a school support organization does not need to become a 501(c)(3) organization pursuant to IRS regulations but can be a state chartered not-for-profit entity.

LK Observation: The appeal of not becoming a 501(c)(3) organization is it avoids the initial cost and effort in filing and receiving this designation by the IRS and avoids the recurring annual reporting. However, the burden of not becoming a 501(c)(3) needs to be evaluated both in terms of its impact on those who the funds are raised from and the future impact on the organization. By not becoming a 501(c)(3) entity the individual making the contribution cannot receive a Federal Tax deduction. This may become a limiting factor in receiving donor contributions in the future.

Amendments reiterate that the Act takes full effect July 1, 2008.

Cooperative agreements including the use of school facilities for fundraising purposes by an SSO must be approved by the local board of education.

The SSO Act retained the section that required the director of schools or his/her designee to approve a fundraising activity prior to the activity taking place. However, a new sentence was added that made clear that this approval does not make the fundraising activity a “school-sponsored activity.”

The SSO must file a statement of total revenues and disbursements before the end of the school year.

The statements and records that must be retained by the SSO for four years, must be available upon request by any member of the organization, principal, director of schools, or the director’s designee, or the office of the comptroller of the treasury.

LK Observation: A SSO needs to retain, at a minimum, the following items for four years: detailed statements of receipts and disbursements, minutes of any meetings, a copy of the charter, bylaws and documentation of its recognition as a nonprofit organization.

One issue we have found in working with School Support Organizations (SSOs) seeking compliance with the state of Tennessee's new accountability regulations is the issue of separate bank accounts for the various clubs included within the organization umbrella.  In the past clubs such as the band and football/basketball boosters have most likely maintained their own separate bank accounts with separate EIN numbers.  An EIN (Employee Identification Number) number is obtained from the IRS by filing a form SS4 and is now required by most banks to open a bank account.  The IRS uses the EIN number as a tax return tracking number.  Where a SSO is seeking to form a single umbrella entity to serve as the consolidating reporting entity for a group of clubs within a geographic school district or area we believe the best practice will be to have all bank accounts opened and maintained using one EIN number.  Using multiple EIN numbers may trigger additional tax filing requirements from IRS.  Using one prevents this confusion and complexity yet still allows the organization the ability to have multiple bank accounts for each of the clubs within the umbrella group should it so choose.  Those bank accounts opened and existing prior to the formation and securing of the umbrella organization's EIN should be re-opened using the new umbrella EIN number.  The accounts can remain under the control of the clubs but proper record keeping and controls should be established so their activities can be included in the umbrella organization for its consolidated IRS reporting.

Some Frequently Asked Questions from Our SSO Presentations

1. Is there not legislation currently underway to amend the reach of the SSO Act?

Three separate bills have been introduced in the House but none have made it to Committee level. These bills seek to set a threshold for fund raising before a school support organization would become subject to the requirements of the Act. Given the short time frame before this law becomes fully effective on July 1, 2008 and the uncertainty as to whether or not such amendments will take place, we believe the best practice is to move forward with those steps necessary to formalize the organizational structure with the state and IRS if appropriate.

2. Does registration and compliance with the SSO Act mean we are exempt from Tennessee Sales Tax?

No. These are two different laws. A school support organization must be compliant with provisions of the SSO Act and must receive exempt status from the state for any Tennessee sales and use tax. Exempt status is obtained by filing an Application for Exemption with the Tennessee Department of Revenue and receiving notification from the state that exempt status has been granted. A copy of the Application can be downloaded for use by going to Helpful Information: IRS and TN State section of this site.

3. Are there disadvantages in organizing as a state registered non-profit organization versus a state chartered organization with 501(c)(3) IRS status?

For contributors to be entitled to a tax deduction on their Federal Income Tax Return their contributions must be to organizations that have been granted non-exempt status with the IRS and for most such entities that means becoming a 501(c)(3) registrant.

Chuck Cagle, Lewis King's Education Practice Leader announced to School Directors across Tennessee an upcoming presentation on Tennessee's new School Support Organization Financial Accountability Act. Most school support organizations that raise money through the solicitation of donations or raffles are subject to this regulation. This 30 minute event which will include a 20 minute slide presentation with 10 minutes for questions and will be conducted over the internet using WebEx. We hope this flexible format will accommodate and encourages wide participation. Key points that will be discussed will include, among others, the following:

§ Charitable fund raising groups may need to be organized as non-profit organizations

§ Will need to file annual state fund raising activity reports

§ Enhanced internal record keeping

§ State compliance may trigger new or additional reporting with the Internal Revenue Service

Presenters will include in addition to Chuck, Isaac Conner and Joe Ballard, Associate lawyers with Lewis King as well as Bill Pinkston, CPA with Pinkston and Associates in Knoxville, TN. This presentation will be offered at three different times in February 2008 as follows:

At Lewis King we are committed to our local communities and are pleased to offer what we believe will be an informative and helpful sharing of information relevant to this new act.