Can a homeschool group give discounts to a family in need?

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Carol,
Our homeschool group is a 501c3 organization. A parent member of our group recently approached me and asked if we could start a scholarship program. (This would not be a college scholarship program.) The parent’s hope is that a parent (or any individual) could give a donation to the organization to be used for scholarships for families who were facing financial hardship to attend our classes.
The scholarship would only be used to reduce a needy family’s tuition at our co-op. The parent that asked this question was hoping to get a tax deduction for his gift. I know that there could potentially be an issue with private inurement* for the families receiving a “scholarship” in this situation.
I would greatly appreciate your input. I am happy to schedule a phone consult with you.
Thanks!
Sharon in PA
Sharon,
What your member is proposing is a type of benevolent fund.
I don’t like the use of the word “scholarship” because, to the IRS, “scholarship” means payments on behalf of a student to a college.
I wrote a blog post about it: http://homeschoolcpa.com/do-not-call-a-fee-discount-a-scholarship/
Granting a tuition discount to a needy family is not inurement* if you put into practice a few safeguards such as:

  • the board, or a committee decides on the criteria to grant a tuition discount for a hardship (consider creating a policy)
  • the family receiving the benevolent discount has no vote or decision in granting the discount
  • the donation is not “ear marked” for a specific family. The board gets to decide who gets a benevolent discount, not the donor.

*Inurement is when the earnings of the organization are used for the advantage of a specific individual instead of the purpose of the organization. Inurement is forbidden for 501(c)(3) organizations.

I hope that helps,

Carol Topp, CPA

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