Brad, I posted this to another thread before I realized this might be the better place.
I hate to dump cold water on this situation, but... The week before last I did the procedure just as was presented here. I talked to the rep at the IRS, very nice lady. She steped me through the questions and faxed me a letter with my EIN number, with a letter coming in a week or two. The next day I set up the checking account for our class, no problem. Then I set up the account with PayPal, and that's where the trouble started!!! They made a few cents deposit into the checking account to be sure I was the one handling the account. I passed that test. Then they put a charge on the credit card I attached to the account (a requirement), and I passed that test. NOW they are restricting access to our funds unless we can prove we are a registered NON-Profit organisation. I am restricted from accessing our money and am not allowed to close the account. The IRS is OK with us, the bank is OK with us, but PayPal is playing games!!! Can you help or tell me how to clean this up??

Wow... Not good... Off the top of my head I have no idea what to tell you about this. Jessica is better versed in the various PayPal scenarios so maybe she'll have something to add here. Or maybe another reader may be able to offer some advice.

Ask them if you can change your account type to something that works and doens't cause your funds to be frozen. Tell them you're just trying to plan a class reunion, and ask them how to resolve this. I'm sure you've probably done this already it sounds like, so I would say keep doing it until you get a satisfactory answer. Before you do though give Jess and anybody else a chance to chime in here, and maybe they'll have something to add.

Have you tried providing your tax exempt information from the IRS to Paypal?

If you have already done so or if that does not work the solution that other users who were not registered as a true non-profit had do was to change their status within paypal to get their funds released. Paypal offers non profits reduced rates - if your group does not qualify for that status or rate they will charge the standard business rates rather than the non-profit rates, however, they will release the funds with the change of status.

Thanks Jessica. I'll give that a try.
According to the letter I just got from the IRS, assigning the EIN number does not in itself grant tax-exempt status. There are other forms and processes to go through. I'll have to call the IRS on that. Still, PayPal sure jumped quick before giving us enough time to do anything like that, even if we really had to. I'll have to wait until monday though. Fortunately all the funds paid so far have been transfered to our bank, and we don't need our funds for a while. I'll keep you posted.

This subject has been raised a few times. I remember that someone had mentioned that the IRS agent told her she qualified as a non-profit. I am not an expert and I could be completely wrong, but I do not think a class reunion qualifies as a non-profit in and of itself. I would think that the reunion planning committee would have to a greater scope or focus than just planning a reunion every 5 or 10 years. It would seem to me that what we are is more like an association vs a tax exempt charitable organization. Below is from the IRS website describing qualifications for non-profits.

There are many types of non-profit organizations that fall under the IRS tax exemption status under section 501(c).
The questions below will help determine eligibility.
1. Are you recognized by the IRS as a:
• 501(c)(3) religious, charitable or educational organization
• 501(c)(4) promoting social welfare of the people of the community
• 501(c)(6) chambers and trade associations
• 501(c)(13) cemetery company involved in burials and general activity
• 501(e) providing cooperative services for hospitals
• 501(k) providing child care

Since schools can qualify as a non-profit, some reunions might be handled by a school sponsored Alumni Associataion which might have a non-profit status. Regardless of what type of new entity we reunion planners set-up, there are filing requirements and organization set-up reguirements. I am using my social security number on my pay pal account. I am going to consider my site as some type of Schedule C (self employed business) in order to avoid having to set up a new entity. In the end my out of pocket expenses will be more than any income since any income will be used for my reunion, so I will not have a tax liability.

my 2 cents.

I'm getting ready to set up our PayPal account soon. We have a checking account listed as a business account, and want to use the PayPal for donations. I assumed that we then would list ourselves as a business account for PayPal. Am I wrong then? Because I don't see that we would be a nonprofit and it sounds like going that route would be to much hassle.

This same thing happened to me once I set up my PayPal account. This is the email I received:

"As part of our security measures, we regularly screen activity in the PayPal system. We recently noticed an issue with your account:

In order to secure your account, we would like further information from you. We appreciate your understanding as we work to ensure account safety.

Please log in to your PayPal account to respond to this request. Be sure to log in securely by opening a new browser window and typing the PayPal URL. Once you log in, you will be asked to provide information to secure your account.

If we do not receive a response, we may have to limit access to your account. Limited access protects your account until additional security measures can be completed."

I logged into the account and responded to the request and the limited access was not lifted so I called PayPal. I explained the purpose of the business account and they lifted the limited access after speaking to me.

Hope this helps.

Take care,

Tara

We are a non-profit organization. It takes a lot of paper work and about 3 or 4 months to be approved by the IRS to be a 501c3. I tell anyone who asks me that they do not need non profit status because they will only be open for a short amount of time and there really is not much money going thru the account. Some people take the extra step of opening a corporation and getting the EIN number too. I am not an account or an lawyer but I think this is not necessary either. If someone takes responsibility for the account they can itemize the taxes and show no profit at the end. If there is a profit -which is better than a loss- I ask the years under us to give us the balance in a donation. It is not much more work to get a EIN and do it that way either but it is way too much to get a 501c3 to just run a party.
just my opinion

I screwed up when I attempted to post a response on this thread. If you're interested in the PayPal point of view of Non-Profit status and a bit more information on non-profit status in the eyes of the IRS see the thread titled
PayPal's Point of View... Right or Wrong. If you want to skip the understanding, just apply to PayPal as a service. There are steps to go through, but you can get it done. Without 501c3 status, it will never happen.
I've been through that with a 501c3 and it's not easy and certainly not worth forming a 501c3 for a Reunion unless it's a permanent charitable benevolent organization which conforms to IRS guidelines. Feel free to email me with questions, comments, no flames please.

I just went through the same thing with PayPal. I had no intention of jumping through all of the IRS hoops to become a non-profit. I provided the information that PayPay required by writing them a letter, telling them that we were a class reunion organization, intended to process a couple of hundred credit / debit transcations for the event and existed for that purpose only.

I also noted that we would like to use their service but if they weren't willing to offer their service then we just wouldn't use them. I was diplomatic in my approach but I made my point. After a couple of days I received an email indicating that our full access had been restored.

Bruce

Well, I talked to someone at PayPal and explained the situation. Appearently the problem stems from the difference between 'non-profit' and 'not for profit'. The proper selection would have been 'not for profit', but the problem is that PayPal doesn't have that selection available!? The person I talked to had me fill out and send the following email;
'When I was setting up this
account I did not see a "not for profit" choice and selected
"non-profit" by mistake. All we are doing is setting up our ## Year
high school reunion, see our web site, www.claremont##.com'
He said it would take 3-5 days to remove the restriction. In the meantime the classmates could continue buying the tickets.

I talked to an IRS agent when I was applying for our EIN and he suggested we file under 501(c)7 (social club), which is also exempt. We are having the same problems with PayPal, but will try to change our status to "services". In order to obtain a Determination Letter, you have to file an IRS Form 8718 AND pay a fee of $300.

Hey Everyone:

I just had the same thing happen. I just sent a simple email explaining the type of organization we are in within a couple of days the account was restored to full access.

I think the issue is that it is difficult to categorize our organization type.

Hope that helps,
Suzanne

How did you do yours? Our reunion is Aug 15 and we just started planning and I'm trying to figure out easiest route to get bank account and etc.