IRS explains the need for an easy tax exempt application

Form1023-EZ page 1

Did you know the IRS recently (July 1, 2014) released a new, shorter application for 501(c)(3) tax exempt status?

It’s great. I’ve helped about 3 organizations apply for tax exempt status using the new, online Form 1023-EZ and we love it!

TaxAnaylsts.com recently interviewed IRS Commissioner John Koskinen on several issues including the new Form 1023-EZ which will make applying for tax exempt status much easier for small organizations (gross revenues under $50,000 per year). That includes a lot of homeschool co-ops and other educational organizations!

Read the full interview here.

Here are some interesting excerpts (Mr Koskinen rambles a bit, so I did edit out some repetitions)

IRS reason for creating a shorter application form for small nonprofits

“Our existing problem is, it takes these organizations of any size, and certainly small ones, up to a year, over a year, to get approved. And I was concerned when I started and discovered we had a backlog of over 60,000. I was surprised that hadn’t become a bigger issue, because that is a big problem.

“It’s unfair to people who actually want to get through the process. It puts a lot of pressure on people. ..even if you’re going to have a small PTA or somebody, we’re going to give you the same fun-filled examination that Bill Gates has when he puts up his — it doesn’t make any sense. The risk to the public is much greater, and larger organizations are going to be much more complicated and allegedly doing more. And the benefit to the public is deprived by people not being able to get running and do things.

“…we’ve spent a lot of time designing that form to make sure we collect the information that we need.It will be for the first time, digital, online, so we can actually screen the applications and the answers, to pick up ones that we want to take a look at before we give approval to because we’ll know which answers are inconsistent, which ones raise questions, even though they answer them or are supposed to answer them in a way that allows you to get through without more review. So that we will have, for the first time, these applications as opposed to the old forms, we’ll be electronic and we’ll be able to screen them and analyze, as I say, of the 60,000, probably 45,000 are small. We’ll have a lot more control over the 45,000, by simply being able to screen them.

IRS plans to put some nonprofit  organizations through the process of the longer Form 1023

“The second thing we’re going to do, because in some ways it’s a pilot project, is we’re going to take a statistical sampling of the applications and put them through the more rigorous process, to see if they’ve answered the questions correctly, or whether they’ve, in fact, if they’d gone through the 26-page questionnaire, would have been not qualified, whereas that looks like they’re qualified. So we’ll actually do — I don’t know how many hundred we’ll do, but we’ll take a reasonable number of them at the front end and just put them through the process and see how accurate is the short form.  (my emphasis added)

The IRS will initiate a follow up to see if small charities are doing what they said they would do.

“We also are going to spend — take another statistical sample, once they’re out a year, and go out and audit how they’re doing and what are they doing. So they won’t be the same people we know are doing the right thing, because we’ve put them through the 26-page. There will be another set of people who we say, OK, this is what they said they were going to do. They filled out this form. What are they actually doing? And we’ll actually spend more time finding out what they’re actually doing than we do for a lot of them. You know, we have a million, six hundred thousand, 501(c) organizations out there up and running. (my emphasis added)

A more efficient IRS

“And so part of the theory is that (a) we’ll be much more efficient at the front end with the 80 percent of applications that are small, and be able to screen them out more effectively than we have, and we’re going to actually look at them at the front end and look at them a year later, and adjust accordingly.

The automatic revocation of tax exempt status created a need for a simpler reinstatement process.

“The bulk of the organizations are small ones. What happens with small ones is revealed. You know, the Congress passed a law that said if you didn’t file a [Form] 990 for three years, it got revoked. So we revoked 550,000. And 46,000 asked for reinstatement. …The bulk of what happens with these people, not surprisingly, is they start up and they are running whatever they’re doing and they don’t get a lot of funding or somebody decides to move and they just go away. And in fact, one of the advantages of that program — and then we got to streamline a way of getting people back in if they want to — has been, part of the problem, I’ve discovered, with the risk and the problem we have now, is that because it takes so long and costs so much, there’s a gray market in old 501(c)(3)s.

IRS hopes result is less risk to the public and more charitable work being done.

“So I think when you get done with it, as I say, we’re looking for the risks in trying to make sure that there is a problem that we’ll know. We’re also monitoring volume. You know, the theory was we’re going to go over everybody and his uncle who is now going to be a 501(c)(3). Thus far, the pace of applications is consistently the pace in the past. We’ve seen no uptick. But we’re monitoring that as well. But say, OK, are we now getting a lot more — suddenly everybody’s becoming more charitable, and they’ve got new organizations or not. And so we’ll find that.

But the net result is that there will be less risk to the public, that people are getting the benefit of tax exemption and contributions for what they’re doing because we will spend — have more resources available. We’ll be better at the front end, but we’ll have more resources available to check on people at the back end and see are you doing what you said you were going to do. Are you still doing the right thing? Now we’ll know.

One of the things we’re working on is how we can make better use of the 990s, which are, you know, self-reporting, but they give you some indication of where you are. But the real answer is you need to go out and write people notes and say hey, what are you up to, what are you doing, what’s going on? So I think the net result is we’ll have less risk to the public by better using our resources.”

So you made it to the end of reading all that! I’m impressed!

If you think your nonprofit organization is eligible for 501(c)(3) tax exempt status using the new shorter form, please contact me and we can discuss your situation.

Carol Topp, CPA

More homeschool organizations receive tax exempt status from the IRS

501c3_yellow

 

Congratulations to two homeschool organizations that recently received tax exempt status with the IRS!

TACHE, the Tyler Area Christian Home Educators, is a homeschool co-op in Tyler, Texas

Homeschool Teen Serve is a charitable organization encouraging service projects performed by homeschool teenagers headquartered in Omaha, NE.

I was happy to help both these organizations receive 501(c)(3) tax exempt status for the IRS.

Do you know the pros and cons of 501(c)(3 status? Do you know what 501(c)(3) status could mean for your homeschool group?

My book The IRS and Your Homeschool Organization could help your group as well.


This 120 page book explains the pros and cons of tax exempt 501(c)(3) status. Is it needed? Is it worth it?

Price: $9.95

Learn more here.

 

Carol Topp, CPA

 

 

3 Important Things to Remember About Homeschool Co-ops (video)

If you’re in a homeschool co-op or leading one, I have some advice for you! (I even write a book about homeschool co-ops!).

Here’s a video clip from my recent presentation of Homeschool Co-ops Are Like Marriage: Know What You’re Getting Into given at the Midwest Great Homeschool Convention in 2014.

Part 4 is titled 3 Important Things to Remember About Homeschool Co-ops.

 

In the video I mentioned my book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out.

I also created this handout for the presentation.

Watch the other portions of the presentation on HomeschoolCPA’s YouTube Channel.

 

Carol Topp, CPA

Do You Know About IRS Required Filings for Homeschool Groups?

IRS-Building1

 

Homeschool leaders frequently wonder, “Is my group supposed to be paying taxes to the IRS?” They ask if there is anything they should be reporting to the IRS, if so what and when.

Homeschool Contact With The IRS
There are several situations when a homeschool organization will be in contact with the IRS:

1. Your homeschool group opens a checking account and needs a tax identification number.

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. An EIN is similar to a Social Security Number for a business or nonprofit organization. They are available from the IRS at no charge at www.IRS.gov. Search for Form SS-4, the application for an EIN.

2. Your homeschool group pays a worker.

Your worker may be an independent contractor or an employee. Either way, there are forms to file with the IRS at the end of the calendar year (typically a 1099MISC or W-2, respectively). Additionally, there are employer taxes, such as Social Security or Medicare taxes, to pay in addition to employee wages. My books Paying Workers in a Homeschool Organization and Money Management in a Homeschool Organization will walk you through the details of hiring and paying workers.

3. Your group makes money from fund raisers, selling T-shirts and other merchandise, or selling advertising on your website.

Homeschool groups often make money from activities not related to homeschooling. The IRS calls income from these activities “unrelated business income (UBI)” and will tax the profit from these activities. Usually homeschool groups avoid the UBI tax by using one of the IRS exemptions which include using all volunteer labor, selling donated merchandise or having unrelated business income of less than $1,000 annually.

4. Your homeschool co-op brings in income of more than $5,000 in a year.

If your co-op’s gross revenues are more than $5,000 a year, your organization should file an application (Form 1023 or the new, shorter Form 1023-EZ) with the IRS for 501(c)(3) tax exempt status. Approval of tax exempt status by the IRS means that your co-op will not pay income tax on its financial surplus. Your organization is also eligible to receive tax deductible donations and may participate in fundraisers only open to 501(c)(3) organizations, such as Box Tops for Education.

If your organization’s gross revenues are under $5,000 a year, you are granted an exception from filing the application paperwork for 501(c)(3) status. You can “self-declare” your tax exempt status without applying. But you will still have annual reporting requirements, the Form 990N (see below).

5. Your homeschool support group wishes to avoid taxes on their surplus.

If your homeschool organization is a support group, then you may be eligible for tax exempt status as a 501(c)(7) social club with the IRS. Social clubs can “self-declare” tax exempt status but some file an application (Form 1024) with the IRS. Read more about eligibility for 501(c)(7) social club status at HomeschoolCPA.com/SocialClub. Even if you self-declare tax exempt status for your support group, the IRS still requires an annual report (see below).

New IRS Filing Requirement for All Nonprofit Organizations

As of 2006, the IRS requires all nonprofit organizations (except churches) to begin filing an annual information return called a Form 990/990EZ or 990N, even if they have not yet applied for tax exempt status or are eligible to self-declare tax exempt status. The short, online Form 990N is for nonprofit organizations with annual gross revenues under $50,000. It is a very simple online form with only six questions. No financial information is given.

A. Calendar year or tax year dates
B. Check if gross revenue is $50,000 or less
C. Name and address of the organization
D. Employer Identification Number (EIN)
E. Website
F. One officer’s name and address

The Form 990N is filed online at Epostcard.form990.org and is due due 4 1/2 months after the end of your fiscal year (May 15 for groups that run on a calendar year).

Your organization may have difficulty in filing the Form 990N if you have not applied for tax exempt status. You will have to call the IRS Customer Account Services at 1-877-829-5500 and ask to be added to their exempt organizations database so you can begin filing the Form 990Ns. It typically takes 6 weeks to be added to the IRS database.

 

What Happens if Your Organization Doesn’t File the Form 990N?

There is no financial penalty for late filing, but failure to file the Form 990N for three consecutive years means automatic revocation of tax exempt status. Lately, I have helped several homeschool organizations that did not file their 990Ns for several years (most did not know about the requirement) and had their tax exempt status automatically revoked.

If all this seems confusing or overwhelming, please visit HomeschoolCPA.com. On the blog page, type “990N” into the search box and read the blog posts about this IRS filing requirement.  Additionally, my book The IRS and Your Homeschool Organization can give you details on applying for tax exempt status.

 

Carol Topp, CPA is an author, accountant and retired homeschool mom. She is the author of Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out, The IRS and Your Homeschool Organization and Money Management in a Homeschool Organization: A Guide for Treasurers. She shares her experience as a CPA, homeschool mom and co-op treasurer in her books, at homeschool conventions and on her podcast DollarsAndSenseShow.com. Carol offers consulting services to homeschool leaders. Contact her on her website HomeschooCPA.com.

 

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Tips for starting a homeschool co-op (video)

Ever thought about starting a homeschool co-ops? I’ve got a book that will help!

Here’s a clip from my recent presentation of Homeschool Co-ops Are Like Marriage: Know What You’re Getting Into given at the Midwest Great Homeschool Convention in 2014.

Part 3 is titled Tips for Starting a Homeschool Co-op

 

In the video I mentioned my book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out.

I also created this handout for the presentation.

Watch the other portions of the presentation on HomeschoolCPA’s YouTube Channel.

 

Carol Topp, CPA

Preventing child abuse in your homeschool group

Hello Carol,

Thank you so much for all the insight you have offered! I am looking for information on background checks, and creating abuse prevention policy in our homeschool co-op. I have found vague info on how to protect children, but I am looking for written policy to implement. Could you please share with me any resources on this topic you may have.
Thank you for all your time,
Heather K.
Heather,
Thank you for your kind words. I’m glad the website was helpful.

I usually recommend homeschool leaders contact a large, local church and speak with the children’s director. They will have lots of information on background checks and policies. They may even share their policy with you.

National Center for Life and Liberty (NCLL) offers a short ebook “Preventing Child Abuse in Your Ministry” by Attorney David Gibbs III. You can download it for free (after giving, name, email, address and phone number) at http://www.ncll.org/resources/free/2014/august . It was quite good and offered general guidelines of what to have in a child abuse prevention policy, but it does not have a sample policy.
You might also join this Facebook group I belong to and ask your question there:
I Am a Homeschool Group Leader https://www.facebook.com/groups/72534255742/
I hope that helps,
Carol Topp, CPA

The Disadvantages of Homeschool Co-ops (video)

I love and encourage homeschool co-ops (I even write a book about them!), but, like marriage, it’s best if you know the disadvantages of joining a homeschool co-op.

Here’s a clip from my recent presentation of Homeschool Co-ops Are Like Marriage: Know What You’re Getting Into given at the Midwest Great Homeschool Convention in 2014.

Part 2 is titled The Disadvantages of Homeschool Co-ops

 

In the video I mentioned my book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out.

I also created this handout for the presentation.

Watch the other portions of the presentation on HomeschoolCPA’s YouTube Channel.

 

Carol Topp, CPA

Church is worried about legal status of homeschool group

Photo credit http://webesteenphoto.blogspot.com

The leadership of our church is concerned that our homeschool  co-op does not have any legal status. They suggested that we look into becoming something official, like a 501c3.

The issue is that we are a pretty small group, and the teachers are not paid by the co-op, but by the individual students directly. At this point, there really isn’t any money changing hands. I have a lot of reservations about the 501c3 status, too.

Is there another “legal entity” that our smallish co-op could become that would let us do some basic things like have a checking account? We don’t really have any money to put toward legal fees or anything like that, so it would have to be very inexpensive to set up.

Thanks so much for all your work.

Kerry in Ohio

 

Kerry,

It’s nicest if the church takes you under their tax exempt status as a ministry, but for legal and insurance purposes a lot of churches are reluctant to do that.

Two choices

There are really two legal structures you group can be: nonprofit or for-profit. Most homeschool groups are nonprofits and in addition have tax exempt status from the IRS.

If your gross annual income is under $5,000 per year, you do not have to file any application to be tax exempt with the IRS; you can simply self declare your 501c3 tax exempt status. That’s pretty easy!

You will have to file an annual information return with the IRS called a Form 990-N, but it’s quick and easy. See my 990-N FAQ page here: http://homeschoolcpa.com/irs-form-990n-faq/

If you do not self declare 501c3 status (and file the annual 990-N), then, by default, your organization is a for-profit business. That’s your other legal alternative. The income and expenses would have to be reported on someone’s tax return as a business. The church may not rent space to a for-profit business (my church won’t), so you should read more about nonprofit and 501c3 status.

IRS and Your Homeschool Org cover

My book The IRS and Your Homeschool Organization can calm many of your fears.

I hope that helps.

Carol Topp, CPA

5 advantages of homeschool co-ops (video)

I have a series of 7 videos from my recent presentation of

Homeschool Co-ops Are Like Marriage: Know What You’re Getting Into

given at the Midwest Great Homeschool Convention in 2014.

Part 1 is titled 5 Advantages of Homeschool Co-ops

 

 

In the video I mentioned my book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out.

I also created this handout for the presentation.

Watch the other portions of the presentation on HomeschoolCPA’s YouTube Channel.

 

Carol Topp, CPA

Error in the IRS and Your Homeschool Organization book

This is embarrassing to admit, but I found an error in my book, The IRS and Your Homeschool Organization.

IRS and Your Homeschool Org cover

 

The error is on page 23 in the chart Comparison of 501(c)(3)  Qualified Charity and 501(c)(7) Social Club.

The correct chart is available here.

The error is under the column for 501(c)(7) and the row Annual IRS reporting. It should read “Form 990N, Form 990EZ or Form 990.” All tax exempt organizations including 501(c)(7) Social Clubs are required by the IRS to file an annual Form 990, 990EZ or 990N.

Please make this correction in your book.

I apologize for the error and will make a correction to the book as soon as possible.

Carol Topp, CPA

September 5, 2014

Update September 15, 2014: The error in the print version and pdf version have been fixed. The Kindle version will be fixed soon. While I was at it I updated some other information and added a chapter on getting tax exempt status reinstated if it was revoked. This update is the 2nd edition of the book.