What is Unrelated Business Income or UBIT?

 

A nonprofit group may raise a lot of money from fund raising. These fundraisers could be so successful the leaders may wonder if the homeschool group owes anything to the government in taxes. For the most part, fund raising is not considered part of your nonprofit group’s mission; it is just a means to the end. After all, your group’s mission is to encourage homeschooling, not to sell ads, pizza or other products.

The Internal Revenue Service calls the money a homeschool group or any nonprofit raises from a fundraiser “Unrelated Business Income,” meaning it is money collected in a trade or business that is not related to your primary mission (or what the IRS calls your “exempt purpose”).

In this short podcast episode (13 minutes)  Carol Topp, the HomeschoolCPA, will explain the 4 exceptions to UBIT:

 

Do you have more questions about conducting fundraisers? My book Money Management in a Homeschool Organization can help.

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement, and hire workers. Sample forms and examples of financial statements in clear English are provided.

Money Management in a Homeschool Organization

Save

Save

Summer reading for homeschool leaders: Homeschool Co-ops

 

This summer, I’ll be featuring one of my books for homeschool leaders every few weeks.

This week it’s my first book for homeschool leaders,

 

I published this book in 2008 with a different cover. In 2013 I updated it and chose a new cover.

 

HomeschoolCo-opsCover

Original cover

HS Co-ops Cover_400

Updated cover

This book will help homeschool leaders start and run a homeschool co-op.

It has chapters on:

Part One: Starting a Homeschool Co-op
Chapter One: Benefits of Co-ops
Chapter Two: Disadvantages of Co-ops
Chapter Three: Different Types of Co-ops
Chapter Four: Your First Planning Meeting
Chapter Five: What’s in a Name? Names, Missions

Part Two: Running a Homeschool Co-op
Chapter Six: Leadership
Chapter Seven: Co-op Offerings
Chapter Eight: Money Management
Chapter Nine: Managing Volunteers and Conflict
Chapter Ten: Ready for the Next Step? 501c3 Tax Exempt Status

Part Three: Not Burning Out
Chapter Eleven: Avoiding Burn out

Read a sample chapter

Read more about Homeschool Co-ops the book

 

Save

Save

Save

Homeschool leaders summer reading: Money Management in a Homeschool Organization

 
This summer I’m encouraging homeschool leaders to take time to become a better leader by reading through my books. This week I’m featuring my book,

 

When I originally published this book in 2008, it was a short 40 page ebook and had a horrible cover.  I was still learning and self-publishing was brand new!
MoneyMgmtCover
An update was badly needed and I tackled that project in 2014. The book ballooned to 131 pages and I subtitled it “A Guide for Treasurers.” I feel like I poured my CPA brain into this book.

 

Cover Money Mgmt HS Org
 Topics covered in this book include:
Chapter 1: Your Treasurer is a Gem!
Chapter 2: Checking Accounts Done Right
Chapter 3: Super Simple Bookkeeping Basics
Chapter 4: Show Us Your Books! Regular Reporting on Financial Status
Chapter 5: Establish a Budget: You’ll Thank Me Later
Chapter 6: Get What’s Coming to You: Collecting Fees
Chapter 7: Do I Have to Report This? Reimbursement Policies and Avoiding Taxes
Chapter 8: Using Software to Stay Sane
Chapter 9: Fraud: It Couldn’t Happen to Us
Chapter 10: Need More Money? Easy Fundraisers for Homeschool Organizations
Chapter 11: Risky Business: Insurance for Homeschool Groups
Chapter 12: Paying Workers: Hiring Employees and Independent Contractors
Chapter 13: Homeschool For Profit: Running a Homeschool Group as a Business

 

 

 

Carol Topp, CPA

 

Save

Easy Fundraisers for Your Homeschool Group

 

Does your homeschool organization need some ideas for raising money?

Carol Topp, the Homeschool CPA, shares ideas for easy fundraising in this episode of the Dollars And Sense Show.

This is a repeat of a podcast episode aired in 2014. I (Carol) caught a nasty cold and sinus infection and couldn’t talk without coughing for several weeks. I hope you find the re-broadcast of this episode helpful!

In the podcast Carol mentioned a warning: No Individual fundraising accounts!
See http://homeschoolcpa.com/scouts-dont-allow-individual-fundraising-account-and-neither-should-you/

 

More information:
Money Mgmt HS OrgCover

Money Management in a Homeschool Organization book

Blog posts  on fundraising: http://homeschoolcpa.com/tag/fund-raising/

Article “Easy Fundraisers for Homeschool Groups” at http://homeschoolcpa.com/leader-tools/articles/

 

Carol Topp, CPA

Does your homeschool group have fundraisers? You may need to register in your state

Carol,

We’re a 501(c)(3) tax exempt organization (Thanks for helping us with that!). In your letter to us you say that if we “solicit contributions” we may need to register in our state. We don’t ask for donations, but we do have several fundraisers each year. Are our fundraisers considered “solicited contributions”?

Jennifer in Georgia

Jennifer,

Congratulations on your 501(c)(3) tax exempt status from the IRS. Now it’s time to determine what your state requires from your organization.

Charitable solicitation registration

My source for information on nonprofit fundraisers is Nolo’s Nonprofit Fundraising Registration: The 50 State Guide

The Guide explains that 39 states (and the District of Columbia) require registration from nonprofit organizations that solicit donations in their state. (This is all nonprofits, not just those with 501(c)(3) tax exempt status.)

Definition of charitable solicitation

“Solicit contributions is defined broadly…Charitable solicitations don’t always have to involve asking for a donation. Offering to sell a product or service that includes a representation that all or part of the money received will be devoted to a charitable organization or charitable purpose is considered a charitable solicitation and triggers the registration requirement.”

So, fundraisers are included in the definition of charitable solicitations. That means if your homeschool group holds a fundraiser, you probably need to register in  your state. But keep reading…

Exemptions

The good news is that all states offer exemptions to their charitable registration for certain types of nonprofits. One common exemption is for small nonprofits:

“Most states exempt very small nonprofits from registering. In most states “small” is defined by a nonprofit’s gross revenues, not the number of members it has. In many states (about 16) a nonprofit qualifies for this exemption if it has annual gross revenues of less than $25,000.”

Nolo’s webpage with more exceptions to charitable registration

I researched the exemption rules in Georgia (it was included in the Form 1023-EZ Application for 501(c)(3) tax exempt status service that I provided to Jennifer’s organization ). I learned that Georgia offers an exemption from charitable registration  for nonprofits whose total revenue from contributions has been less than $25,000.00 for both the immediately preceding and current calendar years. Jennifer’s organization is under that $25,000 threshold in contributions and fundraisers, so she was happy to hear that her homeschool group did not need to register in Georgia. 🙂

Help for your homeschool organization

Determining whether your nonprofit is exempt from charity registration can be difficult. Exemptions vary from state to state. To determine whether your nonprofit is exempt in your state, you could look up the charitable solicitation laws of that state. The law is usually found on the Attorney General or Secretary of State’s website.

Or contact me, Carol Topp. I can do the research for you since I know what I am looking for!. This service includes drafting a letter for your board and future boards explaining the all required forms in your state with due dates. Cost: $50.

 

Carol Topp, CPA

Save

Save

Save

Used curriculum sales and taxes

When a homeschool group has a fund raiser like a used curriculum sale or mini-exhibit hall is the income taxable?
Thanks,
Dorothy
Dorothy,
Fundraisers are usually considered unrelated business income, meaning that the fundraiser activities are not related to your organization’s tax exempt purpose. In other words, a homeschool group’s purpose is education, not selling curriculum or hosting an exhibit hall.

 

Unrelated business income is taxable income. It’s called UBIT-unrelated business income tax.

 

From the IRS: Unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990-T (and pay federal income tax).

 

Fortunately, the IRS has several exceptions to paying the UBIT tax:

  • A $1,000 threshold allows that the first $1,000 in gross revenues from an unrelated business will not be taxed.
  • If the fundraiser (or unrelated business) is run by volunteer efforts (i.e., no paid staff) then the proceeds are not taxed.
  • If the fundraiser is not regularly carried on, such as a once-a-year unsed curriculum sale, then the proceeds are not subject to UBIT.
  • If you are selling donated items, like in a garage sale, the income raised is not taxed.

One of these exceptions are bound to apply to most homeschool organizations.

So, while the income from an unrelated business activity may be taxable, in reality, no tax will be paid because one of the exceptions mentioned above applies.

 

Carol Topp, CPA

Save

Save

Is my homeschool graduation fundraiser breaking the law?

Hi Carol,
The past 3 years we have held a graduation. The graduate families have been doing the fundraising, with the amount earned going into our checking account and then paid out for speakers, food, programs, and etc. I am concerned after reading your book Money Management in a Homeschool Organization: A Guide For Treasurers that we have been doing this all wrong!
 Are we instead supposed to fund raise as a whole group, and have graduation as a budgeted item in place of creating the graduation fund in our checking account?
Thank you so much for all your help!

Heidi,

 

Heidi,

The fundraising to pay for the graduation expenses is fine. The fundraiser proceeds are going to an event that your homeschool organization operates, not to individual families.

What is prohibited by the IRS is private inurement which is when an organization earmarks fundraiser proceeds as belonging to specific families to defray their specific and particular expenses. That’s a no-no. The purpose of those fundraising monies to to further your exempt purpose (homeschooling), not to give a financial break to specific, individual families.

There was a homeschool group that showed me their spreadsheet of about 10 fundraisers(!) and the 20 families that participated and how each dollar of profit from the fundraiser was divvied up to each family. Yikes! It was a record-keeping marvel, but prohibited by the IRS! I warned them to cease and desist immediately.

I think the graduation event should be included in your budget with both the revenues (parents paying money and the fundraisers proceeds) and the expenses (speakers, food, programs, etc) recorded.

 I hope that helps,
Carol Topp, CPA

 

 Learn more about managing money and IRS tax exempt status for your homeschool organization

Save

Save

Save

Save

Save

Scrips fundraisers for homeschool groups

Carol,
Our homeschool coop’s sports team decided to do a fundraiser using Scrips. The group is going to make each individual player buy their uniform instead of renting it from the team. So last August, the co-op started individual family accounts using money made from Scrips to be able to be applied toward buying individual uniforms.
According to some of the information I just read on your website (http://homeschoolcpa.com/do-not-use-individual-fund-raising-accounts/), I am concerned that this violates the rules for 501 c(7) non-profit social groups.
Am I understanding it correctly that allowing individual athletes to fund raise using Scrips to offset individual uniform cost is not allowed for 501 c(7) non-profits? Is this truly is an improper use of fundraising proceeds?
Thank you so much,
Elizabeth

Elizabeth,

You are correct that usually individual fundraising accounts are prohibited for 501c tax exempt organizations as I wrote about here and  here.

But Scrip is an exception to the “No individual fundraiser accounts” rule.

Great Lakes Scrip requested a private letter ruling from the IRS in 2009 stating that their program does not create income to the parent or inurement because they are rebates and not payment for services. BTW, these IRS private letter rulings cost thousands of dollars.

The IRS letter is 9 pages long and probably more than you care to read. Fortunately, Great Lakes Scrip provides a a nice, plain-English summary of the tax implications from using their scrip program.

“we want to reassure you that crediting your members’ scrip rebates toward their tuition or other fees has been reviewed and approved by the IRS, if you have structured your program correctly.” -Great Lakes Scrip
Take a little time to read the document from Great Lakes Scrip to be sure you are running your Scrips program correctly.

 

And one other word of warning come from Blue Avocado (a great source of information on running a nonprofit organization):
Regular scrip often results in a nonprofit handling a good deal more money than it ever has previously. For example, an all-volunteer group may be used to handling hundreds of dollars, but with scrip they may be handling tens of thousands of dollars in a short period of time. Doing so requires conscientious volunteers who have strong ability to manage funds carefully, promptly, and ethically.

Carol Topp, CPA

Helping homeschool leaders with legal and tax compliance

Save

Save

What Homeschool Leaders Don’t Know About Fundraisers

What Homeschool Leaders Don’t Know About Fundraisers

Carol Topp, CPA, the HomeschoolCPA will share tips on important issues that homeschool leaders may not know about. This episode will focus on helping homeschool leaders know the tax rules about fundraisers.

Listen to the podcast

 

MONEY MANAGEMENT FOR HOMESCHOOL ORGANIZATIONS:  A GUIDE FOR TREASURERS 

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

Save

Are you asking for donations on your website?

donation_money_insert_400_clr_5537

Does your homeschool group accept donations on your website? Lots of nonprofits do and its a handy way for donors to send a donation.

But did you know that having a donation button on your website could mean that your organization would need to register as a charity in almost all 50 states? What a load of paperwork!

Harbor Compliance explains that, fortunately, many states follow the Charleston Principles for accepting donations on a website.

Generally, the Charleston Principles assert that registration (with each state) should only be required if:

  • non-internet activities alone suffice to require registration, or
  • the nonprofit solicits contributions through its interactive website or specifically invites further offline activity to complete a contribution, and either:
    1. Specifically targets persons physically located in the state, or
    2. Receives repeated or substantial contributions. (“Repeated” and “substantial” are left up to each state to define.)

The principles leave a lot of room for interpretation, which brings us to some practical state-specific pointers.

Top 5 Tips When Soliciting Donations Online:

As you prepare to solicit donations online:

  1. Always register in your state of incorporation.
  2. Following-up with fundraising contacts residing in unregistered states may trigger registration. For example, you receive an unsolicited and insubstantial contribution through your website from a resident of a state in which you are not registered. If you then solicit that contact via e-mail, phone, mail, or any other medium, that will be treated as solicitation triggering registration. E-mail is generally treated the same as a mail or in-person solicitation.
  3. Soliciting through a charity portal alone such as www1.networkforgood.com does not trigger registration. That is because it is a donor-advised fund that exists to distribute funds to other nonprofits. Technically the donation is given to the fund as the payee. Scrutinize any website before assuming it is a donor-advised fund; their fine print may pass the burden of charitable registration on to you.
  4. Your nonprofit may consider hosting a non-interactive websites that encourage donations through third-party sites or offline means. This may still trigger registration – it is not a loophole.
  5. You can use social media to send out information about your nonprofit’s activities without needing to register. When your language invites solicitation, you do need to register. A fan promoting donation independent of the nonprofit does not trigger registration.

Thanks to Harbor Compliance for this helpful information.

My source: https://www.harborcompliance.com/information/online-fundraising-charleston-principles

Carol Topp, CPA

Save

Save

Save