New website for filing IRS Annual ePostcard Form 990-N

990N

The Internal Revenue Service (IRS) is changing the website to file the Form 990-N. The Form 990-N used to be hosted by the Urban Institute, but starting February 29, 2016, the IRS will host the Form 990-N submission website.

The new website is www.IRS.gov/990N

The Form 990-N is a short,  annual filing that small (those normally with annual gross receipts up to $50,000) tax-exempt organizations file in place of the lengthier Form 990-EZ or Form 990. In order to file the Form 990-N, all nonprofits will be required to complete a one-time registration and file Form 990-N submissions through the IRS’s website at www.IRS.gov/990N.

Who must file
Most small tax-exempt organizations whose annual gross receipts are normally $50,000 or less can satisfy their annual reporting requirement by electronically submitting Form 990-N if they choose not to file Form 990 or Form 990-EZ instead.

Exceptions to this requirement include:

Form 990-N is easy to complete. You’ll need only eight items of basic information about your organization.

Are homeschool co-op tuition discounts taxable income? Probably!

uncle_sam_holding_money_pc_400_clr_1727

Carol,

I see a lot of schools (homeschooling co-ops, private schools, etc) that offer tuition discounts or reduction for parent volunteer hours. If a parent volunteers to teach a  class a few hours a week and receives a tuition reduction for this commitment, is this considered taxable income for the parent?

I have also read this:

“IRS has broadly interpreted a worker’s “compensation” to also include the amount of free or reduced tuition that is given to a parent in consideration for his or her service to the school or church. A worker is no longer considered to be “volunteering” if he or she receives something of value “in kind” for his or her service. In the situation of a working parent whose child is enrolled in the school, it is the student’s waived tuition amount normally charged to nonworking parents that will constitute the worker’s taxable wage amount.”

I would love any follow up information you have about this. Thanks again!

Joanna R.

 

Dear Joanna,

I read the quote you provided with a lot of interest. I did a little research and came across IRS Publication 3079 which, although its title is “Tax Exempt Organizations and Gaming,” had a helpful section titled, “Volunteer Labor”

It stated something I didn’t want to read,

“Compensation is interpreted broadly. A worker who obtains goods or services at a reduced price in return for his services may be considered to be compensated.”

 

When the IRS says “compensated,” they mean taxable income. Ugh! That could mean that hard working volunteers in a homeschool organization, who get a discount on tuition, could have to report and pay taxes on this “compensation.”

But, as with all IRS documents, I kept reading Publication 3079 and found this:

On the other hand, a worker who receives merely insignificant monetary or non-monetary benefits is considered a volunteer, not a compensated worker.
Determining whether a benefit is insignificant requires consideration not only of the value of the benefit but also:
•The quantity and quality of the work performed;
•The cost to the organization of providing the benefit; and
•The connection between the benefit received and the performance of services.
(emphasis added)

 

So, if a co-op gives an insignificant monetary benefit to its volunteers, it is not taxable income. The IRS does not define insignificant, but here ares two examples that might help:

Insignificant benefits to a volunteer
A volunteer teacher was given a $50 discount off her $250 tuition for teaching a class. She put in a minimum of 30 hours preparing and teaching this semester-long class. That’s is an hourly rate of less than $2/hour. That seems pretty insignificant to me! It cost nothing for the co-op to offer this benefit. The co-op offered this discount as an incentive to increase volunteerism and it was not payment for services.

Significant benefits are taxable income
Another co-op gave their director several thousands of dollars in gift cards to grocery stores and Target, gave her children free tuition worth $1,500,  waived all field trip fees, theater ticket fees and registration fees amounting to hundreds more in benefits. These were NOT insignificant and were compensation for her services. The co-op thought that by giving gift cards and reduced tuition they could avoid payroll taxes and the paperwork of hiring and paying their director as an employee. They were wrong! The director should be treated as an employee. She should report all these benefits as taxable compensation.

Conclusion
Homeschool leaders should determine if the benefits of reduced tuition of fees they are giving to volunteers are insignificant. Look to the IRS guidelines in IRS Publication 3079 listed above. If the benefits are significant and are compensation for services, then it needs to be reported as taxable income to the worker/volunteer.

My ebook Paying Workers in a Homeschool Organization can help you determine the paperwork and reporting for workers.

Carol Topp, CPA

Will a nonprofit owe taxes on income from selling ads?

GirlThrowsMoney
We considering including advertising in our conference brochure. Can we consider this conference (exhibitor) income? Or is it UBI (Unrelated Business Income)?
We are also considering placing advertising in our magazine (and our website). Is this UBI? And how do we track it? And how do we report it? And what percent taxes would we pay on it?
Dorothy in OR
Dear Dorothy,
Advertising revenue is definitely Unrelated Business Income (UBIT) in the eyes of the IRS, because selling ads is not related to your tax exempt purpose (education), but you can avoid paying taxes on the unrelated business income in several ways.

The IRS offers several exceptions to UBI Tax (UBIT):

  1.     A $1,000 threshold allows that the first $1,000 in income from an unrelated business will not be taxed.
  2.     If the fundraiser (or unrelated business) is run substantially by volunteer efforts (i.e., no paid staff) then the proceeds are not taxed.
  3.     If the fundraiser is not regularly carried on, such as a once-a-year spaghetti supper, then the proceeds are not subject to UBIT.
  4.     If you are selling donated items, like in a garage sale, the income raised is not taxed.

I think #1 or #2 will apply to your group, so can get income from advertising without worrying about paying tax on it.

It’s a good idea to create a line item in your record keeping labeled “Advertising Income” so it’s clearly differentiated from other income.

Carol Topp, CPA

Can homeschool teachers be allowed to keep extra money as a donation?

Dollarsinhand

Dear Carol,

I have purchased and am reading your ebook Paying Workers in a Homeschool Organization. Thank you for making this available!

We are a co-operative, so all are teachers are basically volunteers. I do, however, collect on their behalf an estimated class contribution to help them cover costs related to teaching: curriculum, printing handouts and lesson plans, consumables used in class etc. This amount is determined by the teacher, usually $5-10 up to $50 per semester depending on the class. These funds are collected and then dispersed to the instructor at the beginning of the semester. We don’t require receipts or an accounting to be submitted. Any remaining funds are considered a “donation” to the teacher to recognize their time and effort in preparing and teaching the class. Teachers are not required refund monies back to the families.

Most of us feel that this structure is reasonable. However, one member is questioning. Does our policy seem acceptable from a legal position?

Thank you, in advance, for taking the time to answer my questions.

God bless your service,
Rose

Rose,

Thank you for your kind words. I’m glad the book was helpful. It’s been updated since you read it and has grown from a 20 page ebook, to a 130-page paperback.

This statement bothers me greatly, “We don’t require receipts or an accounting to be submitted. Any remaining funds are considered a “donation” to the teacher to recognize their time and effort in preparing and teaching the class.”

When you do not request receipts, you are running what the IRS calls an “non-accountable” plan for reimbursements.

The remaining funds that you let your teachers keep is not a donation, it is a payment for services and is taxable income that needs to be reported to the IRS. Actually, the full amount you give to the teachers is taxable income under a non-accountable plan.

I have written a few blog posts on the topic of paying volunteers, requesting receipts for reimbursements, etc. Please read these:

No receipts for expenses can get you in trouble
and
Should my homeschool co-op be giving any tax forms to our teachers?

In my book Money Management in a Homeschool Organization I discuss how to properly set up an accountable reimbursement plan (Chapter 7).

I hope you will change your practices (i.e set up an accountable plan for reimbursements and start requiring receipts) so that your teachers do not have to report their payments as taxable income.

You may also find my updated version of Paying Workers in a Homeschool Organization helpful.

Carol Topp, CPA

 


payingworkerscoveroutlined

Paying Workers in a Homeschool Organization-2nd edition

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

BuyPaperbackButton

 

Save

Converting from a homeschool support group to a full service nonprofit organizaton

group_chat_interaction_800_wht_9894

Lots of homeschool support groups find themselves evolving into bigger organizations than their founders imagined. They grew from being small monthly support groups to larger organizations offering field trips, co-op classes, graduation ceremonies, clubs, and other activities.

For example, TACHE (Tyler Area Home Educators) in Tyler, Texas began in the 1980s as a small support group for homeschool families. They grew to over 400 families and now manage an annual budget of nearly $20,000 and offer a plethora of educational activities.

They wisely decided to incorporate as a nonprofit corporation in 2009. But, unfortunately, TACHE did not apply for 501(c)(3) tax exempt status at that time.

In September 2013 TACHE  decided it was time to apply for tax exempt status as a 501(c)(3) educational organization and contacted me. Because TACHE waited more than 27 months after their date of formation (in 2009) to apply for 501(c)(3) status, we had to explain TACHE’s history to IRS and give an explanation why they did not apply earlier.

I helped TACHE apply for 501(c)(3) status in February 2014 and after about 7 months of waiting, the IRS granted 501(c)(3) status.

But TACHE wasn’t finished with the IRS just yet. TACHE failed to file their Form 990-N Annual Information Return with the IRS for three consecutive years and had their tax exempt status automatically revoked. We were concerned that there would be a period of time when TACHE would have to file and pay income tax. There were a few phone calls and letters to the IRS, but finally the IRS reinstated TACHE’s tax exempt status and agreed that they did not owe any back taxes.

The process is does not always take that long, but here are a few lessons learned.

  • Don’t delay! Apply for 501(c)(3) tax exempt status within 27 months (or sooner) from your date of formation (usually the date of incorporation in your state as a nonprofit corporation)
  • File the Form 990-N every year. This is required for support groups as well as homeschool co-ops. If you fail to file the Form 990-N, the IRS will automatically revoke your tax exempt status.
  • Get help when you need it. My fees are reasonable and I focus on helping homeschool organizations.  Contact me.
  • Be patient. Although the IRS has cleared a lot of their backlog, it still took 11 months for the IRS to reinstate TACHE’s tax exempt status.
  • Learn all you can about tax exempt status for your homeschool group. My book, The IRS and Your Homeschool Organization, is a good start.

Congratulations to TACHE! It was along process, but it’s finished and TACHE can continue to serve homeschool families in Texas for many years to come.

Carol Topp, CPA


I will be recuperating from surgery and will be unavailable to answer your emails from November 15, 2015 until January 2016. Until then, here’s how you can get help.


Congratulations to homeschool groups on tax exempt status!

Congratulations501c3

 

Congratulations to several homeschool organizations recently granted 501(c)(3) tax exempt status by the IRS!

  • LifeShine from San Antonio, TX
  • Grace Home Educators of Martinsville, IN
  • United Christian Homeschool Association in Belton, KY
  • SCOPE Homeschool Group in Ashville, AL

Both Lifeshine and Grace had their tax exempt status automatically revoked for failure to file the IRS Form 990 for 3 consecutive years. Fortunately, I was able to help them get their tax exempt status reinstated and neither group owed any back taxes. Yeah!

Do you know about the IRS required annual reporting for ALL nonprofit organizations (that means your homeschool group, even if you never had to file any reports with the IRS before)?

Do you have questions about the tax exempt status of your organization?

Contact me and I will help your homeschool organization get tax exempt status (or get it back if it was revoked).

It’s better than paying taxes!

Carol Topp, CPA

 

Can a Classical Conversations community be a tax exempt nonprofit?

Classical Conversations logo

 

I am directing a local Classical Conversations group, and many churches in our area
will not consider housing us because we are not a nonprofit. Since I am basically an independent contractor licensed by CC corporate to run a community in my area, am I potentially eligible to have my community declared a nonprofit?

-Jen, Classical Conversations Director

 

Jen,

I recently discussed nonprofit status for CC Communities with Classical Conversations COO, Keith Denton.  He explained to me that “CC Directors (who are licensees of CC) may form an entity through which to run their homeschooling operations.

CC does not require a director to run his/her homeschooling program through an entity, nor does it require that such director choose a specific type of entity (non-profit versus for profit) for its homeschooling community.

CC recommends that all directors consult with an accountant and lawyer when making the decision of whether to form an entity, and what type.  The decision of which entity to form depends on a variety of factors specific to the director and state where the homeschooling community is formed.  As such, consultation with an attorney and accountant in a director’s community is highly recommended to best address all relevant factors. ”

That was very helpful!

I can help you weigh the pros and cons of for profit or nonprofit status for your CC Community. Contact me to schedule a phone consultation.

Carol Topp, CPA

Is my homeschool group considered a school?

school_house_400_clr_9041

Hi Carol,
I took a look at the 1023-EZ worksheet to see if we qualify for filing as a tax exempt organization. Question #11 asks if we are an educational facility. Then it goes on to define what they mean. I do not know how our organization would not fall into that category. Our goal is to support homeschooling families by providing weekly classes for middle and high school students. We do make it clear that our tutors are working alongside parents. Parents have the final decision on the grade their student will receive for the class. So, what do you think? Does that mean we do not qualify to apply for tax exempt status?

Virginia

 

Virginia,
Form 1023-EZ Eligibility Checklist Question #11 asks if your origination is a school, college or university described in section 170(b)(1)(a)(ii). That part of the Internal Revenue Code describes a school. I do not consider homeschool programs to be a school as the IRS defines “school.”

One aspect of a school is a “regular faculty,” which the IRS defines as

“qualified teachers instruct the students, and the same teachers do so on a recurrent basis.”

Source: Internal Revenue Manual  viewed http://www.irs.gov/irm/part7/irm_07-026-002.html#d0e549 on 5/11/15.

And by “qualified” the IRS means:

“certifications by the appropriate state authority or successful completion of required training.”

Source: Instructions for Form 1023

So when you look beyond the Eligibility Checklist into the guts of the IRS code, you’ll probably agree with me that homeschool organizations are not schools because they do not have regular, “qualified” faculty. Most of the teachers in your homeschool organization may be qualified to teach a class at your homeschool co-op, but are not state certified, nor trained as teachers.

Your homeschool organization (probably) qualifies to be a 501(c)(3) tax exempt organization as an educational organization, but not as a school.

I hope that helps!

Carol Topp, CPA

How to know your status with the IRS

stick_figure_working_on_database_400_clr_8845

We are trying to figure out what our status with the IRS is. We are a support group/co-op and just recently learned that we should be filing the 990N. We registered our name with the state in 2008. We got out EIN in 2009. We became incorporated in September 2014. Our annual gross revenue is less than $5,000.

 We have searched the IRS database of groups that have had their tax exempt status revoked and we are not listed. How do we find out what our status is and when the IRS is considering our date of formation so we know how to proceed?
Thanks for your help!
Anna in Ohio
Dear Anna,

You referred to an IRS database of exempt organizations called Select Check. I use it frequently to check on the status of nonprofit organizations.

But many times a homeschool nonprofit organization cannot find their name in the IRS database, usually because they have not applied for tax exempt status. That’s the situation for your group.

Your legal status is that you are a nonprofit corporation who can self declare your 501(c)(3) tax exempt status. Since your revenues are less than $5,000,  you can self declare your 501(c)(3) tax exempt status and do not have to officially apply for tax exemption.

The IRS considers your date of incorporation as your “date of formation.” You should get a new EIN for the new corporation and not use the old EIN from 2009. The IRS considers a corporation a new legal entity and you should get a new EIN to match it. Getting and EIN from the IRS

Even though you didn’t have to officially apply for 501(c)(3) status, the IRS does require you to file an annual information return, the Form  990-N. To be able to file the Form 990-N, you need to call the IRS Customer Account Services at 1-877-829-5500 and ask to be added to their exempt organization database so you can begin filing the Form 990Ns. It typically takes 6 weeks after you call to be added to the IRS database.

Say something like this,

“We’re a new 501(c)(3) educational organization and my CPA said I needed to get added to the IRS exempt organization database so we could start filing our Form 990-N.”

They will ask for :

  • your EIN(Employer Identification Number)
  • organization’s name
  • address
  • a contact name
  • Date your fiscal year ends. Many support groups operate on a calendar year, but some operate on a school year with a year end of June 30 or July 31. Look at the form you filed when you applied for your EIN (SS-4) to see what you chose as your fiscal year end.
  • They may ask if you have “organizing documents.” They mean bylaws, Articles of Association, or Articles of Incorporation.

Call the IRS early in the morning. They open at 8 am ET and you can usually get through pretty quickly of you call then. Record the date you call, the IRS employee name and their identification number.

Be sure you go online to file the Form 990-N anytime after your fiscal year ends and before its due date which is 4 1/2 months after the end of your fiscal year.

Tax Exempt Status for Homeschool Support Groups (podcast)

DSS#47Graphic

Carol Topp, the Homeschool CPA, explains tax exempt status for homeschool support groups in her latest podcast episode.

She discusses what she learned about tax exemption from a recent webinar conducted by the IRS including:

  • Qualifications to receive automatic tax exemption from the IRS
  • In religious discrimination allowed or not?
  • Mandatory annual reporting to the IRS for support groups

Carol also discusses the advantages of forming as a nonprofit corporation.

Listen here

 

IRS and Your Homeschool Org coverCover Money Mgmt HS Org

Carol’s book, The IRS and Your Homeschool Organization, discusses the advantages of tax exempt status for homeschool organizations.

Carol also mentioned her book, Money Management in a Homeschool Organization.

 

Carol’s podcast, the Dollars and Sense Show, airs twice a month at DollarsAndSenseShow.com. If you’re a homeschool leader you might find these other podcasts helpful:

Episode #6  What is tax exemption and how do I get it for my homeschool organization?
Episode #30 Easy fundraisers for homeschool groups
Episode #36 Required IRS reports for homeschool groups
Episode #37 Has your homeschool group lost its tax exempt status?
Episode #41 Who’s afraid of the big, bad IRS?
Episode #42 How the IRS sees homeschool co-ops.