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I'm representing a PTO. We need to know how to record

I'm representing a PTO. We...
I'm representing a PTO. We need to know how to record information to maintain our exempt status for a particular special event. We would like to do a prom dress sale in January in the High School Gym. It may become an annual event. It will all be done with a volunteer staff. The public is encouraged to bring in their gentle used dresses for resale. We would like to charge a $5 entry fee to display the dress and if the dress sells get a 10% commission for the PTO and 90% going back to the individual. The PTO proceed go to the After Prom Event we hold for the students each year. Is this unrelated business income? What are the IRS tax implication and requirements necessary to stay compliant.
JA: The Expert will know how to help. Is there anything else important you think the Expert should know?
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Customer: Understand. What will I have to pay when I get the answer? No need to submit the question to the experts. If the PTO cannot afford the answer.
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Answered in 19 minutes by:
9/25/2017
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 4,437
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

For most organizations, an activity is an unrelated business (and subject to unrelated business income tax) if it meets three requirements:

https://www.irs.gov/charities-non-profits/unrelated-business-income-defined

Based on the information you provided, it does not appear that the prom dress sale will be considered unrelated business income.

Please let me know if I can assist you further. If I have answered your question, please take a moment to rate my answer since that is the only way I receive credit for answering you.

Thank you and best regards,

Barb

  1. It is a trade or business,

  2. It is regularly carried on, and

  3. It is not substantially related to furthering the exempt purpose of the organization.

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Customer reply replied 3 months ago
that I understand why it's not a ubi, I assume it's because we only do it once a year and do not compete against any other business? My concern is with individuals with the public possibility benefiting personal. Most resale dress earn less than the original price. Do we need to be concerned if a person should profit (sell a dress greater than the original price)? Could it be considered an income or fringe benefit for the individual? If so, do we have to report that in any way? If the answer is that we don't have to report anything, please explain why. Thanks for your help. We had too many opinions & need good answers...��
Customer reply replied 3 months ago
Sorry not in a good place now for a phone call now. Sorry

The offer of a phone call is system generated by Just Answer not by me. You can ignore it.

You asked about UBI for your PTO, and the information you provided would indicate that the prom dress sale will not be considered as unrelated business income because it does not meet the three requirements as outlined by the IRS.

You would report the payment to the individual as an expense of the PTO. The individual is responsible for reporting her own income.

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Customer reply replied 3 months ago
Ok, good. That helps & helps me to explain it to the rest of the group when we meet next week. Greatly appreciate the answers! Thank you! Enjoy the rest of your day!

My pleasure.

Please take a moment to rate my answer since that is the only way I receive credit for answering you.

Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 4,437
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
Verified
Barbara and 87 other Tax Specialists are ready to help you
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Thank you for the positive rating of my answer and VERY GENEROUS BONUS. Both are very much appreciated!

Please let me know if I can assist you in the future.

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Barbara
Barbara
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Category: Tax
Satisfied Customers: 4,437
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