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!

_____________________________________

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

Webinar: Fund Raisers for Homeschool Groups

FundRaisersWebinar

Fund Raisers for Homeschool Groups webinar

We discussed:

  • Ideas: Easy fund raisers for your homeschool group
  • Pitfalls to avoid
  • The IRS and Fund Raising: Avoiding stuff that can get you in trouble!

How to listen if you missed the live session:

http://www.talkshoe.com/tc/73712

Grab This Handout

This handout references some links and important information about fund raising pitfalls to avoid.

Fund Raising Webinar Handout

Carol Topp, CPA

New article: Easy Fund Raisers for Homeschool Groups

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I have just uploaded an article I wrote for The Old Schoolhouse magazine  titled

Easy Fund Raisers for Homeschool Groups

The articles covers several ideas for easy fund raisers including:

  • Food as a fund raiser
  • Coupons and reward programs
  • Donation drives
  • Income from your website

Other issues are addressed as well such as whether the income from a fund rasier is taxed and whether a family can hold a fundraiser for their individual homeschool.

Here’s an excerpt:

Many homeschool groups bring in needed income through fundraisers. Through experience I have found that some fundraisers are much easier to conduct than others. Although very common, selling products door to door is one of the hardest ways to raise money because managing the orders, delivering the product, and storing inventory is a lot of hard work. My homeschool group had tried selling products in the past, but we wanted an easier way to bring in funds. We found several ideas that have worked well for homeschool groups including reward and coupon programs, fund raising dinners, donation drives and website income.

Read the entire article on my Leader Tools/Articles page (scroll down to the bottom)

Carol Topp, CPA

Fundraising success story

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I know that a lot of homeschool groups follow in the footsteps of other nonprofit organizations when it comes to fund raising.  They sell the same things and they even succumb to the pressure to set up individual fund raising accounts and “reward” those who do the most work.

I discourage setting up individual fund raising accounts and I have written about them here:

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

Individual fundraisers and homeschool groups

I have a great story to share with you about one homeschool leader that did her fund raising right and it benefited many people:

Hi Carol,

I have to tell you that since reading your comment on my homeschool blog last week I spent some time perusing your advice on Fundraisers. I am a candlemaker who runs fundraisers, originally for young people raising money for mission trips and this year for a Homeschool organization who wanted to partially subsidize the Formal. These tickets are so often cost prohibitive…Anyway…as we began the process I had several parents come to me and basically plead for the money to be designated to those who sold the most. Without knowing that it would have been legally wrong, I felt that it was just a bad idea and said that I believed the right encouragements and positive input would bring a good result for all. I was right! The class did well and was able to drastically reduce the ticket prices for all.

Thanks for the legal back-up in case this comes up again in the future. I will gladly refer anyone to your website.

Keep up the great work!

Becky K.

I was so glad to hear that Becky did the right thing and the entire class was blesses by the fundraiser, not just a few families. I love the spirit of cooperation and teamwork!

Carol Topp, CPA

Bank account for your family homeschool

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This homeschooling mother in NC ran into a problem when she tried to open a bank account for her family homeschool.

I live in North Carolina, homeschool my children and want to do some fund raising for some projects and field trips and also school supplies.

I went to the bank, wanting to open an account in the homeschool’s name and they said that I would have to open up an account in my name doing business as my homeschool’s name.

My question to you is, how do I go about paying taxes on the money? I do not want to get into trouble with the IRS. Was that the right thing for me to have done? Waiting to hear from you soon!
Kim

Dear Kim,

I’ve been asked questions like yours before. I answered them in two posts on my blog.

Can we (an individual homeschool) be allowed to do fund raising similar to youth sports groups, scouts,etc?

Yes, you can participate in a fund raiser if the fund raising organization allows it. BUT, the profit you make is taxable income and you’ll need to report it on your tax return.

Can my individual homeschool have a fundraiser?

Individual fundraisers and homeschool groups

I hope that answers your question; let me know if it doesn’t.

Carol Topp, CPA

Update on the IRS and Booster Club Fundraising

I mentioned in a previous post that three booster clubs in KY were being fined by the IRS for their fund raising practices. The issue was that the booster club was giving parents credit for their fund raising efforts.

The IRS and Fundraising

The booster clubs have appealed to their congressmen for help.  But it appears the IRS is digging in its heels on this issue. From the Lexington Herald-Leader:

Lois G. Lerner, Director of Exempt Organizations for the IRS, explained in a letter to the booster clubs that any booster club that raises money to benefit an individual student rather than a group is in violation of federal law and stands to lose its tax-exempt status. Lerner said the practice was against federal law.

“The requirement that each parent/member of the club must participate in the fund-raising activities in direct proportion to the benefits they expect to receive toward their children’s expenses directly benefits specific individuals and the parents instead of the class of children as a whole,” she wrote.

Do a Google search on “KY Booster Club IRS” to read more on the story (copyright prohibits a direct link)

So my advice is as before: If your organization is sharing, dividing or distributing fund raising proceeds to individuals or families, stop the practice and leave all fund raising proceeds in the general fund to benefit the group at large.

I’ll keep watching this issue. If the congressmen have any success with the IRS, I’ll let you know via this blog and my monthly newsletter (subscribe in the upper right hand corner of this page)

Carol Topp, CPA