Homeschool support group has problems with bank and IRS

Carol – I just got off with the IRS and I am EXTREMELY irritated and frustrated!!!!! Our homeschool group is a 501c7 social club; we have adopted by-laws. To open up a bank account, the bank wants documentation from the IRS giving proof that we are recognized as a nonprofit organization.

I spoke with two different people at the IRS and the last one was in the tax exempt dept. He and I did not communicate well. He said we had no paperwork in and that I needed documentation for our group. I explained that I had by-laws but he wanted to know if they were signed. I asked if that meant with a signature and he just kept saying the same thing without answering my question.  We kept going round and round with him asking me the same question. Just frustrating!!!

So what do we need to do to be able to get our checking account opened?

Joy

 

Joy,
I’m sorry you had such difficulty with that IRS employee.

The IRS Exempt Organization has lost many of its experienced employees to retirement and to other parts of the IRS managing the Affordable Care Act (Obamacare). And what we’re left with is robots like you talked to. They simply read from a script. I’ve heard several complaints.

Forget the IRS. Go back to the bank. Explain to them that you do not have IRS proof because you are a self-declared tax exempt 501c7 Social club. Bring your bylaws, a list of board members, and your EIN letter form the IRS. Common law states that a nonprofit is formed when you have a board and bylaws.

Proof from the IRS is not needed to establish a nonprofit checking account because the IRS grants tax-exempt status, not nonprofit status. There IS a difference.

Read this article: How to become a recognized Nonprofit

You may need to educate the bank teller. They are frequently misinformed.

Hand them this blog post: http://homeschoolcpa.com/banker-wants-irs-letter-t…

Tell him that 501c7 social clubs can self-declare tax exempt status and do not need a letter from the IRS to prove tax exempt (or nonprofit) status.

Read more about self declaring tax exempt status: Homeschool Groups as Social Clubs

Act informed and confident. You are eligible to open a nonprofit checking account and do not need “proof” from the IRS of self-declared tax exempt status.

Good luck!!

Carol Topp, CPA
Helping homeschool leaders

 

Save

Save

Homeschool Treasurers: Do this before giving your board a financial statement

Homeschool treasurers: before you prepare a financial statement for your board meeting you should reconcile your bank account!

Why is reconciling bank accounts so important?

Vickey Richardson of FreeChurchAccounting.com explains,

 I have discovered with my bookkeeping business that reconciling accounts are not very high on some organization’s to-do list. When accounts are not reconciled … financial statements are usually NOT accurate.

REMEMBER…before generating your financial statements, there is a process you should go through to ensure the accounting reports you give your pastor, treasurer, or governing council are accurate and complete.

One of the most important steps is the bank reconciliation!

See how to reconcile your bank account and additional steps you should take BEFORE you start on your monthly, quarterly, or annual reporting …

Bank Reconciliation First then Financial Statements

(click for Vickey’s detailed steps )

I completely agree with Vickey. When I see regular bank reconciliations, the financial statements are almost always correct. When a organization does not reconcile their accounts, the financial statements are usually a mess.

Vickey also reminds us that credit card statements need to be reconciled too! And so do PayPal accounts. A credit card or PayPal account is really just a type of bank account with inflows and outflows. So reconcile them monthly as well.

 

Carol Topp, CPA

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

Here’s a special for the summer. Buy Money Management in a Homeschool Organization for 25% off. Get the paperback version for $7.50 (usual price $9.95). The ebook price is only $3.99.


Order Money Management in a Homeschool Organization paperback
Order Money Management in a Homeschool Organization ebook in Kindle or pdf

 

Save

Can a homeschool group just get together without having to report to the IRS?

meeting

Can a homeschool group just get together without having to report to the IRS?

Dorothy

 

Ddorothy,

Yes, a group of homeschool families can just gather together, but the group will be limited in their size and to dealing in cash only.

Very small homeschool groups are more like a play group or group of friends pooling their money to pay group expenses, like a field trip.

I compare it to a group of friends all going out to dinner. They each pitch in to pay the bill. These tiny groups do not file reports with the IRS. Very tiny homeschool groups can operate like this.

In this case, a group may not need an EIN or to open a checking account for the group, but they would be limited in size and limited to cash only. It’s usually when a group needs a checking account that they have dealings with the IRS, because they need an EIN to open a checking account.

I hope that helps,

Carol Topp, CPA

Best of: Checking accounts for homeschool organizations

checkbook07Here’s a collections of my best blog posts on checking accounts for homeschool organizations.

Start with this article about getting a identification number from the IRS before you open a checking account:

Getting an EIN from the IRS

Then read through these blog posts:

Checking accounts and EINs for homeschool groups
Will getting an EIN put us on the IRS radar?
EIN before or after incorporation?
Fraud in a homeschool group
Banker wants IRS letter to open a checking account

Cover Money Mgmt HS OrgYou’ll find more information on managing money in a homeschool organization in my book, Money Management in a Homeschool Organization: A Guide for Treasurers.

Carol Topp, CPA

How to use another nonprofit’s tax exempt status (legally!)

holding_big_sweepstakes_check_400_clr_14237

Hi Carol,
I run a support group that encourages homeschoolers to engage in STEM competitions. We have had students win prize money in the past and we would like to have be able to open a checking account to receive that prize money. Some organizations will give directly to students, others require an educational organization with a W-9. We are considering a DBA  or an LLC, where any prize money would be granted to the group and then distributed via an application process to homeschoolers who start STEM groups.

I am willing to personally take on the prize money as income to me if someone wins and deduct then the tax amount. Since we do not collect any dues, we do not want to file for 501 tax exempt. There is no money to pay the fee. If no one wins anything, we have no income to report.

Would you suggest either the DBA or the LLC, or do you have another suggestion?

Thank you for any assistance.
Blessings to you!

Kathryn

Kathryn,

Thank you for contacting me. You are doing a wonderful thing for homeschoolers!

From what you described, I don’t think a DBA (Doing Business As name registration for a business) or an LLC (a for-profit business) would be the best arrangement. My concern would be that grantors of the prize money would not award funds to an LLC/for-profit business.

Additionally,  accepting payments in your name might not qualify as an “educational organization” to the grantors.

Instead, you probably need to establish an official nonprofit organization (I can help with that) or find another nonprofit organization to take your STEM program under their umbrella. They let you use their tax exempt status and it’s easier than setting up a new nonprofit organization. It’s called fiscal sponsorship and it’s legal, if done correctly.

Learn more about Fiscal sponsorship

Carol Topp, CPA

Using Paypal in a homeschool group

Paypal logo

Over at the I am a Homeschool Group Leader there was a discussion on using PayPal to collect fees.

Here’s some of the tips and advice given:

We set up a PayPal and separate bank account. It has made it so easy for accepting payments. Our registration is $100. If they pay by PayPal, we’ve included a $4 fee to cover the finance charges. Nobody has complained. Others have mailed in checks for just the $100.

 

We set up a co-op email & registered the PayPal account to that email exclusively. We didn’t think to increase the fees to cover the PayPal fees, but will probably do that next year – since they are something like 2% plus $.30 cents per transaction. This has made the PayPal account entirely for the co-op – even the email comes up with the co-op name in the email. All deposits or payments to or from the PayPal account will only be linked to our co-op account. Similar to another member, myself, and the treasurer have access to our bank accounts and PayPal accounts and they are checked very regularly.

 

One other thing… you have to connect this to an email address that does not yet have a PayPal account (last time I talked to PayPal, they were discussing changing this) so you may have to set up an email for your group, if you don’t already have one.

 

Any other payments can also be received there for other things like field trips, parties, etc. I love it. Makes keeping the books so easy. There are a few people who still don’t use PayPal (especially in light of their new privacy policy), so we do still keep some records the old fashioned way.

 

You can setup a nonprofit account with PayPal so your fees aren’t as high. We only use PayPal for enrollment so we opened the account for two months. Closed it with no issues and will reopen next year during enrollment. No need to pay monthly fees for an account we aren’t using accept once a year.

 

We started using PayPal as soon as we started using Homeschool-Life website. It has been so much easier for our treasurer than cash & checks and tracking people down. We use this site to help us figure our PP fees http://thefeecalculator.com/
We ne
ed to look into converting it to a non profit account since we have our official 501 status. I believe the fees are lower then. Our families love the convenience and the generated receipt from PayPal.

 

Does your homeschool group use Paypal? Anything to add? Comment below or on my Facebook page.

Carol Topp, CPA

5 most important, do-able tasks for homeschool nonprofit groups

checkbook07

Blue Avocado asked CPA Carl Ho, who works with dozens of small nonprofits, what would be the five most important, most do-able controls for small groups:

Hint: When CPAs talk about “controls”, we mean the practices and policies that will help your organization avoid fraud and catch mistakes.

1. The first and most important consideration is to set the control environment, that is, to let everyone know, from the top down, that there are policies in place and everyone has to follow the policies. In so many organizations the top person makes exceptions for himself or herself about policies, which sets a sloppy or even unethical tone. Then other people don’t think they have to follow procedures, either, and they start cutting corners. Emphasize the importance of ethics and controls at staff meetings, and demonstrate that everyone follows the rules, all the time.

2. Define clearly who is responsible for what. It’s very common in small organizations, where not as much needs to be written down, for people to say, “I thought she was going to check the invoice.” For example, with invoices: who is responsible for checking the math? Who is responsible for approving the invoice to be paid?

3. Physical controls. Lock it up. Computers should be locked to desks, and they should be protected with passwords. Put checks in a locked drawer. Among other abuses, there are too many cases where someone comes in and takes checks from the middle of the checkbook.

4. If there’s cash involved — such as at a fundraiser or box office at a performance — have two people count all the cash together.

5. Reconciling the bank statement is a very crucial step. It’s very unlikely that someone is going to steal from you and run away forever. Reconciling the bank statement means that embezzlement can’t go on for very long.

Ideally someone other than the bookkeeper (or whoever handles the money) reconciles the bank account from an unopened statement. That’s a strong check on the person who handles the money. But in a small nonprofit there may not be a bookkeeper, and there may be only one person who does everything. In these instances someone else, such as a board member, should receive the unopened bank statement, and look it over before giving it to the bookkeeper or the sole staff person.

 Read the full article here

Cover Money Mgmt HS OrgWant some advice specific to homeschool groups?

You can find it in my new book, Money Management in a Homeschool Organization.

I devote a chapter to the practices that will help homeschool groups prevent fraud and catch mistakes (what we accountants call internal controls)

 

Carol Topp, CPA

Homeschool leader has trouble opening a checking account

checkbook07

Hello Carol.

This morning, Laura and I went to the bank to open a new checking account. We were told that in order to open our account we would have to register with the Missouri Secretary of State.

We then went home and tried to register with the Missouri Secretary of State, and we got stuck because it asked us for our charter number, which we don’t have.

Then, we called a different bank hoping to get some more information. We were advised by that bank to go on-line and File a Fictitious Name. We proceeded to try that, but then came to a page that asked us to enter the “owners” names and information. Laura and I are not sure if we are the “owners” and what that means exactly. We are also wondering if filing for a fictitious name is going to affect our status of being non profit.

We would so appreciate any advice you could give us. It seems so simple to just go and open a new checking account, but we just keep running into problems!

Jackie in MO

Jackie,
Sorry you had so many problems with your bank! I think banks are notorious for giving out bad information.

My own bank manager told me that I needed 3 separate checking accounts for my 3 different DBAs. I said, “I’m a CPA and I know that’s not true!” (She agreed!)

I answered a similar question on my blog post about fictitious name registration.
http://homeschoolcpa.com/opening-a-checking-account-shouldnt-be-this-expensive/
I told her this:

“Hopefully, you used the name of your group on the EIN application as well. If so, tell that to the bank (and show the IRS confirmation letter of your EIN) and you should not need a name registration.”

IOW, you are using your organization’s real name, not a fictitious name, so why do you need a fictitious name registration? (you don’t)

You’re correct that you are not the owners. Nonprofits do not have owners. You should open the checking account with the names of the officers (usually president and treasurer) as check signers, but not owners.

I hope you were very clear with the banks that you are opening a nonprofit checking account.

I don’t know enough about MO’s Secretary of State to know what “register with the state” means. This page might help: http://www.hurwitassociates.com/l_s_initial_mo.php
It’s a summary of what nonprofits need to do in the state of Missouri. A lot of things are not needed until after you receive 501c3 tax exempt status.

I hope that helps!

Carol Topp, CPA

Save

Checking accounts and EINs for homeschool groups

We have always had a checking account under a parent’s name. We were adding a name to our account this year when the bank informed us we can no longer do this and we need to have our own Tax ID number. Will we need to file returns with the IRS if we get a tax ID number?

I strongly discourage using a parent’s name on an organization’s checking account. The organization should have a checking account in its own name and use an Employer Identification Number (EIN), not an individual’s social security number.

Getting an EIN does mean your organization will need to do some annual reporting to the IRS.

It didn’t used to be this way.

Homeschool groups used to be able to get an EIN, open a checking account, and never have to file any annual reports with the IRS. All that changed in 2006 when Congress passed a rule saying EVERY tax exempt organization had to file an annual information return with the IRS, Form 990, 990-EZ or 990-N with the IRS each year.

Read my 990-N FAQ page for details.

 

IRS and Your Homeschool Org coverMy book, The IRS and Your Homeschool Organization, explains the IRS required filings for your homeschool group.
Carol Topp, CPA