Inurement: a funny word the IRS doesn’t like!

The IRS uses an unusual word that most of us don’t know the meaning of: inure or inurement. Here’s how the IRS uses it in their definition of a 501(c)(3) tax exempt organization:

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization. (emphasis added)

Source: https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

What does inurement mean?

“Inurement” means “benefit.”  The IRS forbids a tax exempt organization to use its income or assets to directly or indirectly benefit an individual, a person with a close relationship with the organization or a person who is able to exercise significant control over the organization. These can be board members or donors.

Jeramie Fortenberry an attorney, gives an excellent explanation of inurement in his website article “The Inurement Prohibition & Non-Profit Organizations.”

Non-profit organizations are subject to what is known as the nondistribution constraint.  Simply stated, this means that non-profit organizations cannot distribute profits to those who control it.  The nondistribution constraint is the fundamental distinction between non-profit organizations from for-profit organizations.  (emphasis added)

Any time assets of the organization flow through to benefit the organization’s insiders, whether directly or directly, inurement is an issue.

What are some examples of inurement?

  • A nonprofit executive used the organization’s money to pay his child’s college tuition, lease a luxury car for his wife, have his kitchen remodeled, and rent a vacation house at the beach.
  • The CEO at a tax-exempt hospital used charitable assets to pay for personal items such as liquor, china, crystal, perfume, an airplane, and theater tickets.
  • A nonprofit art gallery exhibits artwork created by its members for a fee but grants board members the same service without cost.
  • The nonprofit organization’s sole activity is conducting seminars and lectures based on the program owned by its president and his for-profit company.
  • An educational organization had four board members who voted themselves free tuition to the program for their children. This benefit ranged from $2,000-$4,000 per board member per academic year.

Sources: https://www.nolo.com/legal-encyclopedia/what-is-private-inurement.html and https://boardsource.org/resources/private-benefit-private-inurement-self-dealing/ and https://www.forpurposelaw.com/the-private-benefit-rule-three-more-examples/

What happens if a nonprofit practices inurement?

I would hope inurement would never happen in a homeschool group, by Mr. Fortenbury discusses the IRS’s options against a nonprofit organization.

The inurement restriction is absolute: An organization that violates this prohibition will not qualify (or will cease to qualify) for tax exemption.

In cases involving inurement, the IRS may impose the penalties in lieu of or in addition to the revocation of tax exempt status. 

This system effectively gives the IRS two options to enforce the nondistribution constraint.  In blatant violations of the inurement prohibition, the IRS can both revoke tax exemption and impose monetary penalties under the intermediate sanction regimes. In less severe cases, the IRS may seek to correct the situation through intermediate sanctions alone.

For the full article visit: https://www.fortenberrylaw.com/inurement-prohibition-nonprofit-organizations,

 

So, please homeschool leaders, stay away from inurement (giving benefits or the assets that belongs to the nonprofit) to any insiders (those who exercise control over the organization).

We’re homeschoolers and we’re better than that.

Carol Topp, CPA

Converting a Business to a Nonprofit: Tax Exempt Status

 

Some homeschool groups that started as a for-profit business want to convert to a nonprofit organization. Most of these nonprofit organization also want 501c3 tax exempt status from the IRS as well.

In this 3-part podcast series Carol Topp, CPA has explained the basics of a nonprofit organization and how to form a nonprofit corporation. In this third episode Carol discusses 501c3 tax exempt status.

The first two episodes (#168 and 169) can be found at HomeschoolCPA.com/Podcast

Show Notes

In this episode, Carol will discuss:

  • The benefits of tax exempt status
  • The application process and Forms 1023-EZ and 1023.
  • Time and cost to apply for 501c3 status
  • A successor to a for-profit entity must use IRS Form 1023 (not the shorter 1023-EZ) to apply for 501c3 status.

 

Featured Product

This webinar recording on Creating a Nonprofit for Your Homeschool Community will be very helpful as you launch a homeschool group

This webinar recording is helpful for new nonprofits, existing homeschool groups especially if you’re unsure if your group is a nonprofit, or for a business wanting to convert to a nonprofit organization.

The webinar runs about 90 minutes and covers:

  • The difference between a business and a nonprofit
  • What are the advantages and disadvantages of being a nonprofit
  • Forming a board: who can be one it, what do they do, etc.
  • Creating bylaws
  • Drafting a budget
  • Setting up a bank account
  • Forming a nonprofit corporation in your state
  • The timeline to get this all done
  • The expense to accomplish this

The cost is only $10!

For more information visit HomeschoolCPA.com/CreateNP

 

In the podcast I mentioned my book, The IRS and Your Homeschool Organization.

The IRS and Your Homeschool Organization

Does your homeschool group need to pay taxes? Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?

I have the answers for you in my book The IRS and Your Homeschool Organization. The information I share in my book has been helpful to homeschool support groups, co-ops, music and sports groups and will help you understand:

  • The benefits of 501c3 status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • What your state requires
  • Why your organization should consider becoming a nonprofit corporation
  • What is the difference between nonprofit incorporation and tax exemption
  • IRS requirements after you are tax exempt

 

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Carol Topp, CPA unavailable May 2-15, 2019

I apologize, but I will be unavailable to receive or reply to emails from May 2-15, 2019.

It would be best to contact me after May 15, 2019.

Thank you!

Carol Topp, CPA

HomeschoolCPA.com

Reimbursement policy for a homeschool group

We discussed during our phone call the need to require receipts from our homeschool program’s teachers before they are reimbursed. I have some board members that are concerned. They are afraid it will be seen as more trouble than it’s worth and that we will have fewer moms volunteer. Their question is whether receipts are necessary.

-BW

 

BW,

Reimbursements…yes, the paperwork and receipts are necessary, because if your homeschool organization gives a volunteer a check without getting a receipt from her, it is considered taxable income to the volunteer teacher (under what the IRS calls a “nonaccountable plan”).

But if the volunteer teacher gives you a receipt, then the money your homeschool group pays her is NOT taxable income to her.

Here’s a blog post you should share with your board: No receipts for expenses can get you in trouble!

Your homeschool program should have a reimbursement policy that is an “accountable plan” to avoid your volunteers having to report the reimbursement as income on their tax return.

To be an accountable plan by the IRS, your reimbursement plan must include all three of the following rules:

  1. The expenses must have a business connection; that is, the expenses must have been paid or incurred while performing services as an employee (or volunteer) to your organization.
  2. The volunteer or employee must adequately account for these expenses within a reasonable time (typically within 120 days). Your homeschool organization must require volunteers/employees to give you detailed information on these expenses, including date, time, place, amount, and  purpose for the expense.  Lots of homeschool groups create a reimbursement form. I offer a sample here (it’s an Excel spreadsheet so you can edit it if you like).
  3. You must require the volunteer or employee to return excess reimbursements within a reasonable and specific period of time (usually 60 days). This is applicable if you give money in advance to a volunteer. Giving and advance is not typical in homeschool groups, but a few groups have told me that they give advances to some volunteer teachers.

If all three of these requirements are not met, the plan is determined by the IRS not to be an accountable plan, and any expenses reimbursed to the employee by your homeschool program are taxable to the volunteer!

So now you can see the importance of requesting those receipts (and having an accountable plan)!

Better yet, use my sample reimbursement form (opens an Excel spreadsheet) since it collects all the information required by the IRS to have an accountable plan.

I strongly recommend that your reimbursement policy state that if no receipts are turned in, no reimbursement money will be paid to a volunteer!

 

My book Money Management in a Homeschool Organization offers tips on reimbursement plan and other aspects of managing the money in a homeschool group.

Carol Topp, CPA

HomeschoolCPA.com

 

Starting a Nonprofit: Nonprofit Incorporation

 

Sometimes a homeschool group started as a for-profit business desires to convert to a nonprofit organization for its many benefits. Can that be done? How hard is it? How costly is it?

In Episode 168 Carol Topp, CPA explained the basics of forming a nonprofit board. In this second episode Carol discusses bylaws and nonprofit incorporation.

Show Notes

Your organization’s purpose will not be making a profit, but now will be educational and maybe religious.

The control shifts from the owner to a board. At least 3 members need to be on the organization’s board.

  • Officers are Chair, Vice, Secretary and Treasurer. Add more board members if needed.
  • Board members should be unrelated to each other (by family and by business relationships) and unrelated to any paid employees. So a board cannot be all the paid staff/teachers/tutors, but could be parents, community members, etc.

The Board has duties of care, loyalty, management (or obedience to law)

  • The board has authority and responsibility. No “rubber stamp” boards!
  • An officer of the Board signs all contracts, agreements, licenses, etc. not the Executive Director
  • The board has control, not the Exec Director. The board decides who to hire and fire, what purpose and activities are,

Conflict of Interest Policy. A paid staff member (Executive Director) can attend board meeting, but no vote because she has a conflict of interest. Sample Conflict of Interest Policy can be found at HomeschoolCPA.com/Samples.

Webinar

In the podcast I mentioned that I created a webinar on Create a Nonprofit for Your Homeschool Community

This is good for both new nonprofits, or if you’re unsure if your group is a nonprofit (!) or for a business wanting to convert to a nonprofit.

The cost is only $10!

For more information visit HomeschoolCPA.com/CreateNP

 

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Create a Nonprofit Organization for Your Homeschool Community


Can a homeschool community of families become a nonprofit? What if it is currently a business?
How hard is it?
What are the steps to take?
How fast can it get it done?
How much will it cost?

 

I have recorded a webinar to answer all these questions and more!

Create a Nonprofit Organization for Your Homeschool Community

The webinar is 90 minutes and covers:

  • The difference between a business and a nonprofit
  • What are the advantages and disadvantages of being a nonprofit
  • Forming a board: who can be one it, what do they do, etc.
  • Creating bylaws
  • Drafting a budget
  • Setting up a bank account
  • Forming a nonprofit corporation in your state
  • The timeline to get this all done
  • The expense to accomplish this

Who should watch the webinar?

  • Brand new start up homeschool groups
  • Existing groups that never formed as a nonprofit
  • Homeschool communities run as a business that want to convert to be a nonprofit
  • Leaders that are unsure if their homeschool group is a business or a nonprofit. It can be confusing!

 

Watch a preview:

 

The webinar fee is $10. Yes only $10.

You will receive:

  • A link to the recording of the video (90 minutes). Watch anytime (just bookmark the link)
  • A copy of the slides from the webinar


Thank you for this webinar! It was great!-Alicia, homeschool leader
Thank you! It was very informative!-Rhonda, live attendee


UPDATE: The follow-on to this webinar is 501c3 Application for Homeschool Nonprofits. It walks you though the IRS Form 1023-EZ application line-by-line. You will be ready to apply on your own after watching this webinar.

 

Your host:

Carol Topp, CPA is the owner of HomeschoolCPA.com and has assisted more than 150 homeschool organizations apply for 501c3 tax exempt status. She is the author of 15 books.

 

 

 

Making Sure Your Nonprofit Organization is Compliant

 

A lot of homeschool leaders ask me,

“What do I need to do after my homeschool gets nonprofit or tax exempt status?”

They are asking about being compliant with the laws of our land, both federal and sate.

This article Making Sure your Nonprofit Organization is Compliant from MoneyMinder.com has a great article that explains compliance in these areas:

Tax Exempt Status which includes federal income tax exempt granted by the IRS, and sales tax exemption from your state. Your nonprofit may even be eligible for property tax exemption if your own a building. The laws on sales tax and property tax exemption vary by state.

My article explains the IRS filing requirements Do You Know About Required IRS Filings? for tax exempt organizations.

Register with the State Registration laws vary from state to state but most require you to confirm your active status (especially if you are formed as a nonprofit corporation), contact information, mailing address, and name of board members. This reporting is usually to the Secretary of State’s Office.

Charitable Solicitations
Many states ask that you register before actually asking for donations or fundraising. This registration is usually to the Attorney General’s office in your state.

Donation Receipt Requirements
A donor should be given a receipt for any single contribution of $250 or more. The article gives more details on what your donation receipt should say.

 

To research what your state compliance requirements are visit this helpful website

https://www.harborcompliance.com/information/nonprofit-startup-guide.php

If you wish, I can research your state’s requirements and compose a letter explaining what you should do next for filing in your state. I will charge $50 for the research and letter. Just let me know if I can help you in this way.

 

I hope that helps you know what it takes for your homeschool nonprofit to be compliant in your state and with the IRS.

 

Carol Topp, CPA

HomeschoolCPA.com

Converting a Homeschool Business to a Nonprofit: The Basics

 

Sometimes a homeschool group that started as a for-profit business now desires to convert to a nonprofit organization for its many benefits. Can that be done? How hard is it? How costly is it?

In the next 3 podcast episodes Carol Topp, CPA will explain how to convert a for-profit business into a nonprofit organization.

Show Notes

In this first episode covering the basics Carol discusses:

Your organization’s purpose will not be making a profit but now will be educational and maybe religious.

The control of the group’s mission and activities shifts from the owner to a board. A nonprofit is not owned by anyone. At least 3 members need to be on the organization’s board.

  • Officers are Chair, Vice, Secretary and Treasurer. Add more board members if needed.
  • Board members should be unrelated to each other (by family and by business relationships) and unrelated to any paid employees. So a board cannot be all the paid staff/teachers/tutors, but could be parents, community members, etc.

The Board has duties of care, loyalty, management (or obedience to law)

  • The board has authority and responsibility. No “rubber stamp” boards!
  • An officer of the Board signs all contracts, agreements, licenses, etc. not the Executive Director
  • The board has control, not the Exec Director. The board decides who to hire and fire, what purpose and activities are,

Conflict of Interest Policy. A paid staff member (Executive Director) can attend board meeting, but no vote because she has a conflict of interest. Sample Conflict of Interest Policy can be found at HomeschoolCPA.com/Samples.

Webinar

In the podcast I mentioned that I’m offering a webinar on Create a Nonprofit Organization for Your Homeschool Community

This is good for both new nonprofits, or if you’re unsure if your group is a nonprofit (!), or for a business wanting to convert to a nonprofit.

The cost is only $10!

For more information visit HomeschoolCPA.com/CreateNP

 

 

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How to Convert Your Homeschool Business into a Nonprofit Organization

 

 

Sometimes a homeschool group that started as a for-profit business wants to convert to a nonprofit organization.

Can that be done? Yes!

How hard is it?

How costly is it?

What steps do I take?

 

I’m offering a webinar on How to Convert Your Business into a Nonprofit Organization for Homeschool Programs

Now it has a new name!

Create a Nonprofit Organization for Your Homeschool Community

This is a slight name change from the original webinar. As I was preparing the slides, I realized that the information I was sharing was broad enough to be helpful to anyone starting a new homeschool nonprofit or converting a business to a nonprofit. So I re-named the webinar and I also reduced the price to $10 to make it affordable to more people.

The webinar will be airing live on Monday April 22, 2019 at 8 pm ET/7 pm CT/6 pt MT/5 pm PT.

 

The goal of this webinar is to equip homeschool leaders with an understanding of how to form a nonprofit. You will understand:

  • The steps to take
  • What documents need to be filed and with who
  • The cost and time commitment
  • How to determine if this is a viable option for your homeschool program to pursue

The webinar will cover:

  • The difference between a business and a nonprofit
  • What are the advantages and disadvantages of being a nonprofit
  • Forming a board: who can be one it, what do they do, etc.
  • Creating bylaws
  • Drafting a budget
  • Setting up a bank account
  • Forming a nonprofit corporation in your state
  • The timeline to get this all done
  • The expense to accomplish this

A follow up webinar will cover the IRS Form 1023/1023-EZ Application for 501c3 Tax Exempt Status. It will air sometime in June 2019.

Who should register?

  • Brand new start up homeschool groups
  • Existing groups that never formed as a nonprofit
  • Homeschool communities run as a business that want to convert to be a nonprofit
  • Leaders that are unsure if their homeschool group is a business or a nonprofit. It can be confusing!

The webinar fee is $10. 

You will receive:

  • Access to the live webinar with a chat room to ask questions
  • A link to the recording of the video to watch later
  • A copy of the slides from the webinar

 

Your host:

Carol Topp, CPA is the owner of HomeschoolCPA.com and has assisted more than 150 homeschool organizations apply for 501c3 tax exempt status. She is the author of 15 books.

 

 

 

FAQ on Property Tax for Churches Hosting Homeschool Programs

FAQ on Property Tax for Churches Hosting Homeschool Programs

By Carol Topp, CPA         HomeschoolCPA.com

Last update April 5, 2019

For a easy-to-print pdf version click here.

Many homeschool groups use churches for their educational programs. These groups are grateful to the churches for allowing homeschoolers to use their building, sometimes without charging rent.

But some homeschool programs are organized and operate as for-profit businesses and that could threaten the church’s property tax exemption. Churches are granted property tax exemption by their states for conducting religious activities or worship services. In most states, a church cannot let their building be used for activities with a “view to profit” or for “pecuniary gain” (gain of monetary value) or the church could lose part or all of its property tax exemption.

 

Here are some frequently asked questions about property tax, churches and homeschool groups.

If my homeschool group is a nonprofit organization, can we use the church building?

Yes, probably. Nonprofits, especially those with a religious purpose, do not have a “view to profit” or engage in activities for “pecuniary gain,” (those phrases are used in several state statues regarding property tax exemption) so they may use church property without posing a threat to the church’s property tax exemption.

What if my business doesn’t make a profit?

The property tax exemption is based on the use of an exempt property (i.e., the church building) by a for-profit business. Exemption is not based on the profitability of the business entity using the church’s property.

If I don’t make a profit from my business, I’m a nonprofit then, right?

No. An organization is only a nonprofit if it is organized (with a board, bylaws, etc.) and operated (with a religious, educational, or charitable purpose) as a nonprofit. What you are is an unprofitable business, but not a nonprofit organization.

I’m not a business; we’re just a bunch of moms gathered together to educate our children.

If you received money and in return offered a service (such as educational classes), then you are operating a business. You are not “just a bunch of moms.”

What if my business doesn’t pay rent to the church?

It is commonly assumed that if a church does not charge rent to a for-profit business, then no income tax would be owed by the church. That is usually correct and refers to unrelated business income tax (UBIT). No income, therefore no income tax to pay.

But income tax and property tax are two separate taxes. The property tax exemption is based on use of the church’s real and personal property, not on any income the church receives from rental activities. Therefore, the fact that a church is generous and does not charge rent to the business owner using the church building, does not change the fact that the church’s property tax exemption is at stake.

Renting out space could incur unrelated business income tax (UBIT). The IRS assesses UBIT on churches and all 501(c)(3) tax exempt nonprofits if they receive income from conducting a business unrelated to the church’s religious purpose. If a church rents space to a for-profit business, the church is conducting a business and may be required to pay UBIT. There are several exceptions to UBIT, so the church should discuss the issue with their CPA.

What if my business gives a love offering or donation to the church?

Calling what you give to the church a “donation” or “love offering” is a simply renaming the payment. Calling your payment a donation does not change the fact that you are giving money to the church in exchange for use of its space. Even if the church does not bill you, it is payment for use of space and not a donation. Be honest. Call it what it is: rent.

Attorney and CPA, Frank Sommerville, says

“Many churches try to disguise rents by using other terminology or by claiming that the other organization is simply giving a donation to the church. Other times the church calls it a “cleanup fee” or tells the tenant to pay the janitor directly for his services. None of these name games work. If any amount is paid by the other organization to the church or the church’s workers, then the IRS and state taxing authorities will likely treat it as rent paid to the church.”

Source:  https://www.wkpz.com/content/files/Use%20of%20Church%20Facilities%20by%20Outside%20Groups.pdf

Will the church lose its 501(c)(3) tax exempt status for hosting a for-profit business?

The church has 501(c)(3) tax exempt status as a religious organization and probably also charitable and educational purposes as well. As long as the church’s activities are exclusively religious, charitable, and/or educational, their 501(c)(3) status is not in jeopardy. But two other issues need to be considered: inurement and unrelated business income tax (UBIT).

The church could lose its 501(c)(3) tax exempt status if they practice inurement. Inurement means “benefit” and includes the transfer or use of property to insiders for less than fair market value. The IRS forbids a 501(c)(3) tax exempt organization to use its income or assets to directly or indirectly benefit an individual, a person with a close relationship with the organization, or a person who is able to exercise significant control over the organization. These “insiders” can be board members or donors and would also include the pastor, leaders, elders, deacons, trustees, and staff and their family members.

Here’s the IRS definition of inurement:

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.

Source: https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

For example, the spouse of a pastor operating his or her for-profit business on the church’s property could threaten the church’s 501(c)(3) tax exempt status because the church may be guilty of inurement.

Inurement is a very serious matter and the IRS has revoked the 501(c)(3) tax exempt status from churches for practicing inurement.

Renting space is a commercial activity and not a religious, charitable or educational activity. So the IRS considers income from renting space as “unrelated business income” and will charge an unrelated business income tax (UBIT) on the profits from the rented space.

Property tax and unrelated business income tax are two separate taxes. Property tax is determined by state laws and administered by local county government. It is an ad valorem tax, meaning based on value. An ad valorem tax is based on the assessed value of an item such as real estate or personal property.

UBIT is determined and administered by the IRS at the federal level. It is a tax based on income, specifically business income unrelated to the exempt purpose of the tax exempt entity. Most churches strive to avoid UBIT and many have policies prohibiting for-profit businesses to rent or use the church’s property to avoid UBIT.

My business has a religious purpose. I’m a Christian, we pray before classes and quote Bible verses. So I fit the religious purposes of the church, right?

Having a religious faith or conducting religious activities such as prayer, Bible teaching, etc. does not mean your business has an exempt religious purpose. As a business, your purpose is to make a profit. Many state statues regarding property tax exemption are specific on what type of entities can claim the religious exemption.

What if the church knows I’m operating a for-profit business and doesn’t mind or doesn’t care?

It is quite rare for a church to knowingly allow a for-profit business use their facilities. The church is putting itself at risk of losing part or all of its property tax exemption. The church may be ignorant of their state’s prohibition against using their tax-exempt property to conduct for-profit activities. Or you may have misrepresented the true nature of your business. Or you may have spoken with a pastor and not the church’s business administrator or board of trustees, who are more aware of the legal and financial matters of the church.

What if my homeschool program is a nonprofit but I hire my teachers/tutors as Independent Contractors? (added April 5, 2019)

Many small nonprofits desire to avoid the hassles of employees and payroll, but hiring workers who provide the key activity of the nonprofit’s purpose (education in the case of a homeschool program), means that these individuals are still conducting their for-profit businesses on the church’s property. That could still threaten the church’s property tax exemption. An educational nonprofit should treat workers (i.e., teachers or tutors) providing the key activity of their nonprofit (education) as employees.

Other workers such as a website designer or outside bookkeeper, who do not provide the primary or key services of the nonprofit, can be treated as Independent Contractor without threatening the church’s property tax exemption.

What if my business is an LLC (Limited Liability Company)?

A single-member LLC taxed as a sole proprietorship is still a for-profit business. If you regularly conduct your for-profit business on the church’s property, it could threaten the church’s property tax exemption.

Isn’t it the responsibility of the church to ask if my homeschool program is a for-profit business?

It is quite unusual for a church to let a for-profit business use their facilities, so they may not have even thought of asking. The church may be ignorant of their state’s prohibition again using their tax-exempt property to conduct for-profit activities. Additionally, you may have misrepresented yourself as “just a bunch of moms” or as a homeschool groups and not disclosed the for-profit nature of the business. You bear responsibility for disclosing the true nature of your business to the church.,

My church houses a bookstore/coffee shop/Weight Watchers, etc.? How is that legal but my homeschool business program is not?

These examples may be for-profit businesses operating in a church and may threaten the property tax exemption of the church. Alternately, the church may be paying property tax on the portion of the building being used by the businesses (if their state allows partial nonexempt use).

How do I know what my state laws say about property tax exemption for churches?

Do an internet search on property tax exemption and your state. Or search this pdf file (466 pages long) from The Civic Federation. https://www.civicfed.org/file/4794/download?token=3ifCi8dI. It lists the property tax laws or each state. After you do a search for state laws, call your local county tax assessor. The state sets the laws, but the local assessor applies the law to specific situations. Ask the assessor about business use of a church’s building affecting property tax exemption.

Our church pastor/deacon/elder’s spouse is the business owner. Is that a problem?

It could be. The church’s 501(c)(3) status makes them exempt from federal income tax and usually state income tax as well. Hosting a for-profit business does not typically threaten the church’s 501(c)(3) tax exempt status, but if the for-profit business is owned by a church “insider” or family member of an insider, the church could be guilty of inurement and that may threaten their 501(c)(3) status. Prohibited inurement includes the transfer or use of property to insiders for less than fair market value.

Aren’t the churches making a big fuss over nothing?

Maybe not. Read this story about a church in Miami, FL that was assessed a $7.1 million dollar property tax bill for conducting a for-profit school on their church property.

https://www.miamiherald.com/news/business/real-estate-news/article222993435.html?fbclid=IwAR2Ehjdp7kYjJQFeJHipP_wBKMXhJfc3U33vi0SNwwBMkqtzudi_dSryE9g

The facts in this case are different from most homeschool programs, but a tax assessor can levy a tax lien against a church for conducting a for-profit business (in this case a Christian school) on the church’s property.

What should I do if I am the business owner?

  • Become informed about the limits on business activities conducted by churches in your state’s property tax exemption laws. This document may help you start your research:https://www.civicfed.org/file/4794/download?token=3ifCi8dIThis pdf file is 466 pages and lists the state statuses for every state. Then do an internet search “YOUR STATE nonprofit property tax exemption” or “YOUR STATE church property tax exemption.”
  • Call the government agency responsible for assessing property tax. In most states that is your local county property tax assessor. In other states, it may be the state department of revenue.  Ask the person with the knowledge and authority to assess property tax, “Can a church let a for-profit business use the church’s building on a regular basis without harming our property tax exemption?” Ask for an assessment to be conducted and an estimate of the property tax to be calculated. Request a written report of their findings and opinion, especially of the county tax assessor declares there is “no problem.” Determine if your business can afford to pay the property tax bill. (expanded to clarify the proper agency to contact on April 5, 2019)
  • Talk to your host church about this issue. Ask what they know about limits on business activity for churches in your state.
  • Consider looking for a location that is not a church or other property tax exempt nonprofit organization.
  • Consider converting your business to a nonprofit organization with a religious and educational purpose. That involves forming a board to operate the program, drafting bylaws, etc. It takes time and money, but then the nonprofit organization could use the church’s space without being concerned about threatening the church’s property tax exemption.
  • Seek competent legal advice on your business’ use of church property regarding property tax exemption, UBIT, and inurement.

What should I do if I am a church leader/pastor/elder, etc.?

  • Call the government agency responsible for assessing property tax. In most states that is your local county property tax assessor. In other states it may be the state department of revenue. Ask the person with the knowledge and authority to assess property tax, “Can a church let a for-profit business use the church’s building on a regular basis without harming the church’s property tax exemption?” Ask for a written assessment to be conducted and an estimate of the property tax to be calculated. Request a written report of their findings and opinion, especially of the county tax assessor declares there is “no problem.” (expanded to clarify the proper agency to contact on April 5, 2019)
  • Cease offering space to for-profit businesses. Draft a policy prohibiting the use of the church’s property by for-profit businesses on a regular, continual basis.
  • Continue being generous, especially to nonprofit homeschool groups.
  • Explain to the business owner that she can convert her for-profit business to a nonprofit organization with a religious and educational purpose. It involves giving up control of her business activities to a board, drafting bylaws, incorporating as a nonprofit with the state, etc. It takes time and money, but then the nonprofit organization could use the church’s space without being concerned about threatening the church’s property tax exemption.
  • Ask anyone desiring to use the church’s space if they are a nonprofit organization and perhaps ask for bylaws, Articles of Nonprofit Incorporation, or the IRS 501(c)(3) determination letter as proof of their nonprofit status and religious purpose.
  • Seek competent legal advice on use of your church’s property regarding property tax exemption, UBIT, and inurement.