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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Can our homeschool group get sued if we’re not a recognized nonprofit?

Carol,
We are a Christian homeschool group and co-op. The church that hosts our co-op classes is concerned with the possibility of us getting sued if we are not a recognized non-profit.  We are comprised of like-minded believers for a specific cause.  Can you comment on this?

TW

 

TW,

I usually recommend nonprofit incorporation to protect the leaders and members of a homeschool organization.

Nothing can stop a lawsuit, but forming as a corporation means the liability is limited to the corporation’s assets and it protects the personal assets of the leaders and members from the lawsuit damages.

Unfortunately, being like-minded does not mean you’re immune from lawsuits. One group told me that a co-op member’s health insurance sued the homeschool group for medical bills when a child was injured while at co-op. The co-op member did not bring the lawsuit, her health insurance company did.

If you need more information on the benefits of nonprofit incorporation for your homeschool group, read The IRS and Your Homeschool Organization. It includes a chapter on nonprofit incorporation.

I hope that helps,

Carol Topp, CPA

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Churches and Homeschool Groups

 

Some homeschool groups find it difficult to find a church host. Why is that?

This short podcast episode (16 minutes) from Carol Topp, the HomeschoolCPA, is an excerpt from a homeschool leaders retreat held in Indiana.

Carol discusses the tenuous relationship homeschool groups have with churches who host their programs. How to keep your church happy with your group and how to keep your church out of trouble with the tax man!

 

 

In the podcast I mentioned a Facebbook group for homeschool leaders called I am a Homechool Group Leader. Fantastic group! Ask to join today.

 

Carol Topp, CPA

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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

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How does the IRS see my homeschool support group?

Your homeschool support group is probably a social club in the eyes of the IRS. Listen to this short podcast as Carol Topp, the HomeschoolCPA explains that social clubs can get automatic tax exempt status without applying, but they must maintain that tax-free status.

Listen to the podcast (14 minutes)

Here’s a link to the blog post Carol mentioned in the podcast: How to get into the IRS exempt database:

How to get added to the IRS database and file the Form 990N

FEATURED PRODUCT from HomeschoolCPA:

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

Click Here to request more information!

 

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Self-declared tax exempt status for 501c3 homeschool groups

We are just starting up our group and we do not want to do anything illegal, but we would not qualify as a nonprofit right now, so as per your IRS book, we would be labeled an Unincorporated Association. My question is… Do we need to do anything legally to continue as a group. We do plan to open a checking account and have an EIN number.
I just felt that for a group that is just starting and is not a nonprofit or at the 501 (c) (3) status yet, we don’t know the first steps to get a group of and running and if we need to do anything legally to start. Thank you so much for your time!
-EC

 

Dear EC,

Please watch this video 3 times (yes, 3 times!):

 

You will hear that to legally and correctly set up a nonprofit you need 3 things:

  1. A mission that is not motivated by profit
  2. A board
  3. Organizing documents. Usually bylaws but Articles of Association are also recommended. Get samples here

If you have those three things, your organization is a nonprofit. Congratulations! It may not be a nonprofit corporation; instead it is an unincorporated association, as you mentioned, but it is still a nonprofit.

But, there is a difference between nonprofit status and tax exempt status

Nonprofit status is granted by your state while tax exempt status is granted by the IRS to qualifying nonprofit organizations. Typically nonprofits need to formally apply for tax exempt status with the IRS.

But small nonprofits can self declare  501(c)(3) tax exempt status if your annual gross revenues* are $5,000 or less.

*Annual gross revenues are all the money you take in in a year, even if it just goes right back out. It’s not what is left over at the end of the year. It is not the amount in your checkbook. It is annual (yearly) gross (all) revenues (intake).

This video may be helpful: https://www.youtube.com/watch?v=DCFjnnY7mEw

 

How to self declare 501c3 tax exempt status

Since you have not officially applied on paper for 501(c)(3) status  (you self-declared 501(c)(3) status and don’t have to file the paperwork), your nonprofit organization is not in the IRS database (yet), so you need to call the IRS Customer Account Services at 1-877-829-5500 and be added to their database so you can begin filing the Form 990-Ns.

It typically takes 6 weeks after you call to be added to the IRS database.

Say something like this,

“We’re a brand new 501(c)(3) educational organization and I needed to get added to the IRS exempt organization database so we can start filing our 990-Ns.”


**Note that only 501(c)(3) organizations with less than $5,000 annual gross revenues can “self-declare” their tax exempt status. Organizations with more than $5,000/year in revenues must apply for 501(c)(3) status using Form 1023 or the new, shorter Form 1023-EZ.


The IRS employee will ask for your EIN and organization’s name, address, and probably a contact name.

They may also ask what date your fiscal year ends. Many homeschool groups operate on a calendar year, but some operate on a school year with a year end of June 30 or July 31. Look at the form you filed when you applied for your EIN to see what you chose as your fiscal year end.

They may ask if you have “organizing documents.” They mean bylaws or Articles of Association. So create bylaws or Articles of Association/Articles of Incorporation before you call the IRS. Get the board to approve and sign them. Sample bylaws and Articles of Association can be found here.

Call the IRS early in the morning. They open at 8 am ET and you can usually get through pretty quickly of you call then. Record the date you call, the IRS employee name and their identification number.

 

How to keep your 501(c)(3) tax exempt status

Be sure you go online (IRS.gov/990n) to file the Form 990-N anytime after your fiscal year ends and before its due date which is 4 1/2 months after the end of your fiscal year. If you operate on a calendar year, the 990-N is due May 15.

 

Carol Topp, CPA

Helping homeschool leaders with legal and tax compliance

 

Should my homeschool group be a nonprofit or a for-profit business?

A woman asks if her Classical Conversations homeschool program should be a for-profit business or a nonprofit organization.

Carol Topp, CPA explains the four differences between for-profit and nonprofits.

Listen to the podcast (11 minutes)

 

Phone Consultation with Carol Topp, CPA

Phone Consultation: A pre-arranged phone call to discuss your questions. My most popular service for homeschool leaders. It’s like having your own homeschool expert CPA on the phone!

Cost: $75/hour to nonprofit organizations.  $100/hour to for-profit businesses. $60 minimum.

Q &A by Email:  I am willing to answer questions by email, 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. Minimum $25.

Contact HomeschoolCPA, Carol Topp, CPA, to arrange a telephone consultation.

Click Here to request more information!

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Keep Up To Date on State Filings for Your Homeschool Nonprofit

Most homeschool leaders know that they need to report annually to the IRS, but did you know that there are probably filings to do in your state every year? Carol Topp, the HomeschoolCPA, discusses the most common state reports that homeschool nonprofit organizations need to file.

Listen to the podcast

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?  The answers are in  The IRS and Your Homeschool Organization. The information in this 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

Click Here to request more information!

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Are 501(c)(3) and 501(c)(7) the only options for a homeschool group?

We are meeting with support group leaders this weekend and a question has come up about legal status of homeschool groups.

Are 501(c)(3) and 501(c)(7) the only options for a homeschool group?

Dorothy

 

Dorothy,

The IRS has over  20 types of tax exempt status, all 501 (c)-somethings. Everything from Teachers’ Retirement Fund Associations (c)(11), Veterans organizations(c)(19), and Cemetery Companies (c)(13).

501(c)(3) Qualified Charity which includes educational organizations and 501(c)(7) Social Clubs (i.e. support groups) are most common for homeschool groups.

501(c)(4) Social Benefit status fits state-wide homeschool organizations, some homeschool conventions, and politically active homeschool organizations.

In the last 10 years, I’ve seen more and more homeschool organizations operate as for-profit business without nonprofit tax exempt status.

So while there are several options for homeschool groups, the vast majority of homeschool organizations are 501(c)(3)  educational organizations.

Carol Topp, CPA

 

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What Homeschool Leaders Don’t Know About Tax Exempt Status

 

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 understand tax exempt status. It’s easier than ever to get tax-exempt status. Should your group apply?

Listen to the podcast

 

Tax Exempt Status for Small Nonprofit Organizations

Contact HomeschoolCPA, Carol Topp, CPA, to arrange for assistance in applying for 501(c)(3) tax exempt status.  This service involves several telephone calls and e-mails.

Carol offers a variety of services:

  •  IRS Streamlined Form 1023-EZ Application
  • Full 501(c)(3) Application
  • Full 501(c)(4) or 501(c)(7) Application
  • State filings
  • Review of Self Prepared Application

Click Here to request more information!

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders with tax and legal issues

 

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