Can my family’s homeschool be a nonprofit?
March 29, 2012 · Print This Article
Homeschool CPA was recently asked,
I see several articles (on your website www.HomeschoolCPA.com) on setting up as a not-for-profit for homeschool organizations (e.g. homeschool co-ops), but I wonder if I could set my own family’s homeschool up as a non-profit. We’re in Texas, so we are considered a private school.
-Lauren in TX
Lauren,
You asked a good question and I’ve been asked it before in different ways. Nonprofit organizations have a lot of benefits including tax free income, discounts, and sometimes pay no sales tax!
I’m not a lawyer, nor familiar with Texas private school laws, but I’ll try to explain how I see things.
Briefly, a nonprofit organization exists to serve a group, not an individual. The IRS will not grant “recognized charity”, 501(c)(3) tax exempt status to a group that is formed solely to benefit the founder’s family. A tax exempt organization must serve a public good.
The IRS forbids private “inurement” in 501(c)(3) tax exempt organizations. Inurement means to be beneficial or advantageous. Inurement occurs when an organization is formed or operates with an incorrect charitable purpose that allows individuals in control to profit from the organization. 501(c)(3) organizations can lose their tax exempt status for practicing inurement.
Inurement/Private Benefit – Charitable Organizations
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.
>From the IRS website at http://www.irs.gov/charities/charitable/article/0,,id=123297,00.html
So, in short the answer is “No”, even if your state classifies a homeschool as a private school. That’s how I see it.
Carol
Now, here are my “lawyer words…”
Any tax advice contained in this communication was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
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First Carol I would like to say Thank You for all your hard work and organizing so much information for other homeschool families. I have read through your information on filing for non-profit status several times. I debated and prayed about this course several years ago but chose then to not do the big expense and start small,
I decided to start as a small business owner first to see how the response would be in the homeschool community for what I wanted to offer to them. The response has grown over the last 3 years and I find myself at a major decision point.
I have made no money – in fact have lost quite a bit in doing this endeavor but I feel if I change the status to non-profit – I could get deeper discounts on some costs and I would like to apply for educational grants.
Do I have to go the 501c3 route? Can I raise funds to do the application process? Please check out my website to see what we are doing. I would greatly appreciate any input.
Thank you for your time.
Donna
The IRS does allow a for-profit business to convert to a non-profit organization, but certain requirements will need to be met. Your organization should be run by a board (not just you as the owner) with bylaws and a “charitable” mission. Education, especially to children, is considered “charitable.” You will have to clearly show the IRS how your new nonprofit organization will be significantly different from the old for-profit business.
You do not *have* to file for 501c3 status; you could continue running you business at break-even or occasional losses. But, as you mentioned, there are advantages to 501c3 status, especially grants and discounts.
You are wise to seek the opinions of many people before making this decision. I am available for phone consultation to discuss you particular situation.
Drop me an email if you would like a phone consultation.