Homeschool leader has trouble opening a checking account

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Hello Carol.

This morning, Laura and I went to the bank to open a new checking account. We were told that in order to open our account we would have to register with the Missouri Secretary of State.

We then went home and tried to register with the Missouri Secretary of State, and we got stuck because it asked us for our charter number, which we don’t have.

Then, we called a different bank hoping to get some more information. We were advised by that bank to go on-line and File a Fictitious Name. We proceeded to try that, but then came to a page that asked us to enter the “owners” names and information. Laura and I are not sure if we are the “owners” and what that means exactly. We are also wondering if filing for a fictitious name is going to affect our status of being non profit.

We would so appreciate any advice you could give us. It seems so simple to just go and open a new checking account, but we just keep running into problems!

Jackie in MO

Jackie,
Sorry you had so many problems with your bank! I think banks are notorious for giving out bad information.

My own bank manager told me that I needed 3 separate checking accounts for my 3 different DBAs. I said, “I’m a CPA and I know that’s not true!” (She agreed!)

I answered a similar question on my blog post about fictitious name registration.
http://homeschoolcpa.com/opening-a-checking-account-shouldnt-be-this-expensive/
I told her this:

“Hopefully, you used the name of your group on the EIN application as well. If so, tell that to the bank (and show the IRS confirmation letter of your EIN) and you should not need a name registration.”

IOW, you are using your organization’s real name, not a fictitious name, so why do you need a fictitious name registration? (you don’t)

You’re correct that you are not the owners. Nonprofits do not have owners. You should open the checking account with the names of the officers (usually president and treasurer) as check signers, but not owners.

I hope you were very clear with the banks that you are opening a nonprofit checking account.

I don’t know enough about MO’s Secretary of State to know what “register with the state” means. This page might help: http://www.hurwitassociates.com/l_s_initial_mo.php
It’s a summary of what nonprofits need to do in the state of Missouri. A lot of things are not needed until after you receive 501c3 tax exempt status.

I hope that helps!

Carol Topp, CPA

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Confused over IRS dollar thesholds for tax exempt filing status

GirlThrowsMoney

Carol,

Two local CPAs we’ve talked with are confused about the $5,000 threshold that you speak of.
They talk of a $25,000 threshold. They both seem to think we don’t need to do anything if we are under $25,000. Can you explain?

Melissa M

 

Melissa,

The $5,000 threshold is the threshold for filing a Form 1023 application. IOW, if your gross income is under $5,000 you do not have to file the application; your group is automatically tax exempt.

It is found in the instructions to Form 1023 on page 1 under “Form 1023 not necessary.”
http://www.irs.gov/pub/irs-pdf/i1023.pdf

 

The $25,000 that the CPAs mentioned is an  old figure. It was raised to raised to $50,000 in 2010.

It is the threshold for organizations to file an annual Form 990EZ instead of the simpler 990N (electronic postcard). See http://www.irs.gov/Charities-&-Non-Profits/Annual-Electronic-Filing-Requirement-for-Small-Exempt-Organizations–Form-990-N-%28e-Postcard%29

 

I am quickly learning that even if you are under the $5,000/year threshold the IRS expects all nonprofits to be filing the 990N every year. I’ve had several nonprofit clients that failed to do this and it is holding up their tax exempt status approval.

Unfortunately,  there is no longer any truth to: “If you’re under $XXX, you don’t have to file anything.”
The rules changed back in 2010 and the IRS is enforcing them!

I hope that helps!

Carol Topp, CPA

 

 

Homeschool group waiting to file for 501(c)(3) status..what are they?

The important part

I am working with three friends to start a homeschool co-op this fall.  I purchased your book and read over your website.  I can see we may need your services in the near future.  For now, however, I just have one question that I couldn’t seem to find an answer to in your material.

 I would like to apply for non-profit status with my state and the IRS.  However, fees are discouraging right now.  If we are charging parents to drop off for instruction 2 days a week and all that money is going right back into rent, materials, etc and no profit is made, can we just start doing that before we apply and then “save” money to apply for non-profit?

And then if the answer is yes, what are we until then for tax purposes? Do we have to file taxes  just as a business and just show $0 profit and $0 taxes owed?  

Lynne D in PA

 

Lynne,

Great question!

Yes, you can organize and operate as a nonprofit for a while and save up some money to apply for tax exempt status.

The IRS expects nonprofit organizations to apply within 27 months of formation. If you file for nonprofit corporation status in your state, then the day you become incorporated is the date of formation. It is sort of like the organization’s official birth date.

The IRS will grant you tax exempt status from the date you incorporate. It “back dates” your tax exempt status.

You should not consider yourselves as a for-profit business if you are organized (meaning have a board and bylaws) and operate (no profit motive, no one pocketing the profits) as a nonprofit. You can call yourself an “unincorporated nonprofit.” That has a nice, official ring to it!

You do not need to file a business tax return.

So, the bottom line is that you can start and run your co-op for about a year, maybe close to two years, and then apply for tax exempt status with the IRS. I recommend getting nonprofit incorporation from PA first, maybe about 6-12 months before you apply to the IRS.

After you incorporate, I strongly recommend you start filing the annual Form 990N with the IRS. It’s a simple 8-question online form. Start filing the Form 990N even before you file for 501(c)(3) tax exempt status.

You can call the IRS Customer Account Services at 1-877-829-5500 and be added to their database so you can begin filing the Form 990Ns. It typically takes 6 weeks to be added to the IRS database.

I hope that helps!

Carol Topp, CPA

All nonprofits need to file a 990N every year (or else!)

2009 Form 990

I’ve read your books and really appreciate the information.

When you say you have 27 months from when you file with your state for incorporation as non-profit to file with the IRS, is that only if you want the IRS to grant 501c3 status retroactively to your date of incorporation?

My concern is that I would like to file as a nonprofit with my state so I can get the protection afforded by incorporation but I don’t anticipate seeking 501c3 within the next 27 months and I just need to be sure that is not a deadline to file after becoming a non-profit with the state.

Your clarification is much appreciated.

Tiffany

 

Tiffany,
If you do not file for tax exempt status with in 27 months of the date of your formation (nonprofit incorporation), then the IRS will only date your tax exemption to the date they receive your application, not back to when you were formed.

If you do not have tax exempt status, then you need to be filing a corporate income tax return (Form 1120) and pay corporate income tax on any surplus you have.

If you plan to file for tax exempt status then you should file an annual 990N (the IRS electronic postcard) every year until you tax exempt status is granted.

Lately I have helped several nonprofit clients that formed years ago and were not filing the 990N each year. Now the IRS is making them go back and file corporate income tax returns, even though they have always been nonprofits.

I am now telling ALL nonprofits (even one like yours that is delaying filing for tax exempt status), to PLEASE file the 990N EACH year or it will be unpleasant when you do apply for tax exempt status.

You can call the IRS Customer Account Services at 1-877-829-5500 and be added to their database so you can begin filing the Form 990Ns. It typically takes 6 weeks to be added to the IRS database.

Carol Topp, CPA

IRS addresses nonprofit scandal with Q&A

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The IRS released a press release addressing common questions asked about the scandal involving the tax exempt application by several nonprofit organizations.

As a CPA who helps nonprofit organizations apply for tax exempt status, I have followed this scandal with a lot of interest.

You can read the entire IRS press release here: http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-501%28c%29-Organizations

Here are some highlights:

“Section 501(c)(3) organizations are required to get IRS approval. Others, including section 501(c)(4) organizations, are not required to get IRS approval, but often seek it.”

The nonprofits applying for 501(c)(4) status did not need to apply; tax exempt status can be “self declared” by 501(c)(4) organizations. These groups went above and beyond what was required of them and were subject to long delays and inappropriate questioning.

“This office receives approximately 70,000 applications for tax-exempt status of all kinds each year. This includes applications from section 501(c)(3) and section 501(c)(4) organizations. This office, which includes fewer than 200 people working directly on applications…”

70,000 applications for 200 workers is 350 applications per worker per year or about 1.4 applications per work day. I can review a tax exempt application in about 4 hours or 2 applications per work day. So although the workload is heavy, it is not impossible to manage. Yet IRS has a current wait time of about 13 months for processing tax exempt applications. See http://www.irs.gov/Charities-&-Non-Profits/Where-Is-My-Exemption-Application

“12. Did mistakes occur in working the centralized cases?

Yes. Applicants whose cases were centralized unfortunately experienced inappropriate delays and over-expansive information requests in some cases. This was caused by ineffective processes and not related to the selection criteria used for the centralization of a case.”

The IRS blames “ineffective processes” for the delays and over-expansive information requests. It is unclear what they mean by “ineffective processes.”

 

Let’s hope this scandal means the IRS tax exempt organization will have more efficient and effective processes in the future.

Carol Topp, CPA

 

Tips on filing the IRS Form 1023

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Hi,

Several families and myself have started a brand new homeschool group. Since we are new I am trying to do all the filings myself. I have already filed and been granted the non-profit corporation status for the state of Florida, acquired the EIN number and now I am trying to file for the 501( c)(3) status. Can you advise me on which forms I need to file to obtain the status? I have the 1023 form, but it looks like I need to file one of the schedules.

Thank you for your help.

Caroline H

 

Caroline,

You’re correct that IRS Form 1023 is the application for 501c3 tax exempt status.

Typically homeschool groups do not need to file any of the schedules for the Form 1023. A homeschool group might offer college scholarships and then they fill in Schedule H, but that’s it.

I do not recommend that most homeschool groups file Schedule B Schools, Colleges and Universities. Most homeschool groups do not fit the IRS definition of a school (regularly scheduled curriculum, faculty of qualified teachers, facilities, etc.)

If you wish, I can review your Form 1023 before you mail it to the IRS. I call it “Buying Peace of Mind.” 🙂
Your organization can save money by doing much of the work yourself. I have helped more than 25 homeschool organizations obtain tax exempt status and you can benefit from my experience. Cost: $50/hour for approximately 2 to 4 hours (approximate total cost $100-$200). Time: 1-2 weeks.

BookCoverImageYou might also benefit greatly from my book The IRS and Your Homeschool Organization available in paperback for $9.95 or e-reader format for $3.99
http://homeschoolcpa.com/bookstore/501c3-tax-exempt-status/

Carol Topp, CPA

How much money can a homeschool group keep year to year?

Is there a cap to how much we can keep in our checking account from year to year as a homeschool support group?

No, there is not a cap on how much money a homeschool support group can accumulate.

While it is prudent to have a small surplus to meet future needs, most nonprofits do not accumulate a lot of money year after year. If you have plans for a big event in the future, then it is acceptable to accumulate funds for a few years. But without a reason to be accumulating money, the funds should be spent on your current members (but always keeping a small reserve).

Here’s a rough rule of thumb: If you have more than one year’s income as a surplus (and no plans for the future use of the money), then you should probably make plans to spent some of it on your current members. If you have 2-3 years of accumulation, it’s time to readjust your dues or plan a big party with all expenses paid! 🙂

Having a budget should help you manage how much surplus you carry forward.

Sad but true story: My support group leader realized she would end the year with a surplus, so she threw a very nice catered dinner for all the members and their husbands. It was a lovely date night with babysitting provided!

Unfortunately, the leader drained the checking account and didn’t realize that the annual insurance bill was due in the summer before she had collect dues from the members! Ouch! She had to ask several members to loan the group money in order to pay the bills over the summer.  Good planning, a budget, and carrying a surplus would have avoided her embarrassing situation.

Cover Money Mgmt HS OrgDo you have a copy of my ebook Money Management in a Homeschool Organization?

It might be helpful to you.

 

 

Hope that helps,

Carol Topp, CPA

Not ready for 501c3 status. What’s an intermediate step?

Hi-

We are in the process of moving toward becoming a 501c3 group but we don’t have enough financial history or the resources to accomplish it right now so we would like to do the intermediate step of becoming a corporation.

We are based in Pennsylvania but I’m not sure what type of corporation we should be, LLC or something else.

We would like to keep it as simple as possible so we can easily transition to a 501c3 down the road. What do you recommend?

Thanks for your help.

Delia in PA

 

Delia,

Your homeschool group sounds like many others that become a nonprofit corporation. Be sure you read my articles before filing for nonprofit corporation status

There is some very specific language that the IRS will expect to see in your nonprofit paperwork (called your Articles of Incorporation) in order for you to receive 501c3 tax exempt status in the future.
See my sample Articles of Incorporation here: http://homeschoolcpa.com/leader-tools/sample-documents/

Don’t delay too long between becoming a nonprofit and filing for 501c3 status. The IRS expects you to file for 501c3 within 27 months of your date of formation (i.e. the date you became a nonprofit corporation)

As for being an LLC, it’s not very common for nonprofits. This blog post will help: http://homeschoolcpa.com/should-my-homeschool-group-file-as-an-llc/

I hope that helps!

Carol Topp, CPA


 

Can my family’s homeschool be a nonprofit?

I see several articles (on your website www.HomeschoolCPA.com) on setting up as a not-for-profit for homeschool organizations (e.g. homeschool co-ops), but I wonder if I could set my own family’s homeschool up as a non-profit. We’re in Texas, so we are considered a private school.
-Lauren in TX

Lauren,
You asked a good question and I’ve been asked it before in different ways. Nonprofit organizations have a lot of benefits including tax free income, discounts, and sometimes pay no sales tax!
I’m not a lawyer, nor familiar with Texas private school laws, but I’ll try to explain how I see things.

Briefly, a nonprofit organization exists to serve a group, not an individual. The IRS will not grant “recognized charity” 501(c)(3) tax exempt status to a group that is formed solely to benefit the founder’s family. A tax exempt organization must serve a public good.

The IRS forbids private “inurement” in 501(c)(3) tax exempt organizations. Inurement means to be beneficial or advantageous. Inurement occurs when an organization is formed or operates with an incorrect charitable purpose that allows individuals in control to profit from the organization. 501(c)(3) organizations can lose their tax exempt status for practicing inurement.

Inurement/Private Benefit – Charitable Organizations

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.
From the IRS website at https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

So, in short the answer is no, your family homeschool cannot be set up as a nonprofit organization, even if your state classifies a homeschool as a private school. That’s how I see it.

Carol Topp, CPA

Now, here are my “lawyer words…”
Any tax advice contained in this communication was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

Audits: should your group be doing them?

Hi Carol,

I am looking on your HomeschoolCPA web site for a list of services that you provide.  Our homeschool group is wondering if you offered a service for auditing our books each year to make sure everything is in order?

Debi K

Debi,
Here’s the link to my services: http://homeschoolcpa.com/services/

I can offer to look over your record keeping system and offer recommendations, but I cannot (and will not) do a full audit.

The word audit has  a specific meaning in accounting and it involves an in-depth look at your entire accounting operation. It is very time consuming and expensive ($3,000 and up). I don’t do audits because they require  a staff of people to perform and require a review of my accounting practice by other CPAs, which would cost me at least $1,000.

Instead,  I can offer my consulting services and discuss your records and system of handling your money and make recommendations. That would help your organization quite a bit, but not be a full audit. I’ve done that type of work for homeschool groups before.

Carol Topp, CPA