IRS tries to decrease errors in automatic revocations for tax exempt organizations

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Every year the exempt organization (EO) branch of the IRS send out a Work Plan for the upcoming year and reviews what it accomplished in the past year.

IRS Exempt Organization 2017 Work Plan (24 pages)

Here’s something interesting I found:

In FY 2016, EO Determinations focused on its objectives to improve processing of applications and enhance customer satisfaction. We implemented several programs to accomplish these goals.
Erroneous Revocation Prevention: On May 3, 2016, EO Rulings and Agreements formalized procedures to identify and prevent erroneous automatic revocation before the organizations are notified and before the revocations are posted to EO Select Check. Preventing these erroneous revocations eliminates adverse impact to organizations and removes the burden from organizations to identify and notify the IRS of the error. Since March 2015, we have reviewed 13,933 potential auto-revocations and prevented 3,202 erroneous revocations (through June 2016).

In plain English, thousands of nonprofits found their tax exempt status was revoked automatically before the organizations were told (!) and before the revocations were posted to EO Select Check (that’s the IRS online database of tax exempt organizations).

Over 3,000 revocations that were an error! What a mess!

The IRS didn’t get specific about why these organizations had their tax exemption revoked or how they fixed the problem, but I have some ideas:

1. It takes 6-8 weeks (yes, that’s WEEKS, not DAYS) for the IRS to update their exempt organization database so that small organizations can file their annual Form 990-N Information Return. If the organization is granted tax exempt status close to their due date for filing the 990-N, they may be unable to timely file a 990-N because the  IRS takes 6-8 weeks  to update their exempt organization database!

This happened to one of my small nonprofit clients. They had failed to file their 990-N for two years (they didn’t know about the requirement) and the deadline for the third year was quickly approaching. Failure to file your 990/990-EZ/990-N for three consecutive years means automatic revocation of tax exempt status. We were sweating bullets that they could file the 990-N on time. The board president was checking the IRS database daily as the deadline drew nearer. She managed to file the 990-N just days before the deadline! Whew!

If the IRS database of Exempt Organizations were updated in a more timely manner, then there could be fewer erroneous automatic revocations.

 

2. Another small nonprofit told me that they received an automatic revocation letter, but had never received a “You’re late in filing the Form 990-N” type of letter or a warning! This nonprofit had not changed their address, either.

So another thing the IRS could do to reduce erroneous automatic revocation is to mail organizations a reminder and a warning letter for failure to file a 990/990-EZ or 990-N.

I hope my suggestions are what the IRS has put in place.

Carol Topp, CPA

 

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How can I thank my volunteers?

 

It’s the end of your homeschool organization’s school year and you want to thank your volunteers. They work so hard, so you hand out generous gift cards as thank you gifts. You may have just created a tax liability for your volunteers! Carol Topp, CPA, the Homeschool CPA discusses ways to thank your volunteers that are tax-free.

Listen to the podcast

 

Do you have more questions about volunteers and paying workers? I spent at lot of time doing research so that homeschool leaders will know if they are paying their volunteers, board members, and workers legally and correctly. It’s all in this new book:

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Paying Workers in a Homeschool Organization-2nd edition

$9.95 paperback
130 pages
Copyright 2017
ISBN 978-0-9909579-3-5

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Church adopts homeschool group. What’s next?

The church that my homeschool co-op meets at has agreed to take us under their “ministry umbrella” for tax purposes, etc. Can you point me in the direction of what to do next? The pastor asked me what he should do to make this happen.

Thank you so much for any help you might offer!

Jill

 

Jill,

Oh that’s marvelous! Really. So few churches are willing to include homeschool groups as a ministry. It’s like your group has been adopted and brought into the family of this church.

Put something in writing stating that the church grants your organization permission to use their Employer Identification Number (EIN) and sales tax ID number as one of their ministries. Also put into the agreement that the church will cover your program under their insurance plan.

Ask if all the financial transactions will go through the church’s checking account or if they prefer you set up a separate checking account using their EIN with your homeschool group’s name.

If you pay anyone (employees or ICs) ask if the church will handle the payroll filings (hopefully they will).

There may be a few other details to iron out like background checks (who pays for them, your group or the church) and details on rooms you can use, building security, cleaning up, supplies and equipment your group can use, etc.

Count your blessings!

Carol Topp, CPA

 

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Can my homeschool group collect money now that’s for next year?

 

Many homeschool groups collect deposits in the spring for next fall’s programs. This helps with determining how many families will be returning. But how should these early deposits be recorded in a homeschool group’s bookkeeping? Carol Topp, CPA the HomeschoolCPA offers some ideas.

 

Listen to the podcast

In the podcast Carol mentioned a handout that explains how to record early deposits in accounting software like QuickBooks.

Here it is: Deferred Revenue in QuickBoooks (pdf)

Do you have more questions about managing the money in your homeschool organization?

MONEY MANAGEMENT FOR HOMESCHOOL ORGANIZATIONS: A GUIDE FOR TREASURERS

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

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Is there a penalty for misclassifying my homeschool group’s workers?

Is there a penalty for misclassifying my homeschool group’s workers?

The IRS imposes strict penalties on an employer who treats workers as Independent Contractors when they should be employees. These penalties have put homeschool businesses and nonprofits out of business. Carol Topp, CPA discusses this topic and some programs the IRS has to avoid crippling penalties.

Listen to the podcast 

Worker Classification Consultation

  • Is your homeschool teacher an employee or independent contractor?
  • Should your homeschool co-op director be paid as an employee?
  • How hard is it to set up a payroll system?
  • What happens if my homeschool group misclassifies a worker? Are their penalties?

Worker classification can be a confusing topic.

My book Paying Workers in a Homeschool Organization can help clear a lot of confusion, but perhaps you want to discuss your particular situation in a private, individual phone consultation.

I offer phone consultations to help you determine if your homeschool organization’s workers are employee or independent contractors. The phone call will be followed up with an email containing a fact-based determination and information to help you take the next steps.

Click Here to request more information!

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Is My Homeschool Co-op Teacher an Employee or Independent Contractor?

Is My Homeschool Co-op Teacher an Employee or Independent Contractor?

Should your homeschool co-op teacher be classified as an employee or an Independent Contractor? What’s the difference and how do you make the decision? Carol Topp, CPA, the HomeschoolCPA, sheds light onto this confusing topic and tells you how she determines if a co-op teacher is an employee or Independent Contractor.

Listen to the podcast

Worker Classification Consultation

  • Is your homeschool teacher an employee or independent contractor?
  • Should your homeschool co-op director be paid as an employee?
  • How hard is it to set up a payroll system?
  • What happens if my homeschool group misclassifies a worker? Are their penalties?

Worker classification can be a confusing topic.

My book Paying Workers in a Homeschool Organization can help clear a lot of confusion, but perhaps you want to discuss your particular situation in a private, individual phone consultation.

I offer phone consultations to help you determine if your homeschool organization’s workers are employee or independent contractors. The phone call will be followed up with an email containing a fact-based determination and information to help you take the next steps.

Click Here to request more information!

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Understanding Taxes for a small homeschool business

It’s tax season and I’ve been getting several emails from homeschool business owners, especially Classical Conversations directors, about how to fill out their tax returns.

The IRS has a terrific website called Understanding Taxes that explains how to fill out a simple business tax return.

It’s quite good. I’ve used their simulations when I taught personal finance at my homeschool co-op

Visit these websites to learn how to fill out your Schedule C Business Income and Loss.

Understanding Taxes home page

Simulation of filing a simple business tax return using Schedule C-EZ

Simulation of filing a simple business tax return with a 1099-MISC (this simulation would be helpful for a Classical Conversation tutor who receives a 1099-MISC).

 

You could also try searching Youtube for helpful videos on preparing a business tax return. Here’s one I found:
How to Fill Out Schedule C for Business Taxes He goes over the Schedule C line by line in about 20 minutes.

 

I hope that helps,

Carol Topp, CPA

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What Homeschool Leaders Don’t Know About Fundraisers

What Homeschool Leaders Don’t Know About Fundraisers

Carol Topp, CPA, the HomeschoolCPA will share tips on important issues that homeschool leaders may not know about. This episode will focus on helping homeschool leaders know the tax rules about fundraisers.

Listen to the podcast

 

MONEY MANAGEMENT FOR HOMESCHOOL ORGANIZATIONS:  A GUIDE FOR TREASURERS 

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

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Can my landlord get a tax deduction for the free rent he gives us?

I have a few questions for you about a tax deduction for our “landlord.” We just received 501(c)(3) tax exempt status form the IRS. Does this mean that our landlord can claim a deduction the reduced rent she gave us?  RW

 

Dear RW,

Donations of cash or physical goods to your organization are tax deductible charitable donations.  But donations of services or use of leased property is not a tax deduction.

If your landlord gave your homeschool organization free or reduced rent, that is not a tax deductible donation for the landlord. Sorry.

Here are some articles that explain the IRS rules on donating leased space.
Can landlords take a tax-deduction for the donation of leased space?

When a property owner transfers title to a charity of all or part of real property, the owner can generally take a tax deduction for the gift.  However, offering a charity leased space for free or at a reduced rate is a not a gift of an ownership interest and is not considered deductible by the IRS.

Landlords do a good deed by donating leased space to a charity but they are not permitted to receive a tax benefit for their action.

Tax treatment of the provision of rent free

For this reason, donations of services or loans of property to a charity do not qualify as gifts because they do not transfer a property interest to the charity. They simply allow the charity to use the property of the donor, or to benefit from the donor’s services, free of charge.

Here’s the official word from the IRS from Revenue Ruling 70-477.

“a contribution, made after July 31, 1969, to a charitable organization of the right to use property is treated as a contribution of less than the entire interest in the property and does not give rise to a deduction.”

In other words, if someone donates a building (i.e. “the entire interest in the property” ) to a charity, it is a tax deductible donation. But if the contribution is the right to use the property, then there is no tax deductible donation.

Carol Topp, CPA

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What Homeschool Leaders Don’t Know About Worker Classification

 

What Homeschool Leaders Don’t Know About Worker Classification

Carol Topp, CPA, the HomeschoolCPA will share tips on important issues that homeschool leaders may not know about. This episode will focus on worker classification — helping homeschool leaders understand how to classify their workers correctly as employees or independent contractors.

Listen to the podcast

Worker Classification Consultation 

  • Is your homeschool teacher an employee or independent contractor?
  • Should your homeschool co-op director be paid as an employee?
  • How hard is it to set up a payroll system?
  • What happens if my homeschool group misclassifies a worker? Are their penalties?

Worker classification can be a confusing topic.

My book Paying Workers in a Homeschool Organization can help clear a lot of confusion, but perhaps you want to discuss your particular situation in a private, individual phone consultation.

I offer phone consultations to help you determine if your homeschool organization’s workers are employee or independent contractors. The phone call will be followed up with an email containing a fact-based determination and information to help you take the next steps.

Click Here to request more information!

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