Should your homeschool group be a 501c7 social club?

Your website has been very helpful, but I would like to ask you some questions.  Now that we have the EIN are we required to file for any type of status? Are we going to have to fill out any IRS forms yearly or be responsible for any tax payments?

Also, when I applied for the EIN I listed us as a social organization because I thought that described our group better than the other choices since we only meet so that our families can socialize and enjoy activities together; was that an accurate description or do homeschool groups classify as something else? Any insight you have on our situation would be much appreciated.

Sincerely,

Catherine R in  Alabama

EINs and individual information

Usually HomeschoolCPA is asked questions by homeschool organizations, but this question comes from a school-related organization like a PTA.

I am a member of a school organization in PA.  We are being told by our district that in order to operate in the school we must have our own EIN number.  Previously we had been using the district’s.  Obtaining the EIN number seems easy enough.  There is only one problem.  We are apprehensive about using anyone of our personal social security numbers in order to obtain it.  What about when the group’s president changes, do we then need to refile for a new EIN with a different social security number?  Is the person who requests the EIN number with their social security number under any obligation to the IRS?

Schannon in PA

Schannon,
These two blog entries should answer your question:

Will Getting an EIN Put Us on the IRS Radar?
New EIN for New Officers?

I hope that helps!

Carol Topp, CPA

Banker wants IRS letter to open a checking account

Hi Carol,

At your leader meeting a few months back, you had recommended that all of our groups have the same EIN number.  When a group leader tried to change their account to one using our EIN, the banker wanted a copy of our original letter from the IRS.   I told the banker that we have never had to provide anything except a letter from me (one who obtained the number in 2002) and the EIN number which we provided.  He said it was just a personal preference of his.  Have you heard of this?  I am uncomfortable doing more than what is usually required and providing personal paperwork to him.  Am I being unreasonable, or do you think it is okay to provide it?   Thanks for any insight.

Debi in Indiana

Debi,

I’m with you-the banker should not need an IRS determination letter (I assume that’s what’s he is talking about) to open a nonprofit checking account. Many nonprofits never get a tax exempt determination letter from the IRS because they remain very small.

Don’t believe the banker if he says an IRS 501c3 determination letter is required to open a checking account (fortunately he said it was his personal preference).  I once had a bank teller  tell me that nonprofits couldn’t earn interest on their savings accounts because they were nonprofit!  She was greatly mistaken. Bankers don’t always know what they are talking about (outside of banking…)

Carol Topp, CPA

Debi followed up my reply with the following

I think there is some confusion on what the bank manager is asking for.

I don’t think he is asking for us to prove that we are a 501c3 non-profit as recognized by the IRS. I think that all he wants is a copy of the letter from the Department of the Treasury that assigned us the EIN number. He probably doesn’t even know the right terms for what he is asking.

Yes, I think you are correct.  The banker may have only been asking for the EIN paper from the IRS, not a 501c3 determination letter.
I guess he’s being careful about getting the EIN correctly from the IRS letter itself.  I can’t blame him for that.

Carol Topp, CPA

Getting an EIN (Employer Identification Number)

Hi Carol,

I am new to an existing homeschool co-op in VA. This co-op is more than 12-15 years old. We do not accept donations or need to; so far we have been handling the money through someone’s personal bank account. We receive fees from students and then pay teachers and reimburse them for materials, generally we break even each year (or can if we need to). There are regular Board meetings; I do not know if they have bylaws or take minutes but I do know they have a mission statement. The bottom line is that we want to be able to have a business checking account.

Can we get an EIN in order to open a checking account in our co-op name without incorporating and without having a state or federal annual filing requirement? I seem to remember that once you get an EIN (that I think is required for a business bank account), you are on the radar screen with the IRS and will need to file some sort of return.

Thanks so much

Nancy V in VA

Nancy,

Usually the first contact a homeschool organization has with the IRS is getting an Employer Identification Number (EIN). Most banks now request an EIN when a group opens a checking account. Your group is doing things right by getting a checking account for their co-op instead of using a personal account.

On my website, www.HomeschoolCPA.com you can read my article Getting an EIN from the IRS.

Yes, you can get an EIN for banking purposes, but not have any other dealings with the IRS. You do not have to be a nonprofit corporation to obtain an EIN. If your organization does incorporate later, they will need to apply for a new EIN.

You will deal with the IRS if you become a 501(c)(3) tax exempt organization or pay workers. Since you mentioned that you are paying teachers, then you have required reporting to the IRS and to your state. You will have to pay payroll taxes (Social Security and Medicare) and file a W-2 if they are employees or file a 1099MISC if they are independent contractors. You should read this entry: “Paying co-op teachers is a sticky issue.”

Best of success to you!

Carol Topp, CPA

Checking accounts and EINs for homeschool groups

Carol,

We have always had a checking account under a parent’s name. We were adding a name to our account this year when (the bank) informed us we can no longer do this and we need to have our own Tax ID number. Will we need to file returns with the IRS if we get a tax ID number?

I strongly discourage using a parent’s name on an organization’s checking account. The organization should have a checking account in its own name and use an Employer Identification Number (EIN), not an individual’s social security number.

Getting an EIN from the IRS does not necessarily mean your organization will have to report income to the IRS. If you are a small nonprofit organization with annual gross revenues under $5,000, there are usually no reporting requirements to the IRS at all.

Nonprofits have to start filing tax forms when they

• bring in more than $5,000 a year
• become a 501(c)(3) tax exempt organization
• do public solicitations (i.e. door-to-door selling or fund raising)
• pay workers either as employees or independent contractors

If you hire and pay workers, your organization will use the EIN to file either 1099MISC or W-2 forms for each worker.

Read more about hiring and paying workers in my ebook, Money Management for Homeschool Organizations here

Carol Topp, CPA

How to register a legal and DBA name

Hi Carol,
We have just started a homeschooling co-op this year and have already received an EIN and opened a checking account. We are the R__ville Homeschool Educational Organization, which is quite a mouthful. We are known as “D____ Academy” and would like our members to be able to write checks out to D___ Academy and have that printed on our checks.
However, when we opened our account the bank would not allow us to put D___ Academy on the checking account even though our EIN paperwork showed that our DBA was D___ Academy. We were told we needed to file for a fictitious business name. I’ve tried to do some research as to what is required to do this for our county (as it appears that is who this is filed through). However, it has just confused me more and makes me wonder if there are other filings that we need to be doing such as a business license with the county or city.
I’m trying to determine if I am on the right track or if I’m just getting worried over nothing. I want to ensure we get things set up properly so we don’t have issues later.
Any advice or guidance you may have would be much appreciated.
Angela S

Angela,

Sorry it seemed so difficult to open a simple checking account.

The bank is correct.  You should file for a fictitious business name.  Here in Ohio it is done at the state level, not the county level.  You didn’t mention what state you are in, so I can’t help much.  I had to file a one page form with Ohio’s Secretary of State (and pay $50; Ohio is a high tax state!) to register the name HomeschoolCPA as belonging to me, Carol Topp, CPA. My checking account only says Carol Topp, CPA.  But now if someone writes a check to Homeschool CPA, I can deposit it into Carol Topp, CPA’s checking account.

There are at least 2 reasons for filing a DBA or fictitious name:

1. The citizens of your state are entitled to know who owns a business (or in your case, who runs a nonprofit  organization).  This protects us as consumers from getting ripped off.  A business owner cannot hide behind his business name.  Every business must be tied to a person or group of people.

2. The bank is also protecting its customers.  If someone found a check made out to D___ Academy, but wanted it to be deposited into Joe’s Bakery’s checking account, the bank would be suspicious that someone had stolen the D___ Academy check.

Unfortunately, the EIN is an IRS document and very easy to get, so the bank won’t put any merit in the EIN application.  The state DBA or fictitious name filing usually comes with an affidavit or some type of certificate (I got one from Ohio when I filed).

I understand your concern over other filings. It’s not easy figuring out what to do and what you might be missing.  In general you need a business license if your state requires it for your profession such as Barbers, Attorneys, Doctors, Dentists, Contractors, Insurance Brokers, Opticians, Veterinarians.  For example, as a CPA I am licensed in Ohio. Nonprofit groups do not usually need a business license.

Nonprofit organizations may need a vendors license if they are selling merchandise and then they may owe sales tax too.  It varies by each state. For example, here in Ohio we can sell merchandise 4 days a year and not have to collect sales tax. In Indiana, they can sell 30 days a year and not bother with collecting sales tax.

This website is very helpful for determining the nonprofit requirements by state: Hurwit Associates Nonprofit Library
Use the State-by-State Filings on the left column.

I hope that helps!
Carol Topp, CPA

New EIN for New Officers?

Does your group need a new Employer Identification Number (EIN) when there are new officers?

Hi Carol,

Thanks to your wonderful services in the past we have gone from a ministry under a church to an informal non profit support group within the community. Thanks so much for what you do for homeschool groups!

I was just reading through the list of FAQ’s and have one that has a little twist to what is already there about EIN’s so I thought I would run it past you.

As the current director (board leader), I had been the person to apply for the EIN for our group. I am nearing my finish on the board and we will have new board leaders. Do we have to have a new EIN issued? I know this current one was opened with my name as the responsible party, so I don’t know if that would “tie” me to the non profit for any thing down the road if I am no longer on the board?

Thanks so much for your help and/or direction.

Blessings,

Shawna B, CA

Shawna,
Thank you for your kind words. It was my pleasure.

You do not have to apply for a new EIN just because of a switch in officers. Nonprofits change leadership frequently.

If you are a 501c3 tax exempt organization with more than $25,000 in gross revenue annually, you should be filing the annual Form 990 with the IRS. On the Form 990, you list the new officers’ names.

If your organization makes less than $25,000 per year then you should be filing the 990N, an electronic postcard, with the IRS. The 990N requests only the name of the “principle officer” not the entire board.

Carol Topp, CPA

Will getting an EIN put us on the IRS radar?

Usually the first contact a homeschool organization has with the IRS is getting an Employer Identification Number (EIN). Most banks now request an EIN when a group opens a checking account. One group in Virginia is doing things right by getting a checking account for their homeschool co-op instead of using a personal account, but they wonder if this will mean more contact with the IRS.

Hi Carol,

I am new to an existing homeschool co-op in VA. Tomorrow morning we are meeting to discuss our options as it relates to becoming a more formal organization. I want to be able to advise them as to their options on this.

This co-op is more then 12-15 years old, we do not accept donations or need to, so far we have been handling the money through someone’s personal bank account, we receive fees from students and then pay teachers and reimburse them for materials, generally we break even each year (or can if we need to), there are regular Board meetings, I do not know if they have bylaws or take minutes but I do know they have a mission statement. The bottom line is that we want to be able to have a business checking account.

Can we get an EIN in order to open a checking account in our co-op name without incorporating and without having a state or federal annual filing requirement? I seem to remember that once you get an EIN (that I think is required for a business bank account), you are on the radar screen with the IRS and will need to file some sort of return.

Thanks so much

Nancy in VA

Nancy,

Yes, you can get an EIN for banking purposes, but not have any other dealings with your state or the IRS. Our homeschool co-op did it. We had an EIN and operated for 5 years with no contact from the state or IRS. We just recently decided to become a nonprofit corporation in our state. This chart might be helpful for your board Common Nonprofit Types
You will deal with the IRS if you become a 501c3 tax exempt organization or pay workers.

BTW, I will caution you that if you are paying teachers, then you do have some reporting to the IRS and your state government. You will have to pay payroll tax (Social Security and Medicare) and file a W-2 if they are employees or file a 1099MISC if they are independent contractors. You should read this blog entry: Paying co-op teachers is a sticky issue

Best of success to you!

Carol Topp, CPA