Search Results for: 990N

What is the difference between a homeschool support group and a homeschool co-op?

From the Facebook group I Am a Homeschool Group Leader, came this question:

After much reading, I have come up with a question… What is the difference between a homeschool group and a homeschool co-op?

I took over the leadership of our local, small, informal, unincorporated homeschool group last year. We’re a group of families that meet for unstructured socialization/play time twice a month. We offer classes for all age groups, workshops for moms & dads, date nights/coffee nights for moms & dads, monthly field trips, monthly activity days, and even some on-going activity days. After reading Carol Topp’s book  Homeschool Co-ops, and talking with the HSLDA support group liaison in regards to support groups, I am thinking that the group I am in charge of is a style of co-op. Is this right, wrong, both or neither?

-Jacquelyn

 

I make a differentiation between co-op and support groups because their tax exempt status is different in the eyes of the IRS.

Homeschool co-ops have an educational focus and qualify for 501(c)(3) status as educational organizations.

Homeschool support groups have social interaction and support as their focus and the IRS would classify them as 501(c)(7) Social Clubs.

Here’s an article explaining the differences. It includes a chart comparing 501(c)(3) (co-ops) and 501(c)(7) (support groups). Homeschool Groups As Social Clubs.

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As homeschooling grows, I’ve seen support groups change into co-ops and co-ops add support activities. Things are not as clear cut as my chart make it seem! So when I consult with a group I ask about:

  • their activities
  • where do they spend their time and their money?
  • what is the source of most of their income and expenses? (that’s how CPA’s think!)

From hearing about their activities and money, I can usually help discern if their group is a 501(c)(3) (educational co-op) or 501(c)(7) social club (support group).

It sounds like Jacquelyn’s group is a support group. Support groups fit the IRS 501c7 social club status and can “self declare” their tax exempt status without officially applying. (educational organizations with more than $5,000 annual gross revenues must apply for 501(c)(3) status).

But the IRS says all nonprofits-even small support groups- are supposed to be filing the annual Form 990N.  Read more here: http://homeschoolcpa.com/irs-form-990n-faq/

For Jacquelyn’s group and hundreds like them, the tipping point comes when the group gets an EIN from the IRS to open a checking account. That’s then the IRS knows about your group and it will need to start filing the annual 990N (it’s online and only 8 question. it takes about 5 minutes once a year).

Important disclaimer: I stated that a co-op is a 501(c)(3) and  a support group is a 501(c)(7), but that is  my interpretation of the IRS tax code. You will not find homeschool groups mentioned in the IRS rules and regulations. (PTL!)  I have discussed homeschool group classifications with IRS employees, read a ton and have attended workshops put on by the IRS. I’m a CPA and homeschooled for 14 years. I still belong to my support group, even though I retired from homeschooling 4 years ago. But I want to make it clear that I am using my CPA knowledge and homeschool experience to help homeschool organizations understand and comply with IRS regulations.

I hope that helps!

Carol Topp, CPA

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P.S. Jacqueline found Homeschool Co-ops: How To Start Them, Run Them and Not Burn Out helpful.

Maybe you would, too.

 

Will getting an EIN put us on the IRS radar?

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Usually the first contact a homeschool organization has with the IRS is getting an Employer Identification Number (EIN). Most banks now request an EIN when a group opens a checking account. One group in Virginia is doing things right by getting a checking account for their homeschool co-op instead of using a personal account, but they wonder if this will mean more contact with the IRS.

Hi Carol,
I am new to an existing homeschool co-op in VA. This co-op is more then 12-15 years old, we do not accept donations or need to, so far we have been handling the money through someone’s personal bank account, we receive fees from students and then pay teachers and reimburse them for materials, generally we break even each year (or can if we need to).

The bottom line is that we want to be able to have a business checking account.

Can we get an EIN in order to open a checking account in our co-op name without incorporating and without having a state or federal annual filing requirement? I seem to remember that once you get an EIN (that I think is required for a business bank account), you are on the radar screen with the IRS and will need to file some sort of return.
Thanks so much,
Nancy in VA

Nancy,

Yes, you need an EIN for banking purposes. It used to be that getting an EIN was the first and last time a small homeschool organizations had to deal with the IRS. But not anymore!

Since 2007, the IRS has required tax exempt organizations (like your homeschool co-op) to file an annual information return, Form 990/990EZ or 990N. Fortunately, for small organizations (under $50,000 annual gross revenues), the Form 990N, is a short online form that asks only 6 questions. Read more here: Form 990N FAQ

If you are paying teachers, then you have some reporting to the IRS and your state government. You will have to pay payroll tax (Social Security and Medicare) and file a W-2 if they are employees or file a 1099MISC if they are independent contractors. You should read this blog entry: Paying co-op teachers is a sticky issue

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Need help understanding tax exempt status or money management in your homeschool group?

Carol Topp’s books are written specifically for the homeschool leader.

 

Carol Topp, CPA

Do You Know About IRS Required Filings for Homeschool Groups?

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Homeschool leaders frequently wonder, “Is my group supposed to be paying taxes to the IRS?” They ask if there is anything they should be reporting to the IRS, if so what and when.

Homeschool Contact With The IRS
There are several situations when a homeschool organization will be in contact with the IRS:

1. Your homeschool group opens a checking account and needs a tax identification number.

Usually, the first contact a homeschool organization has with the IRS is getting an Employer Identification Number (EIN). Most banks now request an EIN when a group opens a checking account. An EIN is similar to a Social Security Number for a business or nonprofit organization. They are available from the IRS at no charge at www.IRS.gov. Search for Form SS-4, the application for an EIN.

2. Your homeschool group pays a worker.

Your worker may be an independent contractor or an employee. Either way, there are forms to file with the IRS at the end of the calendar year (typically a 1099MISC or W-2, respectively). Additionally, there are employer taxes, such as Social Security or Medicare taxes, to pay in addition to employee wages. My books Paying Workers in a Homeschool Organization and Money Management in a Homeschool Organization will walk you through the details of hiring and paying workers.

3. Your group makes money from fund raisers, selling T-shirts and other merchandise, or selling advertising on your website.

Homeschool groups often make money from activities not related to homeschooling. The IRS calls income from these activities “unrelated business income (UBI)” and will tax the profit from these activities. Usually homeschool groups avoid the UBI tax by using one of the IRS exemptions which include using all volunteer labor, selling donated merchandise or having unrelated business income of less than $1,000 annually.

4. Your homeschool co-op brings in income of more than $5,000 in a year.

If your co-op’s gross revenues are more than $5,000 a year, your organization should file an application (Form 1023 or the new, shorter Form 1023-EZ) with the IRS for 501(c)(3) tax exempt status. Approval of tax exempt status by the IRS means that your co-op will not pay income tax on its financial surplus. Your organization is also eligible to receive tax deductible donations and may participate in fundraisers only open to 501(c)(3) organizations, such as Box Tops for Education.

If your organization’s gross revenues are under $5,000 a year, you are granted an exception from filing the application paperwork for 501(c)(3) status. You can “self-declare” your tax exempt status without applying. But you will still have annual reporting requirements, the Form 990N (see below).

5. Your homeschool support group wishes to avoid taxes on their surplus.

If your homeschool organization is a support group, then you may be eligible for tax exempt status as a 501(c)(7) social club with the IRS. Social clubs can “self-declare” tax exempt status but some file an application (Form 1024) with the IRS. Read more about eligibility for 501(c)(7) social club status at HomeschoolCPA.com/SocialClub. Even if you self-declare tax exempt status for your support group, the IRS still requires an annual report (see below).

New IRS Filing Requirement for All Nonprofit Organizations

As of 2006, the IRS requires all nonprofit organizations (except churches) to begin filing an annual information return called a Form 990/990EZ or 990N, even if they have not yet applied for tax exempt status or are eligible to self-declare tax exempt status. The short, online Form 990N is for nonprofit organizations with annual gross revenues under $50,000. It is a very simple online form with only six questions. No financial information is given.

A. Calendar year or tax year dates
B. Check if gross revenue is $50,000 or less
C. Name and address of the organization
D. Employer Identification Number (EIN)
E. Website
F. One officer’s name and address

The Form 990N is filed online at Epostcard.form990.org and is due due 4 1/2 months after the end of your fiscal year (May 15 for groups that run on a calendar year).

Your organization may have difficulty in filing the Form 990N if you have not applied for tax exempt status. You will have to call the IRS Customer Account Services at 1-877-829-5500 and ask to be added to their exempt organizations database so you can begin filing the Form 990Ns. It typically takes 6 weeks to be added to the IRS database.

 

What Happens if Your Organization Doesn’t File the Form 990N?

There is no financial penalty for late filing, but failure to file the Form 990N for three consecutive years means automatic revocation of tax exempt status. Lately, I have helped several homeschool organizations that did not file their 990Ns for several years (most did not know about the requirement) and had their tax exempt status automatically revoked.

If all this seems confusing or overwhelming, please visit HomeschoolCPA.com. On the blog page, type “990N” into the search box and read the blog posts about this IRS filing requirement.  Additionally, my book The IRS and Your Homeschool Organization can give you details on applying for tax exempt status.

 

Carol Topp, CPA is an author, accountant and retired homeschool mom. She is the author of Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out, The IRS and Your Homeschool Organization and Money Management in a Homeschool Organization: A Guide for Treasurers. She shares her experience as a CPA, homeschool mom and co-op treasurer in her books, at homeschool conventions and on her podcast DollarsAndSenseShow.com. Carol offers consulting services to homeschool leaders. Contact her on her website HomeschooCPA.com.

 

Please share! You have permission and are encouraged to share this article in full on your websites, blogs, publications and via email. I do ask that your share the full article (no deletions) and credit me as author, include a link to HomeschoolCPA.com and include my biography at the end of the article. Thank you!

Church is worried about legal status of homeschool group

The leadership of our church is concerned that our homeschool  co-op does not have any legal status. They suggested that we look into becoming something official, like a 501c3.

The issue is that we are a pretty small group, and the teachers are not paid by the co-op, but by the individual students directly. At this point, there really isn’t any money changing hands. I have a lot of reservations about the 501c3 status, too.

Is there another “legal entity” that our smallish co-op could become that would let us do some basic things like have a checking account? We don’t really have any money to put toward legal fees or anything like that, so it would have to be very inexpensive to set up.

Thanks so much for all your work.

Kerry in Ohio

 

Kerry,

It’s nicest if the church takes you under their tax exempt status as a ministry, but for legal and insurance purposes a lot of churches are reluctant to do that.

Two choices

There are really two legal structures you group can be: nonprofit or for-profit. Most homeschool groups are nonprofits and in addition have tax exempt status from the IRS.

If your gross annual income is under $5,000 per year, you do not have to file any application to be tax exempt with the IRS; you can simply self declare your 501c3 tax exempt status. That’s pretty easy!

You will have to file an annual information return with the IRS called a Form 990-N, but it’s quick and easy. See my 990-N FAQ page here: http://homeschoolcpa.com/irs-form-990n-faq/

If you do not self declare 501c3 status (and file the annual 990-N), then, by default, your organization is a for-profit business. That’s your other legal alternative. The income and expenses would have to be reported on someone’s tax return as a business. The church may not rent space to a for-profit business (my church won’t), so you should read more about nonprofit and 501c3 status.

IRS and Your Homeschool Org cover

My book The IRS and Your Homeschool Organization can calm many of your fears.

I hope that helps.

Carol Topp, CPA

Error in the IRS and Your Homeschool Organization book

This is embarrassing to admit, but I found an error in my book, The IRS and Your Homeschool Organization.

IRS and Your Homeschool Org cover

 

The error is on page 23 in the chart Comparison of 501(c)(3)  Qualified Charity and 501(c)(7) Social Club.

The correct chart is available here.

The error is under the column for 501(c)(7) and the row Annual IRS reporting. It should read “Form 990N, Form 990EZ or Form 990.” All tax exempt organizations including 501(c)(7) Social Clubs are required by the IRS to file an annual Form 990, 990EZ or 990N.

Please make this correction in your book.

I apologize for the error and will make a correction to the book as soon as possible.

Carol Topp, CPA

September 5, 2014

Update September 15, 2014: The error in the print version and pdf version have been fixed. The Kindle version will be fixed soon. While I was at it I updated some other information and added a chapter on getting tax exempt status reinstated if it was revoked. This update is the 2nd edition of the book.

 

Does the EIN become the 501c3 number?

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Does the EIN become the 501c3 number, meaning are they the same number once the group obtains the 501c3 status?

Also, as a Wisconsin unincorporated nonprofit association, are we required to become a 501c3 or c4?

If not, are we required to file anything with the IRS?
-Becky in WI

Becky,
Thank you for contacting me.
The IRS does not issue a new identification number when an organization receives tax exempt status. There is no “tax exempt number.” Organizations use the same EIN they had before receiving tax exempt status.

No organization is “required” to be a 501(c)(3) or 501(c)(4), but if your organization is not tax exempt under one of the 501(c) categories, then you owe taxes on your profits.

All tax exempt organizations are required to file an annual 990 (or 990EZ or 990N) annually with the IRS to maintain your tax exempt status.

This  FAQ page on the Form 990N may be helpful.

And here’s a video I just made explaining the annual reporting to the IRS: http://homeschoolcpa.com/video-annual-irs-fiings-for-homeschool-organizations/

I hope that helps.

If you need specific guidance, we could set up a consultation by phone. Contact me here.

Carol Topp, CPA

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File your IRS 990-N for prior years

Did you miss filing your IRS Annual report, the Form 990N in prior years?

Here are a few online services that let your file prior year 990Ns.

Here’s a full list of IRS approved providers for the Form 990N.

Do not use these services for your current Form 990N.

The current Form 990N is filed for no charge at http://irs.gov/990n

 

Remember, tax exempt organizations must file the Form 990, 990EZ or 990-N with the IRS every year. Failure to file for 3 consecutive years will mean your tax exempt status will be automatically revoked.

If you believe your tax exempt status was revoked, I can help your organization get reinstated. Contact me.

Carol Topp, CPA

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Homeschool group wishes to grant college scholarships

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Carol,

Our 501(c)(3) non-profit homeschool support organization would like to award a $1000 college scholarship to a graduating senior in our chapter of the Eta Sigma Alpha home school national honor society. The criteria for receiving the scholarship is the student must be a member of our homeschool honor society chapter and be a graduating senior that will be attending college in the fall. The students will be judged on their accomplishments in areas of scholarship, character, service, and leadership.

The plan is that I would donate the $1000 to our 501(c)(3)non-profit home school support organization, which would in turn award the scholarship to a student in our honor society chapter. The scholarship winner would be determined by an independent panel of judges. I would not be one of the judges and I have no children involved in the program.

Are there any hoops we need to jump through to accomplish this?

Janis H in Texas

Janice,
You’re to be commended for establishing a scholarship fund and already having good policies in place.

You should look at your organization’s original application for 501c3 status (Form 1023) to see if included Schedule H Scholarships. If your organization included Schedule H, you’re all set. Award away! 🙂

If you did not file a Schedule H, then you’ll need to notify the IRS that you are adding a new activity.

According to this IRS webpage, you report changes and additions in your activities on Form 990 or 990EZ.
http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Reporting-Changes-to-IRS

It would be a very good idea to look at the Form 1023 Schedule H (scroll down to page 28) and it’s instructions. From the questions the IRS asks, you get a very good idea of how they think a scholarship fund should be set up. It sounds as if your organization already has in place many of the IRS’s recommendations. Include a paragraph outlining your policies based on Schedule H questions when fling Form 990 or 990EZ.

If your organization does not typically file Form 990 or 990EZ because you are eligible to file the online e-postcard Form 990N (Annual gross revenues less than $50,000), you should file the longer 990EZ for the year you launch the scholarship program.

I hope that helps.

Carol Topp, CPA

How do I know if my organization has lost its tax exempt status?

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Did your nonprofit organization lose your tax exempt status?

What’s this all about?

In 2010, the IRS has begun revoking the tax-exempt status nonprofit organizations that failed to file a Form 990/990EZ or 990N for three years. A large number of these organizations are small nonprofits that were not required to file an annual return (because their gross revenues were $50,000 or less) and didn’t know about the new IRS requirement.

If your organization has not filed any of the 990/990EZ or 990N forms for three years, it is likely your tax exempt status was revoked.

How will I know if my organization has lost its tax-exempt status?

You may have received a letter from the IRS  called a  CP120A.

What if we did not receive a  letter from the IRS?

You may not have not received a letter because your address has changed or you are not in the IRS exempt organizations database. This is true for thousands of tiny organizations or clubs that were not required to file a Form 1023 or 1024 application to be tax exempt.

1. You can search the IRS database here: http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check

2. If you don’t find your nonprofit’s name in the database, call the IRS Customer Service for exempt organizations at 877-829-5500. Give them your name and Employer Identification Number (EIN). Call early in the morning ( 7:30 or 8:00 am ET) for shortest wait times.

OK, I think our tax exempt status was revoked! Now what?

I can help. Read more here…

Reinstate revoked tax exempt status

Did your nonprofit organization lose your tax exempt status?

What’s this all about?

In 2010, the IRS has begun revoking the tax-exempt status nonprofit organizations that failed to file a Form 990/990EZ or 990N for three years.

A large number of these organizations are small nonprofits that were not required to file an annual Form 990 because their gross revenues were $50,000 or less and didn’t know about the new IRS requirement.

If your organization has not filed any of the 990/990EZ/990N forms for three years, it is likely your tax exempt status was revoked.

How will I know if my organization has lost its tax-exempt status?

The IRS may have sent a letter. If not, read more here…

OK, I think our tax exempt status was revoked! Now what?

Don’t panic. The IRS has a procedure to get your tax exempt status reinstated. It involves paperwork (the IRS loves paper) and filing fees of $275 or $600.

Here’s a flowchart I designed to explain the IRS procedure in pictures.

We need help getting through this!

I can help. I offer a phone consultation with your board or leaders to discuss where you are, what options your have what it will cost to get your tax exempt status reinstated. Contact me to set up a phone call.

It’s helpful to me if you fill in this questionnaire.

What will this cost me?

My fees for reinstating tax exempt status are:

Consultation to determine your tax exempt status and the process to get reinstated. This is usually a 60 minute phone call to discuss your organization’s history, tax exempt revocation, and which option for reinstatement is best for your organization. $85/hour.

Prepare Form 1023-EZ: (organizations with annual gross income of $50,000 or less may be eligible for Form 1023-EZ): Includes determining your eligibility to use the IRS streamlined reinstatement and Form 1023-EZ and verifying your organizing documents fulfill the IRS requirements: $300 plus IRS fee ($275) paid to the IRS directly.

Prepare Form 1023: According to IRS Revenue Procedure 2014-11, some organization may need to file the longer Form 1023. I am no longer assisting clients in preparing the Form 1023, but I can refer you to several professionals who can assist you. their fees are $1,275-$1,800.

 

Carol Topp, CPA

 

 

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