A homeschool co-op treasurer in South Carolina asks if she can refund supply fees to the co-op’s members:
Carol,I am the treasurer for a mid-sized home school co-op. We currently have about 45 families. The co-op has been in existence for about 10 years and has always operated as an unincorporated organization with a checking account under the ss# of one of the board members.Our co-op charges a set fee for each class which is passed on to the teachers (moms), and we also charge an additional supply fee if the teacher feels it is needed. I took over the books about 2 years ago and since that time we have been able to track expenses on a per class basis. We end up at the end of each year with a surplus. I am wondering if we can refund unused supply fees by class to the families who paid the fees initially. On your web site you state that surplus money should not be distributed. Does that apply in this case?Also, I am going to talk to the board about getting a TIN (Tax Id Number) for checking purposes. Do we use this same TIN to file 1099s at the end of the year?Thanks for all of your great information!Debi M in SC
Debi,
Since your surplus is from supply fees and not general membership or tuition fees, I don’t see a problem doing a refund. But giving refunds makes more work for you as treasurer!The prohibition against distributing a surplus is to avoid individual benefit or what the IRS calls “private benefit or inurement.” The purpose of a nonprofit (even an unincorporated nonprofit, such as yours) is to accomplish a mission, not to accumulate a profit. So the IRS forbids a group of people from setting up an organization to make a profit, and then to split the surplus at the end of the year. That would be tax avoidance and abuse of nonprofit status.
Since your surplus is from supply fees and not general membership or tuition fees, I don’t see a problem doing a refund. But giving refunds makes more work for you as treasurer!The prohibition against distributing a surplus is to avoid individual benefit or what the IRS calls “private benefit or inurement.” The purpose of a nonprofit (even an unincorporated nonprofit, such as yours) is to accomplish a mission, not to accumulate a profit. So the IRS forbids a group of people from setting up an organization to make a profit, and then to split the surplus at the end of the year. That would be tax avoidance and abuse of nonprofit status.
I usually encourage homeschool groups to have a small surplus for emergencies, large purchases, future expenses, or to make appreciation gifts to volunteers or the place where you meet.
It’s a good idea to get a EIN (Employer Identification number) instead of using the board member’s SSN. You would use the EIN and the co-op’s name on any 1099MISC forms you file.
I hope that helps!
Carol Topp, CPA
Carol, you said…..”Since your surplus is from supply fees and not general membership or tuition fees, I don’t see a problem doing a refund.”
Is there a problem returning general membership dues or class fees?
Yes, there is a problem returning the membership fees or program income (class fees). The net income of a nonprofit organization should not be distributed to the members. It should stay in the organization for future use. If net income is distributed, the organization would be classified as a partnership or a for-profit corporation. One of the hallmarks of a nonprofit is that they do not redistribute their profits (i.e., their net income) to their members.