Got donations? Confirming contributions in a homeschool organization

donation_money_insert_400_clr_5537Is your homeschool group fortunate to have received a donation this year?

It’s important you you to know what your organization needs to do confirming contributions.

Only if your homeschool organization is a 501(c)(3) tax exempt organization, can your donor deduct the donation on their tax return.

If your group does not have 501(c)(3) status, you should thank the donor, but not give them a tax deductible receipt.

(Not sure if your group is a 501(c)(3) tax exempt organization? Read more here…)

 

Here’s some advice from a fellow CPA, Dennis Walsh on confirming contributions.

From http://www.blueavocado.org/content/treasurers-all-volunteer-organizations-eight-key-responsibilities

 

Confirm contributions

A prompt thank you letter that includes what donors need for tax purposes is an effective way to keep your contributors up to date on the great work you’re doing.  The IRS says it’s okay to send this information by email. When different financial duties are assigned to a variety of people, the chances increase that any misappropriated donations will be detected more readily.

Here’s a sample of the essential information to include in your thank you letter:

“Date

“Name and address of nonprofit
“Donor name and address

“We wish to thank you for your 20xx contribution of cash in the amount of $500.00.  We did not provide any goods or services in exchange for this contribution. XYZ Nonprofit is an organization exempt under Section 501(c)(3) of the Internal Revenue Code and contributions are deductible to the extent allowed by law.”

Remember to separately list any single contribution of $250 or more.  If the donation is other than cash, describe the property but do not indicate a value.

If you provided the donor with goods or services as part of the contribution, you could delete the second sentence in the above example and substitute the following:

“We provided you with two theater tickets with a fair market value of $50. Your tax deduction is limited to the amount of cash and value of any property contributed, reduced by the value of any goods or services received in return.  Accordingly, the amount eligible for a federal income tax deduction is $450.”

There are exceptions for items of minimal value such as pens and mugs.  See the discussion regarding “quid pro quo” donations in IRS Publication 1771.

Dennis Walsh, a certified public accountant who lives in Jamestown, North Carolina, is the author of Legal and Tax Issues for North Carolina Nonprofits. Through the Deborah and Dennis Walsh Foundation, he provides volunteer technical assistance to help empower community nonprofits. He can be reached at drwalsh at triad.rr.com

Starting a nonprofit homeschool group correctly! Dollars and Sense Show # 5

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In this episode of the  Dollars and Sense Show host Carol Topp discusses

Starting a nonprofit homeschool group correctly

In this episode,  Carol  discusses how to start a nonprofit homeschool group. She shares her knowledge as the Homeschool CPA on important steps to take when organizing a group such as having a board and a clear mission. She’ll also share tips on how to legally operate your homeschool group.

Listen to the show here

Three steps to launching (or running) a successful homeschool organization:

1. Board: Chose a group of leaders so no one carries the burden of leading alone.

2. Bylaws: Write up bylaws to structure your group. Decide the Who, What, Where, How often and How much issues. In the bylaws mention its purpose (what), its members (who) and its leaders. The Where, how often and how much change frequently and do not belong in the bylaws.

Sample bylaws here

3. Budget: Planning with numbers. Estimate your income and your expenses. Plan a small surplus for emergencies.

Cover Money Mgmt HS Org

Carol’s new book, Money Management in a Homeschool Organization will help your treasurer create a budget and stick to it!

 

On the show Carol mentioned:

Tune in for the next Dollars and Sense show on December 19, 2013 when Carol will discuss tax exemption and how to get it for your homeschool group.

 

IRS requires homeschool support group to have “organizating documents”

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(Background: Lisa’s homeschool support group decided to officially declare tax exempt status as a 501(c)(7) social club. Lisa called the IRS to be added to their database so that she could file the annual Form 990N as the IRS requires of all nonprofit organizations.)

Carol,

I just spoke with the IRS about being entered into their database.  I am frustrated.  The first question she asked me was whether we have an organizing document. After I said we don’t, but are self declaring 501c7 status, she informed me that unless we have an organizing document, we don’t have standing with them and are not considered an exempt organization, so we wouldn’t file a 990N.

Lisa in PA.

 

Lisa,

How extremely frustrating the IRS can be!

Organizing documents are:

  • Bylaws
  • Articles of Association for unincorporated organizations.
  • Articles of Incorporation for organizations that decide to form a nonprofit corporation in their state.

Most homeschool support groups do not incorporate in their state. They remain unincorporated associations. (Sounds nice and official, doesn’t it?)

Homeschool co-ops or other large groups frequently incorporate as nonprofit corporations in their state and go on to apply for tax exempt status with the IRS.

Read more about nonprofit incorporation:

Your homeschool support group  won’t ever send the IRS your “organizing documents” since you are self-declaring tax exempt status as a social club and do not have to file a Form 1024 to apply for 501(c)(7) status.

But it’s still a good idea for a homeschool support group to have bylaws and Articles of Association. They spell out the foundation of your group’s purpose, membership, and how the board is chosen.

Your homeschool support group could create bylaws or “Articles of Association” (I added a sample to my Sample Documents page) as your organizing documents.

Your board should vote to approve the bylaws or Articles of Association, but you don’t have to file the document with the state or the IRS.
Then call the IRS again, hope for another person this time, and see if you can get into the IRS database.

 

Carol Topp, CPA

 

IRS Form 990-N FAQ

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What’s a 990-N?

Since 2010, the IRS has required all nonprofit organizations file an annual information return. (all means all nonprofits, except churches) The IRS Form 990-N is a simple, online form that all nonprofit organizations with annual gross revenues of less than $50,000 must file every year. That means your homeschool group (unless you are under the ministry of a church).

When is the 990-N due?

The Form 990-N is due 4 1/2 months after the end of your fiscal year, so May 15 for groups that run on a calendar year.

What  does the Form 990-N ask?

The Form 990-N is very simple. It is only 6 questions. No financial information is given.

A. Calendar year or tax year dates
B. Check if gross receipts are $50,000 or less
C. Name and address of organization
D. Employer Identification Number (EIN)
E. Website
F. Officer name and address

How do I file the Form 990-N?

It is filed online at the IRS.gov website IRS.gov/990N

We’re not a 501(c)(3)yet. Do we still need to file the Form 990-N?

Yes, you do. Start filing the Form 990-N even before you file for 501(c)(3) tax exempt status. File a 990-N even if you are a self declared 501(c)(3) social club.

File the Form 990-N even if you are exempt from applying for tax exempt status because your annual gross revenues are under $5,000 or because your are a self-declaring 501(c)(7) Social club (like most homeschool support groups).

Read more about tax exempt status for support groups here: Homeschool Groups As Social Clubs

Since you have not applied for 501(c)(3) status, you are not in the IRS database, so you need to 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 after you call to be added to the IRS database.

What happens if I file the 990-N late?
The IRS will send you a reminder notice if you do not file your 990-N on time, but the IRS does not assess a penalty for late filing.

What happens if I fail to file the Form 990-N for three consecutive years?
If you fail to file for three consecutive tax years, you will lose your tax exempt status. This will  occur on the filing due date of the third year.  If you lose your tax exempt status, you must reapply for tax exempt status. This means filing the Form 1023, the new shorter 1023-EZ or 1024. (I can help with that. Contact me) and paying the IRS filing fees.  You may owe taxes for the period when you were not tax exempt.

The IRS requires that all organizations who lose their tax exempt status file the Form 1023/1023-EZ/1024 even if they were exempt from filing the form before.

That means doing the paperwork and paying the IRS filing fee ($275 , $400 or $850).

We’ve never filed any forms with the IRS. Why now?

Before 2006, small nonprofits with annual gross receipts under $25,000 did not have to make any yearly filings with the IRS. But in 2006, Congress and the IRS introduced a new form, the 990-N. The IRS needed to clean out their database of nonprofit organizations, many who had old addresses or were closed. The Form 990-N keeps the IRS and donors up-to-date on tax exempt status of small organizations.

Will we owe back taxes or penalties?

There may be a period of time when your organization was not tax exempt. The IRS may expect you to pay income tax for that period. (I can help with filing your tax returns. Contact me) Fortunately, the IRS is not assessing penalties for late filing of Form 990-N.

I have never heard of this before and now I think we’re in trouble! What should I do?

1. Stay calm. Everything will be OK.

2. Read my blog posts on Form 990N.

3. Discuss the situation with your board.

4. Consider arranging a phone call with me, Carol Topp, CPA to discuss the next step and your options. Contact me

I hope that helps!

Carol Topp, CPA

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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

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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