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

Can a homeschool co-op be denied 501(c)(3) status?

I frequently learn a lot about nonprofit law from Harvey Mechanic’s All Experts Site. Mr Mechanic is an attorney that does a fantastic job of answering all sorts of questions about nonprofit law. I always learn a lot.

Recently, a parent from a small private school mentioned the need to do fundraisers and have everyone “do their fair share.” That is a pretty common expectation in activities involving children like youth sports leagues, scouting, etc. But to my surprise, Mr Mechanic has a problem with the “fair share” idea.

Here is Harvey Mechanic’s reply:

The statement that you made about “fair share” indicates that you do not want to operate properly. The fair share is applicable for a co-operative organization but not a charitable organization. In denying exemption to a purported 501(c)(3) organization booster organization, in 1992 the IRS at
http://viewer.zoho.com/docs/s2ca6g on page 6 stated “The reason you were created and your method of operation indicate that you are made up of a group of parents who have joined together to work cooperatively to provide funds to pay for the participation of their children in athletic events.
The expenses incurred by these children would otherwise have been paid by the parents.  All parents of competitive team members are automatically members of your organization.  Accordingly, members expect to receive a benefit in return for their membership.  You pay no benefits to non-members.

Another, similar denial of exemption was issued by the IRS in 1990 and may be viewed at
http://viewer.zoho.com/docs/a4vd3

Such an operation would be what the IRS calls a cooperative. A cooperative is not qualified as a 501(c)(3) organization. (emphasis added)


IRS and Your Homeschool Org cover

Wow!  So does that mean homeschool co-ops cannot obtain 501(c)(3) status? Oh, no!  I spend a lot of time helping homeschool co-ops obtain 501(c)(3) tax exempt status. I have been successful many times.

I even wrote a book, The IRS and Your  Homeschool Organization, telling homeschool organizations how and why to become a 501(c)(3) organization.

Am I wrong?  Or is Mr. Mechanic incorrect?

Neither.  Or rather, it depends on how your organization is structured and your purpose.  If your homeschool organization is a support group that is “made up of a group of parents who have joined together to work cooperatively to provide funds to pay for the participation of their children in athletic (or educational) events.” you do not qualify for 501(c)(3) tax exempt status. But you can qualify for a different IRS tax exempt status called 501(c)(7) Social Club status.

I am assisting a homeschool support group that has a few co-op classes, but their main purpose is to join together to support each other in homeschooling. They are applying for 501(c)(7) as a Social Club. They will receive many of the benefits of tax exempt status, but not quite the same a 501(c)(3) status.

What about your homeschool organization?  Would you qualify as a 501(c)(3) charity or 501(c)(7) Social Club?

Do you know the difference?

How can you decide? It depends on your activities, purpose and structure.

I can help you sort out the differences.

Please contact me about a phone consultation to help you determine which status is best for your organization.

Do not make the mistake of choosing the wrong tax exempt status.  You could be denied by the IRS like Mr Mechanic mentioned and waste a lot of time and money. It can happen to your group.  Read a real life story here:

http://homeschoolcpa.com/irs-intimidates-homeschool-group

If you need help discerning the tax exempt status of your homeschool organization, send me an email at Carol@HomeschoolCPA.com. We can arrange a private consultation to discuss your particular situation.

Carol Topp, CPA

Can a small group be an IRS qualified charity?

In the past week, I have received two emails from homeschool leaders in MD and CA with  a surprisingly similar situations.

In both groups, a small number of homeschooling families were  joining together to hire a single teacher to teach their children once or twice a week. Both groups were very small, only seven families total, but they were paying each instructor quite a bit of money-$11,000 annually in one case and $17,000 in the other. This meant that they exceeded the IRS threshold of $5,000 annual gross revenue and needed to consider filing for 501c3 tax exempt status.

They had several concerns such as a contract with the teacher, how should the teacher be paid and could the group qualify for 501c3 tax exempt status as an educational organization?

Here were some of their questions:

I found your website and found it to be most interesting and helpful to homeschool co-ops.  I would like to schedule a personal consultation with you.  I am part of a homeschool group that informally hired a teacher to teach certain classes in past years, but this coming year the teacher wants a contract.
Rosemary in MD


I saw your website and had some general questions for you.  Appreciate your ministry to homeschoolers. We are trying to decide whether our group should be a sole proprietorship owned by person or try to establish a nonprofit. What would be the pros and cons of each? What if we can’t afford to file for tax exemption at this time?  What are our choices if our gross receipts are around $11K/year?
Teri in CA

There are several options for homeschool organizations who are trying to decide how to structure themselves. I advised the leader from CA to read this article:

When to become a 501c3?

I offered a private phone consultation and discussed the concerns and options with the leader from MD. I explained that I doubted the IRS would grant 501c3 “qualified charity” status to a group with only seven families. An IRS qualified charity is supposed to serve a public good, not the needs of only seven families.

Instead of pursuing 501c3 tax exempt status, we discussed that the hired teacher is really running a for-profit business (a sole proprietorship) with seven families as her customers. I shared with her several sample contractor agreements the teacher could use in her business.

There is a sample contractor agreement available in my ebooks Money Management in a Homeschool Organization and Paying Workers in a Homeschool Organization.

Thank you again for the consultation.  It answered a lot of questions for me, and I appreciate your support. Thank you also for the contractor agreements – I have been reading through them.
Rosemary in MD

If you have a unique homeschooling situation and would like to schedule a private consultation with me, please send me an email at Carol@HomeschoolCPA.com. Tell me a little about your group and we can arrange a mutually convenient time to talk.

Carol Topp, CPA

Small homeschool groups receives official IRS Letter without 501c3 status

Hi Carol,

I know I’ve come across this information on your site before, but can’t find it today.  I am a leader for a smaller homeschool support group (50 families).  Each year, only about $1,000 passes through our bank account.  I have obtained an EIN so we can open a bank account but we are also interested in non-profit status.  The main reason for this is so people can make contributions and also so we can avoid paying sales tax.  I read on the IRS site that we do not need a form 1023 if we have less than $5,000 annually.  If that is the case, how do we prove our non-profit status?

Thank you so much for your help.  Your site has been very helpful to us.

Shelley T, Illinois

Shelley,

Good question.  I decided to call the IRS Tax Exempt Customer Service at (877) 829-5500 on your behalf.  First, Mrs Baker, the IRS employee said that you would have no proof of tax exemption because you do not have the IRS determination letter.  That’s the letter the IRS gives nonprofits after their tax exempt application (Form 1023) is approved.

Then she mentioned that the IRS can send a letter stating that some nonprofits such as yours are small enough that they are not required to file Form 1023. I asked for that letter to be mailed to you.  That’s the closest thing you’ll have to “proof.” At least it will be from the IRS and addressed to your group.

I found your mailing address on your website. Good thing you had an EIN, too.  She verified the mailing address I gave her with your EIN.

Look for the letter in 10-14 business days.

Carol Topp, CPA

Follow up: Shelley received her letter from the IRS 14 days later. It simply stated “We have no record that your organization has been recognized as exempt from federal income tax.” It went on to explain the IRS forms and publications to apply for tax exempt status.  The letter closed with a paragraph explaining that “an organization organized and operated exclusively for 501(c)(3) purposes…does not have to file for exemption unless its annual gross receipts are normally more than $5,000.”

Advice to homeschool leaders:

If you are a small homeschool nonprofit (gross revenues under $5,000 a year), and desire a letter from the IRS explaining that you are tax exempt, do what I did for Shelley and call the IRS.  Request a letter explaining the exemption for filing a Form 1023 for small nonprofits.

If your homeschool organization brings in more than $5,000 a year, it is time to apply for tax exempt status with the IRS (or time to start paying tax on your surplus!). Read more here:

When to become a 501c3?

Questions? Send me an email. I can help!

Carol Topp, CPA

IRS starts revoking tax exempt status May 17

IRS
Homeschool leaders, if your organization has 501c3 tax exempt status be sure to file your annual Form 990N, 990 EZ or 990 or risk losing your tax exempt status. The IRS is beginning automatic revocation of tax exempt status May 17, 2010.

Hundreds of thousands of small non-profits, from Little League teams to community soup kitchens, could lose their tax-exempt status on Monday because of an IRS filing requirement.

The 2006 Pension Protection Act included a provision requiring all non-profits to file an annual return with the IRS.

Previously, non-profits with annual revenue of less than $25,000 were excluded. Non-profits that fail to file a return for three consecutive years lose their tax-exempt status. On May 17, the three-year clock runs out for non-profits that haven’t filed a return since 2007.

The Urban Institute estimates that up to 365,000 non-profits could lose their tax-exempt status if they fail to file by Monday. Groups that miss the deadline will have to apply for a new exemption and pay a user fee of up to $850. They could also be liable for taxes on any revenue earned before their exemption is renewed.

The requirement does not apply to churches or church-related operations.

Non-profits with less than $25,000 in annual revenue can file a 990-N, an abbreviated online form. Completing the online form takes less than 10 minutes, says Tim Delaney, president of the National Council of Nonprofits.

What should you do if your organization loses its tax exempt status?  The IRS says you will need to reapply for tax exempt status.

The IRS as a FAQ page.

And I can help.  I assist homeschool organizations with tax exempt applications.  See my Services page for details.

Carol Topp, CPA

IRS auditors crackdown on independent contractors

IRS

According to CNNMoney, the IRS is going to do random audits of 6,000 companies that use independent contractors.

CNN Money: Auditors Crackdown on Indedendent Contractors

Homeschool organizations might be caught in the web if they are paying teachers as independent contractors.

Here’s what the article states:

(CNNMoney.com) — If your business uses independent contractors, get ready for new scrutiny. Hoping to boost tax revenue, the IRS and many state governments are cracking down on how companies classify their workers.

When employers report wages for independent contractors on IRS form 1099, rather than a W-2, they aren’t required to pay unemployment insurance, worker’s compensation insurance or payroll taxes for them. But the rules governing which workers are genuinely “independent” are strict — and often flouted.

The Internal Revenue Service launched a program last month that will randomly examine 6,000 companies over the next three years for employee misclassifications. The federal government estimates it will raise $7 billion over the next 10 through tighter enforcement.

Should you as a homeschool leader be concerned? Probably, if your organization has been paying people as independent contractors when they are really employees. How can you tell the difference?

I can help.

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 employees 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.

To request a consultation, please contact me. I’m happy to help and relieve any anxiety you have about this confusing topic.

Carol Topp, CPA

 

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Paying Workers workshop now available

Homeschool leader, did you pay a volunteer, teacher, leader or worker for your homeschool organization in 2009? HomeschoolCPA< Carol Topp,  recorded her on-line workshop for homeschool leaders.  Just in time for tax season.

Paying Workers in a Homeschool Organization

was recorded on

Friday, January 15, 2010

and is now available for you!

or listen at the Talkshoe site here: HomeschoolCPA’s Workshops

Topics:

  • Volunteers. Can you pay a volunteer? How to reward volunteers.
  • Independent Contractors. What are they? What IRS forms need to be filed?
  • Employees? How are they different from Independent Contractors? What forms does the IRS require?

The workshop runs for one hour.

Look for more upcoming online workshops. Sign up for my newsletter to be informed of the next date and topic.

Carol Topp, CPA

Do homeschool teachers get the Educators Expense deduction?

IRS

I am frequently, “Are there any tax breaks for homeschooling parents?”  My usual reply is, “No; there are no tax credits or deductions for homeschool expenses at the federal level.” There are tax breaks offered by some states that I discuss in another blog post.

But here’s a bit of a new twist on the question from a homeschool mother.

I spoke with an IRS representative just today about an educator’s expense tax break.
The IRS rep stated that IRS laws specifically prohibit homeschoolers from getting up to $250 credit for educational items purchased. However, he stated congressional law overrides IRS law and that congressional law requires teachers work in a school as defined by state law. In our home state, Kentucky, we are considered private schools. The IRS rep suggested I give the credit a go next year but be prepared for an audit. Can you shed some light on the situation?

She is referring to the Educators Expense deduction of up to $250 in unreimbursed expenses.

The IRS guidelines say to be an eligible educator:

“You work at least 900 hours a school year in a school that provides elementary or secondary education, as determined under state law.”

To work means to get paid (to the IRS, not to all of us SAHMs!).  Homeschool parents are not employees of a school.  We do not get paid; we do not get a W-2.  I attended a tax workshop where we were told that the IRS will check for a W-2 from a school if a taxpayer takes the Educator Expense deduction. Homeschoolers would not have a W-2 from a school, even if your state classifies your homeschool as a private school.

The intention of the tax deduction was to move the deduction from the Schedule A (Itemized deductions) Miscellaneous Deductions where it was subject to a 2% of Adjusted Gross Income limit (meaning anything over 2% of your AGI could be deducted) and put the deduction on the front page of the 1040, so even teachers who don’t itemize deductions can take advantage of the $250 deduction.

The Educator Expense Deduction was nearly eliminated in 2006, but received an extension.  I predict the deduction will not be around for much longer.  IMHO, it was President Bush’s attempt to get a few votes from paid teachers.

So in short, I do not take the Educators Expense deduction, nor recommend that other homeschool families take the deduction.  The IRS rep was right, be prepared for an audit.  But without a W-2 from a school, you won’t win.

HTH,
Carol

P.S.  Here are my required “lawyer” words:
Internal Revenue Service Circular 230 Disclosure:  Advice relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of  avoiding penalties under the Internal Revenue Code or  promoting, marketing or recommending to another party any transaction or matter addressed herein.

Bank account for your family homeschool

BankXSmall

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

IRS Intimidates Homeschool Group

I have helped several homeschool groups obtain tax exempt status with a 100% successful track record (no one has ever been denied by the IRS). One homeschool group even received their tax exempt status letter from the IRS in only three weeks!  That’s amazingly fast for the IRS; it typically takes 3 months!

But recently a homeschool group in Texas e-mailed me for help. They had applied for tax exempt status as a 501c3 educational organization.  I did not prepare their application, but looked over their website and they appeared to be similar to hundreds of homeschool organizations across the US. But the IRS was going to deny their application, keep their $750 application fee, bar them from applying again and claimed to be building a file to be used against other organizations like them seeking tax exempt status!

This was horrible and could have had a huge negative impact on homeschool co-ops and support groups across the US.  I recommended they speak to the attorneys at Homeschool Legal Advantage. There is a time and a place to hire a lawyer and this was it!

Homeschool Legal Advantage recently e-mailed this update

https://app.e2ma.net/app/view:CampaignPublic/id:8078.2491060969/rid:4166d5ca89236cc41a5c872dd1372e97

As you can read they were a great help to this homeschool organization and resolved the matter quickly with the IRS.

The article mentioned the difference between 501c3 and 501c7 status and you may find that  a bit confusing. Additionally, the groups use of the word ‘co-op’ confused the IRS as to their purpose. What is right for your homeschool organization? How should you present your group tpo the IRS when applying for tax exempt status?

Feel free to email me to arrange a private consultation via telephone.  Each group is unique and an individual consultation will be very helpful

Carol Topp, CPA

P.S. I was so pleased to meet the attorneys with Homeschool Legal Advantage at the Midwest Homeschool Convention in Cincinati in 2009. They were so helpful in desiring to work with homeschool organizations as well as indiviual families.