Sponsoring a football program under your homeschool group

 
 Super Bowl LII is a few days away! Even though the Green Bay Packers will not be playing (I’m a Packer fan) football is on my mind! Perhaps your homeschool group is considering adding football team. Read on!
I wrote to you about starting a football league and wanting to have a “fiscal sponsorship.”  We postponed the sponsorship last year, but are now wanting to move forward with it.  This has given us new things to consider and I am really out of my league.
  • We are wanting the football program to have a separate bank account from the main checking account, but of course have all the books open and reports/statements submitted to us.  Kind of they way some Boy Scout Troops work with their charter. Will this be a problem?
  •  Will we be able to purchase equipment and supplies for the team using our 501c3 sales tax exemption?
  •  Will businesses be able to make donations specifically earmarked for the football program and then be able to receive a tax deductible letter from us, the main organization?
  • We are planning on purchasing insurance covering the players and cheerleaders. Would the main group need to be on that policy also?
  •  If the football program ever desired to become independent from the main group, would it be able to retain the assets i.e., playing equipment?
I am very overwhelmed at the responsibility involved as a volunteer treasurer. Other board members seem to think I’m overthinking all of this, and that it is no different than a boy scout group and it’s no big deal to get set up–just file some forms and use our tax id to open a bank account for the football program.  I don’t see it as that simple.
Thank you, Tricia
Trisha,
The football program does not have to be a separate legal identity. It can be one of the programs you operate as the main group. Here’s my  reply to your questions.
  • A separate bank account is fine. It will use the main group’s EIN and belong to the parent even though the football program leaders may be signers on the checks.
  • The football program can use the main group’s 501c3 tax status to purchase equipment (sales tax free).
  • Donors can make donations to the football program, but checks should be made out to the main group. You are then obligated to set aside these donations as “restricted funds” only to be used for the football program.
  • Your homeschool group needs to be the owner of the insurance policy because the football program has no separate legal status to buy insurance.
  • All assets belong to the main group, not the football program. If your homeschool group wishes to make a gift to the football program when they split off, it can or you can sell the assets to the football program at a reduced price. I recommend you put something in writing in your fiscal sponsorship agreement about who owns the assets, but leave it up to the board to decide when the time comes whether to sell or gift the equipment to the football program.

I agree with the board; you might be over-thinking this. While it’s good to do your due diligence, it should be pretty easy to add the football program to your homeschool group’s activities.

I do recommend you write up an fiscal sponsorship agreement. Here’s a website with a few examples. I also attached an example I found at Mr Colvin’s law firm website, http://www.adlercolvin.com/index.php You can simplify the language if you wish.

I hope this allows you to sleep better tonight! 🙂

Carol Topp, CPA

Followup: Tricia had additional questions concerning sharing the tax exempt status of her organization and the finances of this new program. Read more here.

Adding a football program to a homeschool organization

Super Bowl LII is a little over a week away! While my beloved Green Bay Packers will not be playing 🙁 football is on my mind! Perhaps your homeschool group would like to add a football or other sports program. Read on!
We are a homeschool organization with 501(c)(3) tax exempt status and have been approached by a new member to start a football program. He is interested in starting a football league for our members. He discovered we are a 501c3 organization and our status could help him.

 

I am a little hesitant in sharing our status with a program that is yet to be established.  However, we like the idea of our boys having the option to play football.  He wants to start practices NEXT week and wants to use our checking account for depositing the funds paid by parents.

 

On top of all the other responsibilities of budgeting the events we provide, I’m at a loss as where to begin in this new endeavor or if we should?  Would he need a board of directors?  By-laws of his own?  Would we umbrella this league?  I don’t know where to start or how to advise him.

 

I’m not sure I can take on more responsibilities, especially one this large.  Can you offer advice or point me in the right direction as how to proceed?  I am thinking perhaps he should be independent for a year to “prove himself” before we allow him under our 501c3 status?
Trisha

Tricia,

Wow, nothing like pressure to make a decision!

What the football coach is proposing is called a fiscal sponsorship, i.e. using your 501(c)(3) tax exempt status as an umbrella he can fit under. Usually the sub organization pays a fee 1%-10% of their revenue to the parent organization.

There are pros and cons to a fiscal sponsorship arrangement. It can be temporary, just a year or two until the football program is spun off to be independent.

I recommend a book called Fiscal Sponsorship: 6 Ways to Do It Right by Greg Colvin. http://fiscalsponsorship.com/ the book and the website will help a lot.

You definitely want the fiscal sponsorship agreement written up and signed by both parties so that everything is clear.

You could set up the football program as one of your activities. This increases the risk to your group (football is a risky venture because of potential injuries). Make sure your insurance allows a football program; it may not.

Or you can require his organization have a separate board, bylaws, insurance, etc.  Ask to see the list of board members, minutes of meetings, bylaws and most importantly the insurance policy.

Don’t be pressured into making a decision just because he wants to start the program now. Poor planning on his part does not constitute an emergency (or quick decision) on your part.

 

Tricia asked her questions by email. I can do that  for your homeschool program, but it is very time consuming to read and reply to emails. I charge a reduced rate of $50/hour to read and reply to emails. Or perhaps a phone call would be better. Contact me to arrange a private phone consultation.

 

Carol Topp, CPA

 

Follow up: Tricia’s homeschool organization postponed the sponsorship for a year and in the following year started a six-man football team and it was very successful.  They even added cheerleaders!

Read additional questions and answers Tricia had about operating a large program under her homeschool group’s tax exempt umbrella.

 

What is the IRS planning to do in 2018 for tax exempt organizations?

The IRS Exempt Organization (EO) released their 2018 work plan. It reviews what they did in 2017 and what they will focus on in 2018.

(Note: this is not the individual or business part of the the IRS. This is only the tax exempt part of the IRS.)
Here’s an excerpt that affects homeschool tax exempt organizations:

IRS EO expects to receive an increased number of determination applications in FY 2018. In early 2018, the EO will implement revisions to the Form 1023-EZ, including a required activity description and additional questions on gross receipts, asset thresholds, and foundation classification. As a result of these changes, EO expects the average processing time for a Form 1023-EZ to increase. EO will continue pre-determination reviews of a statistical sample of Form 1023-EZ applications and will continue to analyze the data from these applications to mitigate risks and identify opportunities to improve this form and its instructions.

Okay, now in plain English, the IRS EO (Exempt Organization) will:

  • Ask for a short description of your activities when applying for 501(c)(3) status using the short Form 1023-EZ.
  • They will ask more questions about:
    • Your gross receipts (your sources of income)
    • Your assets (what you own) and
    • what kind of foundation you are. Most homeschool groups are public charities and not private foundations, so most likely this won’t affect you.

The IRS expects it will take longer to get 501(c)(3) approval using Form 1023-EZ. Right now it takes about 2-3 weeks.

They will still randomly sample some 1023-EZ applications and decide if they need to make changes to the form in the future.

 

If your homeschool group has questions about tax exempt status or would like to apply for tax exempt status, please contact me.

Carol Topp, CPA

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Homeschool program rejected by a church

Hi! I am a director of a for-profit classical homeschool program in Illinois. Our church is asking us to leave as they believe hosting us threatens their tax exempt status. Other churches who have heard this claim do not want to accept us. Any advice? -Kimberly in IL

Kimberly,

I’m very sorry to hear about your problems with finding a church host.

The church is probably worried about their property tax exemption in Illinois since your classical homeschool program is a business and not a religious or educational nonprofit.

Property tax exemption is different from federal income tax exemption granted by the IRS. The IRS grants churches automatic status as 501(c)(3) religious organizations. That’s not what is being threatened here.

Property tax exemptions are determined by the state and sometimes the county laws. That’s what has the church worried. If they lose property tax exemption, it will be very expensive for them to pay property tax.

I did a little digging and found some information about church property tax exemption in Illinois. Illinois may deny property tax exemption to the church if an organization using the church’s property has a “view to profit.” Illinois says that having a “view to profit” is incompatible with property tax exemption.

Unfortunately, as currently structured, your homeschool program has a “view to profit” and the church doesn’t want to offer your group space to meet and risk losing its property tax exemption.

The only advice I have is to ask the church if they would offer space to your program if it were a nonprofit organization with a religious and/or educational purpose. Illinois does grant property tax exemption to some educational organizations.

If you wish to re-form as a nonprofit organization, I can help you understand the pros and cons.

Carol Topp, CPA

HomeschoolCPA.com

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Does 501c3 Status Protect Our Homeschool Leaders?

 

What can you do to protect your homeschool group’s leaders?

Does becoming a 501c3 organization help?

In this short podcast episode (12 minutes)  Carol Topp, the HomeschoolCPA, will explains what 501c3 status is and how to protect your leaders.

 

In the show Carol mentioned a Facebook group called I Am a Homeschool Group Leader

She also mentioned some policies for your group to have from HSLDA: https://www.hslda.org/GroupServices/Leaders.aspx/Legal

 

Featured resource

The IRS and Your Homeschool Organization book.

The information in this book has been helpful to homeschool support groups, co-ops, music and sports groups to understand:

  • The benefits of 501c3 status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • 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

 

Carol Topp, CPA

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The Difference Between Nonprofit and Tax Exempt Status

 

Do you know the difference between nonprofit and tax exempt status?

The difference can be confusing, so HomeschoolCPA, Carol Topp, explains the difference in plain  English and gives a real life example in this podcast episode.

 

 

Featured resource

The IRS and Your Homeschool Organization book.

The information in this book has been helpful to homeschool support groups, co-ops, music and sports groups to understand:

  • The benefits of 501c3 status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • 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

Carol Topp, CPA

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Is there a difference between a 501c3 and an association?

Carol,
Is there a difference between a 501c3 and an association?
T.W.

T.W.,
501(c)(3) is a tax exempt status granted by the IRS to qualified nonprofit organizations (most of them are nonprofit corporations) whose purposes include charity, religious, and educational (and a few other purposes).

The word “association” does not have a specific legal definition. Associations are a gathering of people for a cause. Associations are typically nonprofit organizations. They can be unincorporated or be formed as nonprofit corporations.

Some associations may qualify for 501(c)(3) tax exempt status, some may not. For example I am a member of the Ohio Society of CPAs. It is a business association for CPAs in Ohio. It has tax exempt status as a 501(c)(6) business league, but not 501(c)(3) status.

If you’re confused by the words, nonprofit, association, 501(c)(3), this short video may help clear things up:

 

I hope that helps,

Carol Topp, CPA

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Tax Exempt Q&A with Homeschool Leaders

 

Have questions about tax exempt status for your homeschool group?

This short podcast episode (16 minutes) from Carol Topp, the HomeschoolCPA,  is an excerpt from the Indiana Homeschool Leaders Retreat. Carol Topp discusses tax exempt status and answers questions from homeschool leaders about self-declaring tax exempt status for your homeschool support group.

 

 

In the podcast I mentioned my book

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

 

Carol Topp, CPA

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How Do I Get a Tax Exempt Number?

How does a nonprofit get tax exempt number from the IRS? They don’t!

In this short podcast Carol Topp CPA explains tax ID numbers and the various state agencies that may assign tax numbers.

Listen to the podcast (9 1/2 minutes)

FEATURED PRODUCT from HomeschoolCPA:

State Filings for Non-Profits

You’re not finished with paperwork when you receive tax exemption from the IRS. Your state may have several required forms for you to file as well. Carol Topp, CPA can help your homeschool nonprofit understand what forms to file with your state.

Click Here to request more information!

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Don’t tell the IRS your homeschool group is a private foundation (if it’s not).

upset_womansquare

Oh this is a sad, sad story.

I’ve seen this twice recently: a homeschool group prepares their own 501(c)(3) application (Form 1023 or 1023-EZ) with the IRS and incorrectly tells the IRS they are a private foundation.

Homeschool co-ops or other nonprofit educational programs are not private foundations. Private foundations are charitable organizations that are funded by an individual, family, or corporation, like the Bill and Melinda Gates Foundation.

Homeschool organizations are public charities, serving the public good (the education of children). Both of these homeschool organizations didn’t think of themselves as charities. They misunderstood that the IRS uses the word charity to include educational organizations. They also didn’t think of themselves as “public,” because they didn’t not understand the IRS use of that word.

The IRS means serving a public good and being supported financially by the “public” (meaning lots of people) but that does not mean you have to open your doors to the general public! You may still have an application process and limit your membership or participation to your programs.

I spend a lot of time with my nonprofit clients explaining the IRS terms and proper classification, but neither of these organizations hired me to prepare their Form 1023/1023-EZ. Neither of them even asked for a phone consultation or for me to look over the application before sending it to the IRS.

Now they have a real mess on their hands.

They have to file an IRS form to change their status. This requires providing financial statements, explanations, and supporting documents and IRS fees.  Meanwhile, they have to be filing a Form 990-PF, which is quite complex. You need an experienced CPA to prepare a 990-PF.

This is going to be expensive and time consuming. It will probably cost hundreds of dollars in IRS and CPA fees to get it straightened out.

Sad, sad, sad…

Carol Topp, CPA

Helping homeschool leaders with tax and legal compliance

 

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