The IRS offers more than a dozen different classifications of tax exempt status. The most popular by far with 80% of the total is the 501(c)(3) “Qualified charity status.”
Many homeschool organizations may qualify to be 501(c)(3) qualified charities with an educational purpose or 501(c)(7) Social Clubs with a social or recreational purpose.
Here’s a comparison of 501(c)(3) “qualified charity” status and 501(c)(7) Social Club.
In general, homeschool co-ops fall under 501(c)(3) “qualified charity” because they have an educational purpose, while homeschool support groups fall under 501(c)(7) Social Club.
|501(c)(3) Qualified Charity||501(c)(7) Social Club|
|Purpose||Religious, Educational, Charitable, Scientific, Literary,||Pleasure, recreation, social activities|
|Examples||churches, charities, private schools, homeschool programs with an educational or religious purpose||Fraternities, sororities, country clubs, hobby clubs, homeschool support groups|
|Requirements||No private inurement allowed. Upon dissolution all assets must be distributed to another 501(c)(3) organization.||Personal contact, fellowship and co-mingling of members. No private inurement allowed.|
|Activities||Can hold programs, sell services and products as part of their exempt purpose.||Can provide meals or services only to members in connection with club activities|
|Tax deductible donations allowed||Yes||No|
|Tax exempt (no taxes on profits)||Exempt from federal income tax unless the organization has unrelated business income||Exempt from federal income tax on income derived from members; other income taxed|
|Source of Income||Membership fees, fees for services, donations, fund raisers, program fees||Primarily (65% or more) of the income must come from the membership|
|Membership||Serving the public or the “public good” (i.e. the education of children is a public good)||Limited membership and consistent with the purpose of the club|
|IRS Application Required?||Yes, if gross revenues over $5,000/year. File Form 1023 or 1023-EZ||No. The IRS does not require 501(c)(7) organizations to file an application. They can “self-proclaim” tax exempt status.|
|Annual IRS Reporting||Form 990-N, Form 990-EZ or Form 990||Form 990-N, Form 990-EZ or Form 990|
|Legislative Lobbying permitted?||Insubstantial lobbying allowed (less than 20% of total expenses). No endorsement of a candidate.||No limit on legislative activity as long as it furthers the exempt purpose|
Need more help understanding your tax exempt status?
My book, The IRS and your Homeschool Organization is a good place to start.
If you have specific question about your homeschool program, we can arrange a phone consultation.
I hope that helps!
Carol Topp, CPA