Homeschool leader collecting donations without tax exempt status.

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Our homeschool group leader just opened a Paypal account and has begun asking for donations. This seems a little weird and as though we need to be a nonprofit if money is collected from members. I referred her to your website, but she believes we have nothing to worry about. Is this true? Should we be a nonprofit if money is involved? How can I help her understand the ramifications of not using your resources?
Randi

Randi,

Thank you for contacting me.

Oh dear, your leader thinks she has nothing to worry about! It’s just not that way anymore!

Whenever an organization collects money from either member dues or donations, the leaders have a fiduciary responsibility for managing that money properly. If they do not manage the money properly or get organized properly with the IRS, the leaders can be held personally liable for any mistakes.

This blog posts explains the fiduciary responsibility of leaders: http://homeschoolcpa.com/what-are-the-legal-responsibilities-of-homeschool-leaders/

An organization cannot accept tax deductible donations unless they have 501(c)(3) tax exempt status from the IRS. Most homeschool groups collect membership dues, but those are not “donations” and they should not be called donations.

How can you help your leader be more responsible? Explain that if your group is not properly organized then the money she is accepting will be seen as her taxable income by the IRS and she will have to pay taxes on it!

To get properly organized start by reading a few of my blog posts and articles.

This quick video may help as well: https://youtu.be/FLvfw23z7M0

Good Luck!

Carol Topp, CPA
HomeschoolCPA.com

Congratulations to homeschool groups on tax exempt status!

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Congratulations to several homeschool organizations recently granted 501(c)(3) tax exempt status by the IRS!

  • LifeShine from San Antonio, TX
  • Grace Home Educators of Martinsville, IN
  • United Christian Homeschool Association in Belton, KY
  • SCOPE Homeschool Group in Ashville, AL

Both Lifeshine and Grace had their tax exempt status automatically revoked for failure to file the IRS Form 990 for 3 consecutive years. Fortunately, I was able to help them get their tax exempt status reinstated and neither group owed any back taxes. Yeah!

Do you know about the IRS required annual reporting for ALL nonprofit organizations (that means your homeschool group, even if you never had to file any reports with the IRS before)?

Do you have questions about the tax exempt status of your organization?

Contact me and I will help your homeschool organization get tax exempt status (or get it back if it was revoked).

It’s better than paying taxes!

Carol Topp, CPA

 

More tips on running a homeschool co-op (podcast)

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Carol Topp, CPA the author of Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out  covers more tips to starting a homeschool co-op in her podcast.

Listen to the podcast

Carol answers questions from homeschool leaders including:

  • insurance
  • background checks
  • tax exempt status from the IRS
  • required annual reporting to the IRS
  • the need for bylaws and policies

Listen to Part 1 of this podcast.

For more information on starting and running a homeschool co-op visit Carol’s website HomeschoolCPA.com

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Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out has helped more than 1,000 readers run their homeschool co-ops. Get your copy here.

Carol has more podcasts for homeschool leaders. See the list of topics.

Can a Classical Conversations community be a tax exempt nonprofit?

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I am directing a local Classical Conversations group, and many churches in our area
will not consider housing us because we are not a nonprofit. Since I am basically an independent contractor licensed by CC corporate to run a community in my area, am I potentially eligible to have my community declared a nonprofit?

-Jen, Classical Conversations Director

 

Jen,

I recently discussed nonprofit status for CC Communities with Classical Conversations COO, Keith Denton.  He explained to me that “CC Directors (who are licensees of CC) may form an entity through which to run their homeschooling operations.

CC does not require a director to run his/her homeschooling program through an entity, nor does it require that such director choose a specific type of entity (non-profit versus for profit) for its homeschooling community.

CC recommends that all directors consult with an accountant and lawyer when making the decision of whether to form an entity, and what type.  The decision of which entity to form depends on a variety of factors specific to the director and state where the homeschooling community is formed.  As such, consultation with an attorney and accountant in a director’s community is highly recommended to best address all relevant factors. ”

That was very helpful!

I can help you weigh the pros and cons of for profit or nonprofit status for your CC Community. Contact me to schedule a phone consultation.

Carol Topp, CPA

A new nonprofit corporation. Do they need to reapply for 501c3 status?

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Hi Carol,

I have been listening to your podcasts. Our group is already a 501c3 registered charity with the IRS. Unfortunately, we registered with our state as an unincorporated association. We would like the limited liability of a non-profit corporation and have the funds to apply, but after listening to your podcast I have a few questions:

1) Do we need to set up a new bank account? Or just change the set up on our current accounts? We have a Paypal linked, Amazon Smile account, Cash for Our Cause through our bank.

2) Will this affect anything with our IRS account? We won’t have to re-apply for 501c3 status will we?

Thanks for your help!
Misty in Texas

 

Misty,

I hope some of my podcasts were helpful! Thanks for listening.

Bad news: You need a new EIN and must reapply for tax exempt status

If your organization now wishes to become a nonprofit corporation (and I highly recommend it), you will have to get a new Employer Identification Number (EIN) and re-apply for 501(c)(3) tax exempt status in the name of your new corporation with its new EIN.

When you create a corporation, it is a new legal entity. So the IRS wants you to get a new EIN and makes you go through the 501(c)(3) application process again. Bummer.

Here’s a recent blog post on that issue: http://homeschoolcpa.com/incorporated-in-your-state-time-for-a-new-ein/

Good News: It’s easier to apply for 501(c)(3) status

Fortunately, the IRS does have a new short application for 501(c)(3) status, Form 1023-EZ. I have assisted about 25 nonprofit organizations get tax exempt status the new Form 1023-EZ. Some have received their tax exempt status in 10 days. That’s much faster than the 3 to 13 months in the past! Contact me if you’d like my help in applying (or reapplying) for tax exempt status.

The bank should make you open a new bank account with the new EIN. Paypal, Amazon Smile, etc. probably don’t care about your new corporate status, but you will need to re-connect them to your new bank account.

Carol Topp, CPA

Is my homeschool group considered a school?

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Hi Carol,
I took a look at the 1023-EZ worksheet to see if we qualify for filing as a tax exempt organization. Question #11 asks if we are an educational facility. Then it goes on to define what they mean. I do not know how our organization would not fall into that category. Our goal is to support homeschooling families by providing weekly classes for middle and high school students. We do make it clear that our tutors are working alongside parents. Parents have the final decision on the grade their student will receive for the class. So, what do you think? Does that mean we do not qualify to apply for tax exempt status?

Virginia

 

Virginia,
Form 1023-EZ Eligibility Checklist Question #11 asks if your origination is a school, college or university described in section 170(b)(1)(a)(ii). That part of the Internal Revenue Code describes a school. I do not consider homeschool programs to be a school as the IRS defines “school.”

One aspect of a school is a “regular faculty,” which the IRS defines as

“qualified teachers instruct the students, and the same teachers do so on a recurrent basis.”

Source: Internal Revenue Manual  viewed http://www.irs.gov/irm/part7/irm_07-026-002.html#d0e549 on 5/11/15.

And by “qualified” the IRS means:

“certifications by the appropriate state authority or successful completion of required training.”

Source: Instructions for Form 1023

So when you look beyond the Eligibility Checklist into the guts of the IRS code, you’ll probably agree with me that homeschool organizations are not schools because they do not have regular, “qualified” faculty. Most of the teachers in your homeschool organization may be qualified to teach a class at your homeschool co-op, but are not state certified, nor trained as teachers.

Your homeschool organization (probably) qualifies to be a 501(c)(3) tax exempt organization as an educational organization, but not as a school.

I hope that helps!

Carol Topp, CPA

How to know your status with the IRS

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We are trying to figure out what our status with the IRS is. We are a support group/co-op and just recently learned that we should be filing the 990N. We registered our name with the state in 2008. We got out EIN in 2009. We became incorporated in September 2014. Our annual gross revenue is less than $5,000.

 We have searched the IRS database of groups that have had their tax exempt status revoked and we are not listed. How do we find out what our status is and when the IRS is considering our date of formation so we know how to proceed?
Thanks for your help!
Anna in Ohio
Dear Anna,

You referred to an IRS database of exempt organizations called Select Check. I use it frequently to check on the status of nonprofit organizations.

But many times a homeschool nonprofit organization cannot find their name in the IRS database, usually because they have not applied for tax exempt status. That’s the situation for your group.

Your legal status is that you are a nonprofit corporation who can self declare your 501(c)(3) tax exempt status. Since your revenues are less than $5,000,  you can self declare your 501(c)(3) tax exempt status and do not have to officially apply for tax exemption.

The IRS considers your date of incorporation as your “date of formation.” You should get a new EIN for the new corporation and not use the old EIN from 2009. The IRS considers a corporation a new legal entity and you should get a new EIN to match it. Getting and EIN from the IRS

Even though you didn’t have to officially apply for 501(c)(3) status, the IRS does require you to file an annual information return, the Form  990-N. To be able to file the Form 990-N, you need to call the IRS Customer Account Services at 1-877-829-5500 and ask to be added to their exempt organization database so you can begin filing the Form 990Ns. It typically takes 6 weeks after you call to be added to the IRS database.

Say something like this,

“We’re a new 501(c)(3) educational organization and my CPA said I needed to get added to the IRS exempt organization database so we could start filing our Form 990-N.”

They will ask for :

  • your EIN(Employer Identification Number)
  • organization’s name
  • address
  • a contact name
  • Date your fiscal year ends. Many support 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 (SS-4) to see what you chose as your fiscal year end.
  • They may ask if you have “organizing documents.” They mean bylaws, Articles of Association, or Articles of Incorporation.

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.

Be sure you go online 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.

How the IRS sees homeschool co-ops (podcast)

IRS and homeschool groups

In this episode of the Dollars and Sense Show podcast, host Carol Topp continues her topic “Who’s Afraid of the IRS?” and discusses how the IRS sees homeschool co-ops and 501(c)(3) tax exempt status.

Listen to the podcast

Listen to the first part of this presentation where Carol discussed homeschool support groups and IRS 501(c)(7) tax exempt status as a Social Club.

Get a copy of the handout.

Carol also mentioned the article “Do You Know About IRS Required Filings for Homeschool Organizations?” Get it here.

The IRS and Your Homeschool Organization

Carol’s book, The IRS and Your Homeschool Organization, is available here.

 

Homeschool group answers IRS questions

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Many homeschool organizations are finding that the new IRS Form 1023-EZ makes applying for 501(c)(3) tax status quite easy (compared to the full  26-page Form 1023!)

But, unfortunately, one homeschool group, Crossroads Co-op from Maryland, found their application held up because the IRS wanted more information. Specifically, the IRS asked for:

  1. An original copy of their organizing document. Fortunately Crossroads had Articles of Association complete with the IRS required language all ready to go!
  2. A detailed description of their activities including who, where, when, fees, and time and resources
  3. Actual revenues and expenses for 3 years.

I helped Crossroads write a reply to the IRS and in only 5 days, their 501(c)(3) status was granted!

We don’t think that the IRS was targeting Crossroads Co-op or homeschool groups; we think Crossroads was just randomly selected by the IRS to provide details.

The important lesson learned is that nonprofit organizations need to have their financial information and organizing documents ready to send into the IRS when asked.

Applying for 501(c)(3) tax exempt status is more than just filling out the Form 1023-EZ online. It involves properly structuring your nonprofit.

Crossroads had done that, so they were able to answer all the IRS questions and get their tax exempt determination letter in a timely manner.

If you need help applying for tax exempt status for your nonprofit organization, contact me.

 

Carol Topp, CPA

 

Did your homeschool group lose its tax status? (podcast)

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Your homeschool group may have lost its tax exempt status and not even know it! I explain this problem in an episode of the Dollars and Sense Show podcast.

Listen to the podcast here

In 2006, the IRS made filing an annual report (Form 990/990-EZ, 990-N) mandatory for nonprofit organizations. Nonprofits that failed to file the Form 990 for three consecutive years, had their tax exempt status automatically revoked.

In the podcast, I discuss how to know if your group’s tax exempt status was revoked and how to get it back.

Episode #36 Required IRS Reports for Homeschool Groups explains the Form 990.

My book The IRS and Your Homeschool Organization is a helpful resource for homeschool organizations considering the benefits of tax exempt status. Available here.

If you would benefit from a personal phone consultation, I’d would be happy to help your homeschool organizations. Contact Carol.

Carol Topp, CPA