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.

 

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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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How to change the responsible party name on your EIN

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A Balarman from Free Digital Photos

From Elaine’s Tax Tips for Nonprofits

New IRS Form 8822-B Requires Action By Virtually All Organizations

In an effort to update its records, the IRS is requiring any organization or entity that obtains an employer identification number (EIN) to report to the IRS a change in the “responsible party” within 60 days of that change.  This change is reported using Form 8822-B, Change of Address or Responsible Party – Business.  This is a good thing as it helps to provide assurance that critical communications from the IRS will not be directed to a person who is no longer associated with an entity.  However, in its efforts to update contact information, the IRS is requiring virtually every entity to provide current information.

Who is a “Responsible Party”
Currently the application for an EIN requests the name and identifying number of the “responsible party”.  This is defined to be as the person who has a level of control over, or entitlement to, the funds or assets in the entity and the disposition of its funds and assets.  This is a fairly general definition and may actually apply to multiple people within an entity.  However, when applying for the EIN, an entity is only required to list one responsible party.  In essence, this is listed as the primary contact for the entity and provides assurance that mail sent from the IRS will be directed to someone with enough authority to deal with the issue at hand.

Why does this affect so many entities?
The complication enters the picture with the direction from the IRS that if the “responsible party” has changed prior to 2014, then the entity must file the Form 8822-B no later than March 1, 2014.  Prior to January 2010, the term “responsible party” did not exist.  Therefore, it can be presumed that if an entity obtained its EIN prior to January 2010, it should file the Form 8822-B by March 1, 2014 to declare its “responsible party”.    If an entity gained its EIN after January 2010, then it should check its application to see who was listed as the “responsible party” to determine if the filing is required.  For the future, entities should understand that the “responsible party” must be updated in the event the listed party leaves the entity.

Get  Form 8822-B here

From Carol Topp, Homeschool CPA: Homeschool leaders may be concerned about including their name and SSN on the EIN application. Until recently, a nonprofit leader had to call and write a letter to the IRS to get their name removed from an organizations EIN. I’m glad to see the IRS now has a simple form to fill out.

Carol Topp, CPA

New homeschool group wants to avoid paying taxes

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I’m heading up a small group of about 20 homeschooling families. We may grow a bit, but we are in a small town, so I can’t imagine we’d ever be over 40 families big.

I’ve also set up a website and Google group. This is just information and communication for any area homeschooler, not a co-op of families who attend anything. It has about 50 families and growing.

What do I need to be aware of to be sure that we don’t become the kind of organizations (either of these groups) that have to file or pay taxes. We do not collect dues. If there is a field trip with a fee, each family just pays it at that time.

Thank you!
Kaysha

 

Kayla,

It sounds as if both groups are a small gathering of like-minded people. You said you don’t even collect dues! Amazing!

If you ever do collect dues, then open a checking account in the group’s name, so the money doesn’t look like your own personal money. This might involve getting an Employer Identification Number (EIN) from the IRS to open a checking account.

So long as you organize and operate like a nonprofit (no profit motive and decisions made by a group of leaders not one person) and stay under $5,000 gross income per year, you will be tax exempt in the eyes of the IRS. The  IRS does request that all nonprofits , even very small ones, file an annual Form 990N. It’s only 8 questions.

This checklist will keep you on track:  A checklist for new homeschool organizations

Then read the following articles in order:

  1. What’s in a name?
  2. Choosing a leadership team
  3. Writing your mission statement
  4. Getting an EIN from the IRS
  5. Identifying who you are by writing bylaws
  6. Sample bylaws
  7. Budgeting basics

I hope that helps!
Carol Topp, CPA

Filing Form 990 retroactively

Carol,

I hope you can help me I am a newly hired Executive Director for a program in Alaska.  Our Board President, filed the paperwork for state non-profit, and also for our EIN, however since 2007 he has not filed the 990 with the IRS as the program was dormant until now.  Is this something I need to do retroactively?  I know it is suggested that with or without income the forms should be filed, I am just not certain where to go from here…  Please help if you are able!


Kindly,
Gretchen

Gretchen,

I wish you success in your new job!

Start by doing an internet search on the IRS website to see if your organization ever filed for 501c3 tax exempt status.
http://www.irs.gov/charities/article/0,,id=96136,00.html

You can also search on Guidestar’s website.  Guidestar is a database of charities. http://www.guidestar.org/

You will need your organization’s official, legal name; the one on the EIN or the state nonprofit incorporation paperwork.

501c3 status is not granted automatically, it must be applied for with a lengthy application (Form 1023). I did a quick search on the IRS and Guidestar sites for your name and state but  found nothing.  It could be I wasn’t using your official name or it could be your organization has never applied for 501c3 status.

Carol Topp, CPA

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

EIN before or after incorporation?

Hello, Carol.

I have learned so much from your website. Thank you for your expertise. I am part of a co-op that currently has 22 families. I was one of the five founding members. We need to open a bank account. I am in Texas. I am confused about whether or not I am supposed to get us recognized through the state as a corporation before I can get us an EIN and open a bank account for the group.

My bank told me that we need the “assumed name certificate” as well as the EIN.

Jennifer L
Texas

Jennifer,
I’m glad my website was helpful.

You do not have to be incorporated before getting an EIN (Employer Identification Number) from the IRS.  Your unincorporated association can get an EIN.

But if you do become incorporated someday, your group will be a new legal entity and need to get a new EIN at that time.

If your group is opening a checking account under a fictitious name, then you will probably need to register that name with the state or county. In my state of  Ohio my homeschool co-op had to file a name registration with the state and give some of the officer’s names.

 

I hope that helps.

Carol Topp, CPA

Should your homeschool group be a 501c7 social club?

Your website has been very helpful, but I would like to ask you some questions.  Now that we have the EIN are we required to file for any type of status? Are we going to have to fill out any IRS forms yearly or be responsible for any tax payments?
Also, when I applied for the EIN I listed us as a social organization because I thought that described our group better than the other choices since we only meet so that our families can socialize and enjoy activities together; was that an accurate description or do homeschool groups classify as something else? Any insight you have on our situation would be much appreciated.
Sincerely,
Catherine R in  Alabama
Catherine,
I’m glad my website was helpful.  It sounds as if your getting your group onto the right track.Here’s a blog post that you might find helpful: Will getting an EIN put us on the IRS’s radar?Many homeschool groups classify themselves as nonprofit educational organizations because they are co-ops or offer educational activities like classes and field trips. A support group could be considered a social club as you chose.

I have helped homeschool organizations apply for tax exempt status with the IRS several times. Homeschool groups typically apply for 501c3 status as an educational organization, but a few apply for 501c7 status as a social club.

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I  discuss the difference between a 501c3 educational organization and a 501c7 social club in this article:

Homeschool Groups As Social Clubs

A more in depth explanation of 501c3 and 501c7 status can be found in my book The IRS and Your Homeschool Organization.

Carol Topp, CPA

Banker wants IRS letter to open a checking account

Hi Carol,

At your leader meeting a few months back, you had recommended that all of our groups have the same EIN number.  When a group leader tried to change their account to one using our EIN, the banker wanted a copy of our original letter from the IRS.   I told the banker that we have never had to provide anything except a letter from me (one who obtained the number in 2002) and the EIN number which we provided.  He said it was just a personal preference of his.  Have you heard of this?  I am uncomfortable doing more than what is usually required and providing personal paperwork to him.  Am I being unreasonable, or do you think it is okay to provide it?   Thanks for any insight.

Debi in Indiana

Debi,

I’m with you-the banker should not need an IRS determination letter (I assume that’s what’s he is talking about) to open a nonprofit checking account. Some nonprofits never get a tax exempt determination letter from the IRS because they self declare their tax exempt status and never formally apply. (Note: only churches, social clubs and charities with less than $5,000 in annual income can self declare tax exempt status; all other organizations must apply for tax exempt status).

Most nonprofits need a checking account before getting IRS tax exempt status because the IRS charges a fee to process a tax exempt application!

Don’t believe the banker if he says an IRS 501c3 determination letter is required to open a checking account (fortunately he said it was his personal preference).  I once had a bank teller  tell me that nonprofits couldn’t earn interest on their savings accounts because they were nonprofit!  She was greatly mistaken. Bankers don’t always know what they are talking about (outside of banking…)

Carol Topp, CPA

Debi followed up my reply with the following

I think there is some confusion on what the bank manager is asking for.

I don’t think he is asking for us to prove that we are a 501c3 non-profit as recognized by the IRS. I think that all he wants is a copy of the letter from the Department of the Treasury that assigned us the EIN number. He probably doesn’t even know the right terms for what he is asking.

Yes, I think you are correct.  The banker may have only been asking for the EIN paper from the IRS, not a 501c3 determination letter.
I guess he’s being careful about getting the EIN correctly from the IRS letter itself.  I can’t blame him for that.

Carol Topp, CPA

New EIN for New Officers?

Does your group need a new Employer Identification Number (EIN) when there are new officers?

Hi Carol,
Thanks to your wonderful services in the past we have gone from a ministry under a church to an informal non profit support group within the community. Thanks so much for what you do for homeschool groups!
I was just reading through the list of FAQ’s and have one that has a little twist to what is already there about EIN’s so I thought I would run it past you.
As the current director (board leader), I had been the person to apply for the EIN for our group. I am nearing my finish on the board and we will have new board leaders. Do we have to have a new EIN issued? I know this current one was opened with my name as the responsible party, so I don’t know if that would “tie” me to the non profit for any thing down the road if I am no longer on the board?
Thanks so much for your help and/or direction.
Blessings,
Shawna B, CA


Shawna,
Thank you for your kind words. It was my pleasure.


You do not have to apply for a new EIN just because of a switch in officers. Nonprofits change leadership frequently.

You can have your name on the EIN replaced with the new leader by filling out IRS Form 8822-B

If you are a 501c3 tax exempt organization with more than $50,000 in gross revenue annually, you should be filing the annual Form 990 with the IRS. On the Form 990, you list the new officers’ names.

If your organization makes less than $50,000 per year then you should be filing the 990N, an electronic postcard, with the IRS. The 990N requests only the name of the “principle officer” not the entire board.

For more information on the 990N, visit the IRS website at:

http://www.irs.gov/charities/article/0,,id=169250,00.html

Carol Topp, CPA