Homeschool co-op gives “scholarships.” What are the tax liabilities?

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I am curious how a scholarship for a family works in terms of tax liability in an all volunteer co-op with no payment to teachers, board members, etc. Each family pays a membership fee which covers expenses for family events, insurance, state filing fees, etc.

For example, family A donates the amount of a family membership to the organization. The board notices that Family B is out of work and therefore credits the amount paid by Family A to Family B’s registration fees. Family B still pays things like class fees, but the annual registration was not paid by Family B.

What duty does the co-op have in terms of tax liability for itself and are there any potential pitfalls to be aware of?
Marisa

Marisa,

Your organization does not have to give the recipient of a benevolent gift any documentation. Some homeschool organization call this gift a tuition discount or a “scholarship.”  Read here why I don’t like the word scholarship when you are really giving a needy family a tuition discount.

The donor can be given a receipt for their donation. Taxpayers must have a receipt if the donation is more than $250, so frequently charitable organizations give every donor a receipt (an email is OK). Be sure to include the statement that “No goods or services were received in exchange for this contribution.”

The IRS requires 501c3 organizations filing a Form 990 with a total of more than $5,000/year in grants or assistance to individuals to keep a record of the amounts and purpose of the grants. These records are submitted to the IRS on Form 990 Schedule I. These records are not reported to the IRS if your organization files a 990-EZ or 990-N. In other words, only large charities (more than $200,000 in annual revenues) report information on the grants to individuals. The names of the individuals are not given to the IRS, just the amount and purpose of the assistance.

IRS Publication 4221PC has guidelines to follow regarding charitable gifts and record keeping.
It’s kind of a dry publication, but very important. The IRS used to mail Pub 4221 with your letter approving 501c3 status, but stopped doing that several years ago to save printing costs. It’s such an important publication that I recommend treasurers read it regularly, maybe once a year. Find it online here: https://www.irs.gov/pub/irs-pdf/p4221pc.pdf

Hope that helps,

Carol Topp, CPA

My podcast The Dollars and Sense Show is on hiatus.

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My podcast  The Dollars and Sense Show is on hiatus.

Basically, I got too busy helping homeschool organizations, caring for family (including a 25 year old daughter with a broken leg!) and recovering from 3 surgeries in the past 12 months. Something had to go, so it was new podcast episodes.

But, hey, the previous podcasts episodes are all still available.

Podcasts never die, they just go on a break! 🙂

The podcast is part of the Ultimate Homeschool Radio Network where you will find over a dozen podcasts for homeschoolers by homeschoolers!

 

Recent shows of interest to homeschool leaders:

Episode #5   Ever thought about starting a homeschool organization? Starting a nonprofit homeschool group.

Starting a nonprofit homeschool group correctly
Starting a nonprofit homeschool group correctly
Starting a nonprofit homeschool group correctly

Episode #6  What is tax exemption and how do I get it for my homeschool organization?

Episode #17  Paying workers in a homeschool organization Part 1 Volunteers, employees and independent contractors

Episode #18 Paying workers in a homeschool organization Part 2 Forms to file with the IRS

Episode #30 Easy fundraisers for homeschool groups

Episode #36 Required IRS reports for homeschool groups

Episode #37 Has your homeschool group lost its tax exempt status?

Episode #41 Who’s afraid of the big, bad IRS?

Episode #42 How the IRS sees homeschool co-ops.

Episode #47 Tax exempt status for homeschool support groups

Episode #56  Homeschool Leadership is Like Marriage Part 1

Episode #57 Homeschool Leadership is Like Marriage Part 2

Sponsoring fundraising groups

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Hello Carol!

We have a question about fundraising and sponsoring subgroups.  Our homeschool group is planning on filing for 501c3 soon (if we can’t figure it out, we are hiring you!).  We have a subgroup (Destination Imagination, comprised of a few smaller groups of kids) that wants to raise money by working basketball games themselves but use our insurance and have us deal with paperwork and money.

We will have a clear understanding of who gets what money and when before we vote on it. They have proposed we keep 5% for our trouble. We are all wanting to say yes, but as president, I need to make sure it’s okay rule/law-wise.

Can you think of a reason not to allow this?

Kristen in Oklahoma

Kristen,

Good luck in your 501c3 application. I can also review the application you fill out. It’s a less expensive option.

What you are proposing is called “fiscal sponsorship” or sometimes “fiscal agency.” It means that one nonprofit organization  acts as a sponsor for a project or group that does not have its own tax-exempt status. And as you spelled out, it is typical for the sponsor to charge a fee (5% in your case) for managing the  other project or group.

Google “fiscal sponsorship” to get a better idea of what’s involved.

I would recommend you wait until you have tax exempt status (or at least have applied for it) before considering a fiscal sponsor arrangement.

Also put the agreement in writing, so all parties know what is required of the and the length of the agreement (at most one year and renew it every year). Sounds like you were going to do that.

Make sure the arrangement doesn’t put you over any IRS threshold. For example, if your gross annual revenue is more than $50,000/year, you will need to file the Form 990-EZ or 990, not the simple online Form 990-N. If Destination Imagination income causes  you to hire someone to prepare the more complex Form 990-EZ/990, are you making enough from DI to cover that added expense?

Carol Topp, CPA

 

Adding religious purpose to bylaws and Articles

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Dear Carol

Our homeschool group is currently a 501(c)(3) association that was organized in 1986. Our articles of association were recently found and we find out that we are NOT a Christian group, even though many of us are Christian and we are recognized by the community as a Christian group.
Will switching from a secular to a Christian homeschool cause us to lose our funds in the back account or to cause any fee to be incurred by the IRS?

Becky W

Becky,
It is hard for me to advise you without seeing the Articles of Association or your 501(c)(3) application. If you have electronic copies and can sent them to me, it would be helpful.Your Articles of Association (or Articles of Incorporation) and your 501(c)(3) application define your group’s purpose.

Your bylaws and policy manual are where you you explain how you fulfill that purpose. For example, you might include a Statement of Faith in your bylaws, or a membership requirement that members need to be Christians, etc. It’s very simple to change bylaws. You simply get the board to vote  a change. Follow whatever your bylaws  say is needed to change the bylaws.

Nonprofit corporations that wish to add a religious purpose to their Articles of Incorporation, do that by amending the Articles of Incorporation with their secretary of state. These groups need a vote by the board (as outlined in their bylaws) to make changes to the Articles.

(In Becky’s case, her organization is an unincorporated association and is not required to file any Articles of Association or changes to the AoA with the state).

You asked: “Will switching from a secular to a Christian homeschool cause us to lose our funds in the back account or to cause any fee to be incurred by the IRS?You should not lose your funds, but your board needs to approve all changes to the bylaws and Articles of Association.

You could perhaps contact the IRS (via a letter) if you wish to add to the scope of your 501c3 tax exempt application (i.e add that you have a religious purpose).

If you can dig out your 501c3 application (Form 1023) and read what you originally told the IRS, it would be helpful. The religious purpose may already be  mentioned.

I hope that helps.

 Carol Topp, CPA

Time off needed. HomeschoolCPA thanks you for your patience.

 

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Dear readers,

I will not be able to reply to your emails or posts here as quickly as I would like. I need to take a week or two off of work to help my 25 year old daughter who broke her leg this past weekend.

She cannot do much in her own. She needs help from two people to get into and out of bed, get to the bathroom,eat, etc. She is not to be left alone. I’m grateful that I work from home and that frequently my husband can work from home as well.

I’m also grateful that her accident (she slipped down a steep hill) happened one week after she moved back to Cincinnati, so we can take care of her.

Please pray for her pain to lessen and her healing to be quick.

Thank you for your patience.

Carol Topp, CPA
homeschoolCPA.com

IRS lowers fees on Form 1023-EZ

 

 PRICE CUT:  $400   $275

 

The IRS recently announced in Revenue Procedure 2016-32, dated May 31, 2016 that it will be decreasing the Form 1023-EZ user fee from $400 to $275.

The fee reduction will be effective July 1, 2016.

If you are about to file, waiting until after July 1 could save you $125.

The Form 1023-EZ in an online application for 501(c)(3) tax exempt status. Organizations must have less than $50,000 in annual gross revenues and meet other eligibility tests to use the Form 1023-EZ.

 

If you need assistance in determining your homeschool organization’s eligibility for use the Form 0123-EZ or assistance in completing the form, please contact me. I’ve assisted more than 20 homeschool organizations apply for 501c3 tax exempt status using the Form 1023-EZ.

Carol Topp, CPA

Summer reading for homeschool leaders: Homeschool Co-ops

 

This summer, I’ll be featuring one of my books for homeschool leaders every few weeks (and offering special discounts!). I’m also updating one of my books this summer…can you guess which one?

I’ll start with my first book for homeschool leaders,

I published this book in 2008 with a different cover. In 2013 I updated it and chose a new cover.
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Original cover

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Updated cover

This book will help homeschool leaders start and run a homeschool co-op.

It has chapters on:

Part One: Starting a Homeschool Co-op
Chapter One: Benefits of Co-ops
Chapter Two: Disadvantages of Co-ops
Chapter Three: Different Types of Co-ops
Chapter Four: Your First Planning Meeting
Chapter Five: What’s in a Name? Names, Missions

Part Two: Running a Homeschool Co-op
Chapter Six: Leadership
Chapter Seven: Co-op Offerings
Chapter Eight: Money Management
Chapter Nine: Managing Volunteers and Conflict
Chapter Ten: Ready for the Next Step? 501c3 Tax Exempt Status

Part Three: Not Burning Out
Chapter Eleven: Avoiding Burn out

Read a sample chapter

Read more about Homeschool Co-ops the book


Here’s a special for the summer. Buy Homeschool Co-ops at 25% off. Get the paperback version for $7.50 (usual price $9.95) or ebook version for $3.99 (usual price is $4.95).


Order Homeschool Co-ops in paperback

Order Homeschool Co-ops in ebook Kindle  or pdf

Save

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Trends in accounting can help homeschool leaders

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I recently read an article from CPA Practice Advisor about trends in accounting. The author mentioned 3 trends and  I think all 3 can be beneficial to homeschool leaders.

  • The rise of cloud accounting. No more are the days of emailing spreadsheets back and forth, finding errors and inconsistencies, and being reliant on a desktop accounting system.
  • The focus is on helping small and mid-sized businesses. Accountancy firms have begun to provide advisory services, not just tax and compliance.
  • Advances in technology have increased efficiency. Many solutions available now that simplify and expedite so many processes in accounting firms.

I was pleasantly surprised that I am quite trendy!

  • I encourage my nonprofit clients to consider online accounting programs like Quickbooks Online or WaveApps.com. These programs allow several people (including me) to remotely access the financial data for your group. That’s good for accountability and shared workload!
  • I focus on small nonprofit organizations. And I provide consultations, not just filings IRS forms (although that is very important to do!). This focus helps me be an expert on nonprofits, taxes, and homeschooling-a unique combination!
  • I’m using technology to improve efficiency. Many of you who schedule phone consultations use my online scheduling service, Time Trade. My latest new tool  such as online project management called Quire. These tools help me keep on track as a I handle a larger load of clients each year. They also help the homeschool leaders know what information I need from them and the steps they need to follow in getting (or keeping) tax exempt status.

 


I’m always looking for ways to improve my services to you my clients.

If you’d like to be part of my advisory team and give me your input on my products and services, join the Facebook group or the email list. More details here.


 

Carol Topp, CPA

Can a homeschool group just get together without having to report to the IRS?

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Can a homeschool group just get together without having to report to the IRS?

Dorothy

 

Ddorothy,

Yes, a group of homeschool families can just gather together, but the group will be limited in their size and to dealing in cash only.

Very small homeschool groups are more like a play group or group of friends pooling their money to pay group expenses, like a field trip.

I compare it to a group of friends all going out to dinner. They each pitch in to pay the bill. These tiny groups do not file reports with the IRS. Very tiny homeschool groups can operate like this.

In this case, a group may not need an EIN or to open a checking account for the group, but they would be limited in size and limited to cash only. It’s usually when a group needs a checking account that they have dealings with the IRS, because they need an EIN to open a checking account.

I hope that helps,

Carol Topp, CPA

Trouble filing your 990-N?

Having Trouble Filing 990-Ns?

Some non-profit organizations have reported trouble trying to file the 990-N ePostcard using the new IRS system.

If you’re using Google Chrome or Firefox, try using Internet Explorer (IE) to see if that helps.  I know that IE is old-fashioned, but it seems to work.

By the way, if your organization operates on a calendar year (with your year ending December 31), then you Form 990-N is typically due May 15. Since May 15 is a Sunday the IRS has extended the due date for the 990-N to Monday, May 16, 2016.

 

Carol Topp, CPA