Is your homeschool organization a “mutual benefit” organization? Maybe not!

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Many homeschool organizations file to become nonprofit corporations in their state and they are usually asked:

Are you a mutual benefit corporation?

Well, most homeschool groups benefit their members with mutual support, so the answer is “Yes”, right?

Maybe not.

Most states recognize three types of nonprofit corporations:

  • Mutual Benefit
  • Public Benefit
  • Religious

You pick the type when you file Articles of Incorporation in your state.

 

A mutual benefit  nonprofit corporation provides an association of people with a common benefit. Mutual benefit corporations are formed for common gain purposes such as providing insurance for members (many insurance companies still have “mutual” in their names, such a Mutual of Omaha.) Other examples include social clubs, business leagues, and veterans groups. Homeschool support groups may fit this category.

A public benefit nonprofit corporations is organized for a public, educational or charitable  purposes. Examples of public benefit nonprofit corporations include charities, social service organizations, schools, foundations, and scientific and research organizations. Homeschool co-ops may fit this category.

Religious nonprofit corporations include those organized primarily or exclusively for religious purposes. Examples of religious nonprofit corporations include synagogues, churches and other places of worship.

Only public benefit and religious nonprofit corporations are eligible for 501(c)(3) tax exempt status with the IRS.

Mutual benefit nonprofits may be eligible for other types of IRS tax exempt status such as 501(c)(6) trade associations of 501(c)(7) social clubs.

 

Most homeschool co-ops are public benefit organizations because they serve a public good (i.e. education of children) and are not mutual benefit organizations.

 

Our Articles of Incorporation state we are a mutual benefit corporation. How do I change them?

You will have to amend the Articles of Incorporation. Start researching “amend nonprofit corporation and YOUR STATE”  on the internet. It usually involves holding a board meeting to change the Articles of Incorporation, filing some paperwork with your state and paying a small fee to your state (typically $30-$50).

Need to discuss this more? Contact me, Carol Topp, CPA,  and we can arrange a phone consultation to discuss your homeschool organization.

Should your homeschool group have members? Maybe not!

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Many homeschool organizations file to become nonprofit corporations in their state and they are usually asked

 Does your corporation have members?

 Well, naturally most homeschool groups have members, so the answer is “Yes”, right?

Maybe not.

 

Read the question carefully. It asks if your corporation has members. Your group may have members, but not the corporation.

What’s the difference?

For-profit corporations have shareholders. These shareholders are entitled to a vote on matters brought to their attention. A nonprofit corporation may have members, but is not required to have members. If a nonprofit corporation has members, then those members are entitled to a vote on matters brought to them. Typically, this might be electing board members, approving the budget, choosing  to hire paid staff, etc. (the bylaws usually spell out what members vote on).

Voting memberships are useful when an organization wishes to be democratically controlled by its constituents. Voting memberships structures are commonly used by member driven organizations such as social clubs, churches, chambers of commerce and trade associations. In such cases, the organization exists to serve its members and its makes sense for control to be vested in the members.

Source: http://charitylawyerblog.com/2011/04/26/nonprofit-law-jargon-buster-voting-members-vs-self-perpetuating-boards/

Some nonprofit corporations do not have members; instead decisions are made by the board. The members do not have a vote, nor do they elect board members. The board appoints replacement board members (it’s called self-perpetuating).

Many homeschool organizations may have members participating in their activities (co-op classes, filed trips, clubs, etc), but not have voting members of the corporation. Instead, they have a board that makes the decisions.

Advantages of a board-run organization (i.e., no members of the corporation)

  • A board-run homeschool group does not have to gather members together for a vote.
  • Decisions can be made more quickly.
  • A smaller group of people, the board, makes the decisions

Disadvantages of a board-run organization (i.e., no members of the corporation)

  • No input from the members
  • The board replaces itself and could become insular with no new ideas.

 Should your homeschool nonprofit corporation have members?

Well, of course, that is up to you, but I believe that it is more cumbersome for most homeschool organizations to have voting members. Many homeschool organizations are run by a self-perpetuating board very successfully.

What if your Articles of Incorporation state you have members, but you want to change that?

You will have to amend the Articles of Incorporation. This will probably take a vote of the members. State law dictates who can change the form of the corporation. Start researching “amend nonprofit corporation and YOUR STATE”  It usually involves holding a member meeting to change the Articles of Incorporation, filing some paperwork with your state and paying a small fee to your state (typically $30-$50).

 

Does the EIN become the 501c3 number?

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Does the EIN become the 501c3 number, meaning are they the same number once the group obtains the 501c3 status?

Also, as a Wisconsin unincorporated nonprofit association, are we required to become a 501c3 or c4?

If not, are we required to file anything with the IRS?
-Becky in WI

Becky,
Thank you for contacting me.
The IRS does not issue a new identification number when an organization receives tax exempt status. There is no “tax exempt number.” Organizations use the same EIN they had before receiving tax exempt status.

No organization is “required” to be a 501c3 or 501c4, but if your organization is not tax exempt under one of the 501c categories, then you owe taxes on your profits.

All nonprofit organizations are required to file an annual 990 (or 990EZ or 990N ) annually with the IRS.

This  FAQ page on the Form 990N may be helpful.

And here’s a video I just made explaining the annual reporting to the IRS: http://homeschoolcpa.com/video-annual-irs-fiings-for-homeschool-organizations/

I hope that helps.

If you need specific guidance, we could set up a consultation by phone. Contact me here.

Carol Topp, CPA

File 990N for prior years

Did you miss filing your IRS Annual report, the Form 990N in prior years?

Here are a few online services that let your file prior year 990Ns.

 

990N Providers

 

 

 

 

Here’s a full list of IRS approved providers for the Form 990N.

Do not use these services for your current Form 990N.

The current Form 990N is filed for no charge at https://epostcard.form990.org/

 

Remember, tax exempt organizations must file the Form 990, 990EZ or 990-N with the IRS every year. Failure to file for 3 consecutive years will mean your tax exempt status will be automatically revoked.

If you believe your tax exempt status was revoked, I can help your organization get reinstated. Contact me.

Carol Topp, CPA

Pinterest board helps homeschool leaders

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HomeschoolCPA has a Pinterest board called Helps for Homeschool Leaders.

 

On it you’ll find links to

  • blog posts to help you lead your homeschool organizations’
  • podcasts for homeschool leaders
  • inspiring quotes
  • other pins you might find useful.

Check it out, follow me on Pinterest and pin something to your boards too.

Can 501(c)(3)s lobby against legislation?

U.S. Capitol Building

“If we become a 501c3 organization, will that hinder our participation in lobbying against legislation that harms homeschooling?”

-Steve in KY

Lobbying for legislation by 501c3 organizations is allowed but it cannot be “substantial.”

The IRS defines “substantial” as more than 20% of your total expenditures.
Source: http://www.irs.gov/Charities-&-Non-Profits/Measuring-Lobbying-Activity:-Expenditure-Test

Lobbying on behalf of a candidate for office is prohibited for 501c3 organizations.

 

Carol Topp, CPA

Is a homeschool co-op teacher an independent contractor if paid by the parents?

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After reading through a bit of your material, we have decided that each family will pay our homeschool co-ops teachers individually. How would we label teachers that are not on a payroll, not volunteers, and not an independent contractor of the co-op?

The way we look at is that we simply provide a space and venue for outside teachers to offer their services. Is this correct? Our group will not provide them with any money. However, the group plans on “negotiating” the per student cost of a class.

Thank you for your insight
Heather

Heather,

Thank you for contacting me.

Teachers that are not your employees are called independent contractors IC), hired by each parent, but not the co-op.

I think you explained the arrangement correctly.

I recommend you have a written statement explaining what the co-op will do and what you will not do for the ICs. Have each teacher sign it. Call it a Memorandum of Understanding (MOU). MOU’s are not legally binding and do not involve an exchange of money. They are different from a contract in that way.

Be careful about too much negotiating with the teachers. You don’t want to give the appearance that they are working for your co-op. You could certainly tell them a typical fee that parents would be willing to pay, but ICs are supposed to bear the risk of doing business which includes setting their price. In other words, help them by offering a suggested range of fees, but do not dictate what they can charge.

 

Cover Money Mgmt HS OrgHave questions about paying teachers in your homeschool co-op? My latest book, Money Management in a Homeschool Organization will help. I devote a chapter to hiring workers.

Order a copy today.

You may also find these two podcasts helpful:

Paying Workers in a Homeschool Organization Part 1

Paying Workers in a Homeschool Organization Part 2

 

Carol Topp, CPA

What can you do when your leader is overly-controlling?

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Does your homeschool group suffer from a dominate leader? She may have founders syndrome.

What can you do when your leader is overly-controlling?

How-matters.org offers this advice for boards:

  1. Understand and take full responsibility for the role of board member. Insist on focused board training to review the roles and responsibilities of a governing board. Undertake a yearly self-evaluation of the board to ensure it is operating effectively.
  2. Once a year, conduct a key exercise: pretend the founder suddenly left the organization. Who will/can quickly step in? Are you sure? What activities are the staff really doing to carry out programs? In the case of non-profits, what grants does the organization have to perform against and report on when? What is the cash flow situation? What stakeholders must be contacted? Where are the files/records?

I really like the idea of pretending your key leader suddenly left. It’s a great idea!

The blog post from How-matters.org offers other terrific suggestions for boards facing a founder who won’t let go.

Author Stephen G. Donshik in an article “The Creator or the Destroyer: Dealing with Founder’s Syndrome”  says it can take a long time, many months, to get a founder to loosen the reins.
It might require many discussions between the parties; it may take months before the founder acknowledges the need for a change in leadership.
What should you do if the founder won’t let go of leadership? Mr Donshik advises,
At some point if the founder is not receptive to planning for a succession of leadership in the organization, the board of directors may have to make a difficult decision to remove the founder from her leadership position when her continuing in the role is destructive to the agency.

I hope your organization will deal with founders syndrome and come out stronger and continue to serve more homeschool families.

Carol Topp, CPA

Does your homeschool leader have founders syndrome?

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Does your homeschoool organization suffer from founders syndrome?

I’ve talked to dozens of homeschool group members who have dominate leaders and they recognize founders syndrome when I describe it.

How-matters.org gives the symptoms of founder’s syndrome:

  • The founder is at the center of all decision-making. Decisions are made quickly, with little input from others. No one really seems to know what’s going on.
  • Planning is not done collectively and any ideas that do not come from the founder usually don’t go very far. People can even become afraid of the founder.
  • The board is recruited by the founder, rather than by the board itself. Often they are friends of the founder, who may have been there from the beginning.
  • The board’s role is to “support” the founder, rather than to lead the organization. They are often a rubber stamp board, having little understanding of the work the organization does.
  • Board and staff members are unable to answer basic questions about the organization, such as the size of the budget, the major funding sources, the extent of the programs, without checking first with the founder.
  • A casual observer would hear a lot of “I, me, my” in conversation. “My staff…” “My organization…” “My vision…” It would also not be unusual to hear the words, “Because that is how we have always done it.”
  • There is resistance to any changes that will result in a (perceived or actual) loss of control. There can be a resistance to new staff or outsiders because they are perceived as a threat. There is a (perceived or actual) fear that the organization will become “something we no longer recognize.”

 Some may ask, “So what’s wrong with that?” And the answer is simple: If the founder is hit by a truck tomorrow, the team or organization is at risk of not being able to continue its programs. All the good work people have done over the years is in danger of ending.

 Sound familiar to you?

Your homeschool leader is a control-freak. She suffers from founders syndrome.  It’s time to recognize it and start dealing with it for the health of your homeschool group.

Carol Topp, CPA

New IRS Form 1023-EZ make applying for tax exempt status easier

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July 1, 2014

Today the IRS announced it has released a new Form 1023-EZ to make applying for 501(c)(3) tax exempt status easier. The press release said:

The Internal Revenue Service today introduced a new, shorter application form, Form 1023-EZ, to help small charities apply for 501(c)(3) tax-exempt status more easily. Most organizations with annual gross receipts of $50,000 or less and assets of $250,000 or less are eligible. See news release for details.

The change will allow the IRS to speed the approval process for smaller groups and free up resources to review applications from larger, more complex organizations while reducing the application backlog.

The new 1023-EZ form must be filed on www.pay.gov, accompanied by a $400 user fee. The instructions include an eligibility checklist that organizations must complete before filing the form.

You can see what the Form 1023-EZ looks like here.

Parts II and IV might be a little confusing. The instructions for this 3 page form is 20 pages long!

If you need assistance filling in the Form 1023, I will be helping homeschool organizations by offering a phone consultation to review your organizing documents for compliance and guide you through the form.

Contact me to arrange a phone consultation to go over your Form 1023-EZ.

Carol Topp, CPA