Raising money for your own kid is not charity!

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Fellow CPA Peter Reilly, a journalist at Forbes.com, emailed me about a recent court case involving individual fundraising accounts (IFAs).

IFAs are when you share or distribute your fundraising proceeds among the families who raised the money.

IFAs are illegal and a booster club recently lost a Tax Court case and their tax exempt status for using IFAs.

Read Peter’s blog post on the court case. It’s a very good summary (I read the entire court case!)

Parent Booster Clubs – Raising Money For Your Own Kid Is Not Charity

Here’s the bottom line:

Do NOT set up individual fundraising accounts.

If you have them now, STOP!

If you conduct fundraising, do not record how much each family brought in.

Do not have a system where tuition or dues are reduced by the amount of fundraising a family conducts.

 

All fundraising proceeds should go into your general fund to be used for the common expenses of the group.

We’re all in this together folks!
Carol Topp, CPA

Fundraising only with in your membership has advantages

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Would a vendor fair or yearbook ads where we ask businesses for sponsoring money be considered raising money from the public?

Would fundraising with our members only be considered public?

Thank you,

Tonya W in FL

 

Tonya,

Note: Tonya is asking these questions because her state, Florida, asks several questions about fundraising or soliciting money from the public. Most states regulate nonprofit organizations that fund raise from the public. Many states allow groups to fund raise within their membership without any reporting to the state.

Fundraising from only within your membership is not public fund raising.

A vendor fair is not really “raising money.” It is a program related to your purpose (education). So all income from it would be considered “program income” not fund raising income to the IRS and FL.

The ads in the yearbook are not related to your purpose (education), so it is considered Unrelated Income to the IRS. Unrelated Income is taxable, but the IRS has several exceptions to being taxed.
Read about it here:  http://homeschoolcpa.com/what-is-unrelated-business-income-tax/

The states care about you asking for donations from the public, not really about income from running your program, holding a vendor fair, or selling yearbook ads.

Hope that helps!

Carol Topp, CPA

 

Will being an Amazon affiliate cause tax problems for a homeschool group?

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I have a question about affiliate relationships with companies like Amazon. We want to receive the benefits offered by Amazon (and others) by placing a link on our website for members and non members to use when ordering products.

I read through one article on your blog regarding Unrelated Business Income Tax (UBIT). One point in your article refers to exemptions for the tax and I believe we will qualify for at least two:

  • A $1,000 threshold allows that the first $1,000 in profit from an unrelated business will not be taxed.
  • If the fundraiser (or unrelated business) is run by volunteer efforts (i.e., no paid staff) then the proceeds are not taxed.

Do you have anything to add to that article or any others I haven’t seen?  Specifically, should we avoid these types of programs?

I appreciate your insight as well as your being a resource to the homeschool community.

Sincerely,

Jeanne R

 

Jeanne,

Thank you for contacting me and your kind words.

I think you understand Unrelated Business Income Tax (UBIT) and the exemptions quite well.

UBIT is a tax that tax exempt organizations must pay when they earn a profit on activities that are unrelated to their tax exempt purpose. The classic example is that a nonprofit hospital must pay the IRS taxes on profit from their gift store, because running a gift store is not related to the hospitals tax exempt purpose (treating illness).

Most charities qualify for exemption from UBIT and you found two common exemptions.

I think the affiliate program with Amazon is a fine idea.

Have it run by volunteers and you’ll avoid any UBIT.

Carol Topp, CPA

How can a homeschool mom redeem BoxTops?

I was wondering how I could redeem my boxtops,but I’m not in a homeschooling group, I’m just a homeschooler. How can I redeem them?

 

According to the BoxTops4Education Official Rules you must be a school or a recognized 501(c)(3) tax exempt homeschool association in order for Box Tops to redeem your box tops.

General Mills does not give check to individual families.

I recommend you give the box tops you have to a school or 501(c)(3) homeschool group.

Carol Topp, CPA

Can a homeschool athletic booster club be a 501c3?

FreeDigitalPhotos.net Credit: Salvatore Vuono

FreeDigitalPhotos.net Credit: Salvatore Vuono

Mrs Topp,

For several years my wife has operated a group here in Lubbock Texas.  The purpose of the group is to raise funds for our homeschool athletic teams to pay for various aspects of their sporting endeavors.

 The group receives a percentage of sales from concession stands operated at Texas Tech University and are paid by Ovations, the current concessions operator for Texas Tech.   Ovations uses non-profit groups to operate all concession stands.

 We have never sought non-profit status and now Ovations is insisting that we do so or they will no longer use us.

We has always paid each individual working in the stand based on how much time they worked, and given out 1099MISC to those making over the minimum $600.  Those working come from homeschool athletic teams though we do not dictate how the money each receives is spent.

 In reading the IRS website I can see that sports organizations are eligible for non-profit status, but is the way we pay those working acceptable?

 Paul H

Lubbock, Texas

 

Paul,

Your organization sounds like a parent booster club in that you raise funds to support athletic teams. Yes, booster clubs and athletic teams can be 501c3 tax exempt organizations.

The issue of paying parents working a concession stand has come up with the IRS in the past.
Here is a blog post I have written on the topic.
http://homeschoolcpa.com/the-irss-word-on-fundraising-dos-and-donts/
I think the IRS would approve of the way you are paying the parents. Giving them a 1099MISC is the correct way to report their earnings.

You might also find this website ParentBooster.org helpful.

ParentBooster.org offers tax exempt status to athletic booster clubs that support the activities of a school under their group tax exempt status. I asked the founder, Sandy Englund, if homeschool booster clubs would be eligible for 501c3 tax exempt status under ParentBooster.org, but she said no. Maybe you should ask and see if you get a different answer. It would be a very easy way to obtain your 501c3 tax exempt status.

 

 

 

 

The IRS’s Word on Fundraising Do’s and Don’ts

Carol,

My homeschool group does several fund raisers where we divide the proceeds to each family to reduce the parents’ tuition. We have a shoppers reward program and I track how much of a tuition credit each parent earns by using their shoppers reward card.  We also let students or parents work off some tuition by volunteering to work a shift at our city’s major league baseball stadium concessions.  The team makes a donation to our homeschool group (a 501c3 organization).  I’m having a hard time finding information on the IRS website about these types of fund raisers.

Susan in Ohio (paraphrase from a spoken conversation)

Susan,

I’m sorry you found it so difficult to find information about fundraisers like your group is running. Sometimes you have to know the correct language to use in a search. Search on the words “Booster Club” to see what the IRS has said.

Here’s a wonderful link from a lawyer, Harvey Mechanic, that volunteers to answer nonprofit questions. He gets a lot of questions about booster clubs and fund raising like this one in particular: AllExperts NonProfit Law:Booster Clubs

To see all the questions and answers go here: AllExperts NonProfit Law

irs1Mr Mechanic frequently refers readers to an IRS document titled Athletic Booster Clubs: Are They Exempt? He summarizes and edits the IRS document here: Summary of IRS Article on Booster Clubs

Here’s the full text at 14 pages: http://www.irs.gov/pub/irs-tege/eotopica93.pdf

I’ve read this document several times. It is a document that the IRS uses to train their employees. While it addresses athletic booster clubs, the principles apply to school booster clubs also, including homeschool groups that do fund raising.

Finally, Mr Mechanic answers a question about fund raising by working concessions at MLB games here: Working Concessions at MLB Games

I hope that helps. Sorry there’s not one paragraph at the IRS website to point you to! This is a collection of laws, rulings and cases over several years.

Carol Topp, CPA

Can a homeschool be tax exempt and obtain grants?

Dear Carol:
I am interested in writing proposals for grants for my family’s home school. As an individual home school, not as a home school support group, I want to apply to receive small amounts of money for travel, museum entry, art gallery entry, books, posters, etc. More often than not, I find this statement :

“All applicant organizations or sponsoring agencies must be exempt from federal taxation under the Internal Revenue Code Section 501, in order to be eligible for funding.”

What do I have to do to have our home school be exempt from federal taxation?

Thanks.

Nancy H., Mississippi

Nancy,

You asked an excellent question. You are correct that many fund raising organizations now require 501c3 tax exempt status. Some homeschool groups want to become 501c3 tax exempt organization just so that they can participate in some fund raisers. I have a homeschool co-op as a client right now applying for 501c3 status.

A private individual or family cannot be a 501c3 tax exempt organization. The reason is that the IRS does not allow tax exempt organizations to offer private benefits or what they call “inurement” (meaning to become beneficial or advantageous) to individuals. Tax exempt organizations must benefit a group, preferably the general public.

I have been asked your question before so I wrote about it on my blog. Here’s the link: Can my family’s homeschool be a nonprofit?

You might also read my blog entry on doing a family fund raiser: Can my individual homeschool have a fundraiser?

I hope that helps!

Carol Topp, CPA

Box Tops for Homeschoolers

From the Homeschool Legal Advantage website

Box Tops for Homeschoolers….The Fair Thing to Do

The Christian Law Association’s Homeschool Legal Advantage program was contacted by a home school support group.

A major corporation was assisting schools to raise funds by collecting box tops that could be redeemed for cash.  The support group was initially informed that home schools could participate, but when they tried to redeem the items they had collected, they were told that in order to participate, a school  needed to be accredited.

After a number of phone calls from CLA’s attorneys, the corporation changed its rules.  They did the right thing. Homeschools are able to participate, just like everyone else.

That’s really what we fight for when we serve a homeschool family. We just want fairness.  We are not asking to be above the law or to have our own rules; but in terms of home school families they should be treated like everybody else.

Homeschooling for the foreseeable future – it’s going to continue to be a legal hot button, but the Christian Law Association is ready to serve your home school or Christian school at a moment’s notice.

Thanks to Homeschool Legal Advantage and their efforts to help homeschool groups!

My homeschool co-op has been using Box Tops as a fund raiser for quite awhile. I’m glad things were straightened out so that homeschool groups can continue to raise funds in this way!

Carol Topp, CPA

Do not use individual fund raising accounts

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From Parent Booster USA comes this warning about fund raising accounts:

Do not use individual fundraising accounts (IFAs) without a legal review. The IRS has strict rules on any activity that benefits the individual members of a group. The IRS generally finds IFAs to violate its rules. IFAs are activities in which parents/students engage in cooperative fundraising activities, providing “credit” to the individual “accounts” of those who participate in the fundraising activity(ies). Only in very limited circumstances are IFAs considered legal fundraising activities of booster clubs. Parent Booster USA can provide assistance in obtaining a legal review of an organization’s IFA policy. See also Individual Fundraising Accounts.

I agree with Parent Booster USA, the IRS does not allow nonprofits to establish individual fund raising accounts, where an individual or family get a part of the fund raising proceeds for their personal use.

To learn more about fund raisers for your homeschool group, read my article “Easy Fund Raisers for Homeschool Groups” here

and my blog posts on fund raising here.

Carol Topp, CPA

Are fund raisers harming your chances for tax exempt status?

Many homeschool organizations depend on fund raisers to help run their homeschool co-ops and support groups. These fund raisers could actually harm a group’s chances of obtaining tax exempt status.

True Story:

Julie is treasurer of a homeschool co-op in OK that desires to file for 501c3 tax exempt status with the IRS. I examined her financial statements and saw that the group depended heavily on profit from fund raisers including candy, food and flower sales. These fund raisers required Julie to collect over $12,00o a year in sales. The co-op made a profit of nearly $4,000 every year from their fund raisers.

“It’s a blessing to the co-op, because many of our families cannot afford even the small co-op fees we charge. And friends and neighbors beg us to keep selling our products, especially the locally made food.”

The profit from the fundraisers was actually more than the amount collected in co-op dues.

Unfortunately, with most of the co-op’s income coming from fundraisers and not co-op fees, the IRS may not grant Julie’s co-op 501c3 tax exempt status.

The IRS requires a significant portion of your income come from public support (i.e., the dues from your co-op families) and not from an “unrelated businesses” (i.e. selling products in a fund raiser). The IRS defines “significant” as having more than 1/3 of your income come from public support.

Fortunately for Julie’s group, the IRS has several exceptions. One of them worked for Julie’s group. Her fund raising efforts were all done by volunteers and so the IRS considers that fund raiser as part of the group’s support and they meet the 1/3 test mentioned above.

The IRS rules and exceptions get a bit complicated and both the homeschool leader, Julie, and I did our research. We will be very careful and thorough when explaining the fund raising programs to the IRS when Julie’s co-op files for tax exempt status with the IRS.

If your group has concerns about their fund raising practices, these related blog posts might help:

The IRS’s Word on Fundraising Do’s and Don’ts

The IRS and Fund Raising

What does the IRS mean by not allowing “private benefit” in a fund raiser?

QALeadersCover3DAlso, my ebook, Question and Answers for Homeschool Leaders addresses fundraisers in detail.

Read more including a sample chapter here

Order a copy (in pdf format) for immediate dowload for $8.00 here.

…working to keep you on  the right side with the IRS!

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Finally, attend my free webinar on Fund Raising in a Homeschool Group on Tuesday, November 30 at 8:00 pm EST, 7:00 pm CT. You can listen in on-line and participate in the chat room or phone in and attend the webinar that way. For details on the login in information, phone number to call and workshop handout, click here.

Feel free to tell other homeschool leaders in your area about my webinar. The more, the merrier!

There is no charge for the webinar, except long distance phone charges if you call in .

Carol Topp, CPA