Legal Question in Education Law in California

The rules can be a bit dicey with private schools with a church affiliation. I supposed that your school is incorporated in California as a non-profit and the PTO is simply ancillary to the school. If so, then the church/school will be accountable for the proper use of money that is raised by the PTO. Uses outside the scope of articles of incorporation and the legal limitations on the use of funds imposed by both the federal and state government on nonprofits are prohibited. (If the PTO is a separate non-profit entity, then the church cannot use these funds without PTO approval. I mention this because I have administered nonprofits with separate fund raising entities.) It sound to me as if you have a difference of opinion about how these funds are being used. You will need to address this internally within your church, unless there are violations of law. In that case, you may have a duty to raise this with the IRS and state government.

Even I can't follow Harrell's answer, so I write to clarify. If the PTO is using the church's tax ID and non-profit status to raise funds, they belong to the church. If the PTO wants to control the use of the funds it needs to become its own independent 501c(3) organization with its own tax ID.