How does the IRS see my homeschool support group?

Your homeschool support group is probably a social club in the eyes of the IRS. Listen to this short podcast as Carol Topp, the HomeschoolCPA explains that social clubs can get automatic tax exempt status without applying, but they must maintain that tax-free status.

Listen to the podcast (14 minutes)

Here’s a link to the blog post Carol mentioned in the podcast: How to get into the IRS exempt database:

How to get added to the IRS database and file the Form 990N

FEATURED PRODUCT from HomeschoolCPA:

The IRS and Your Homeschool Organization

Does your homeschool group need to pay taxes?  Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?  I have the answers for you in my book The IRS and Your Homeschool Organization. The information I share in my book has been helpful to homeschool support groups, co-ops, music and sports groups and will help you understand:

  • The benefits of 501c3 status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • What your state requires
  • Why your organization should consider becoming a nonprofit corporation
  • What is the difference between nonprofit incorporation and tax exemption
  • IRS requirements after you are tax exempt

Click Here to request more information!

 

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

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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.


Co-ops, Support group? How to define homeschool organizations

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I frequently ask homeschool leaders, “Is your homeschool group a co-op or a support group?”

It’s a basic questions that will influence how I advise them. It should be easy to answer, but more often I hear “Both” or “Well…I’m not sure” or even “We’re sort of a school for homeschoolers.”

The world of homeschooling is changing and it’s getting harder to define our groups.  Support groups morph into co-ops. Co-ops add many support activities. Some co-ops grown into school-like programs.

The Arizona Home Education website has a definition of each type of homeschool group.

Homeschool Support Group Definitions

What do you think of their definitions?

Pretty good, I think.

Here’s my attempt to define each type of homeschool group. It’s incomplete and will probably change over time as creative homeschoolers start new types of groups to meet the needs of future homeschooling families..

Support Group: a gathering of homeschool parents or those interested in homeschooling for information and support. Typically hold monthly meetings for parents and may organize field trips or social events for children and families.

Homeschool Co-op: A gathering of homeschool parents and students who cooperate together in sharing teaching responsibilities for their homeschooled students. Usually meets once a week and frequently all-volunteer.

Homeschool Educational Program: Academic and enrichment classes for homeschooled students. May hire qualified teachers to conduct the program. Usually more expensive than an all volunteer co-op.

Homeschool Sport/Music/Art Program: Similar to a homeschool program , but focuses on sports, music, or art.

Homeschool Club (Lego, Speech/Debate, Yearbook, etc): A club focusing on a specific topic for homeschooled students. Frequently organized under a homeschool support group, but clubs can be stand-alone as well.

Homeschool Business: a for-profit business offering services to homeschooling families. Can be tutors, book sellers, and even my, business HomeschoolCPA offering accounting and tax advice to homeschool organizations.

 How did I do? Leave your comments here or on my Facebook page.

Carol Topp, CPA

What? Homeschool support groups cannot be religious?!

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Carol,

Our homeschool support group has a statement of beliefs that every member must sign to be a member.

However, I was reading the 501c7 guidelines  for Social Clubs and learned that we cannot discriminate based on religion.

Does that mean in order to be tax exempt we cannot require a belief statement?
Blessings,
Lana in TX

Lana is referring to this IRS statement on Social Clubs. Most homeschool support groups fit the criteria to be tax exempt as a 501(c)(7) Social Club.

The club’s governing instrument may not contain a provision that provides for discrimination against any person on the basis of race, color, or religion.

 

Like many laws, you need to keep reading to see if there are exceptions to the general rule.
And there are some exceptions. The IRS guidelines state:

The statute does not require a club to have a certain percentage, or even any, of its members from different, racial or religious groups. So long as there are no written restrictions, a club does not violate the discrimination provisions. http://www.irs.gov/irm/part7/irm_07-025-007.html

 

But Lana’s group does have a written policy, a Statement of Faith, that every member needs to sign.

Does that mean homeschool support groups cannot have a Statement of Faith?

Read on…

IRC § 501(i)(2) provides an exception for a club which in good faith limits its membership to the members of a particular religion in order to further the teachings or principles of that religion, and not to exclude individuals of a particular race or color.

(i) Prohibition of discrimination by certain social clubs

Notwithstanding subsection (a), an organization which is described in subsection (c)(7) shall not be exempt from taxation under subsection (a) for any taxable year if, at any time during such taxable year, the charter, bylaws, or other governing instrument, of such organization or any written policy statement of such organization contains a provision which provides for discrimination against any person on the basis of race, color, or religion. The preceding sentence to the extent it relates to discrimination on the basis of religion shall not apply to—

(1)an auxiliary of a fraternal beneficiary society if such society—

(A)is described in subsection (c)(8) and exempt from tax under subsection (a), and
(B) limits its membership to the members of a particular religion, or
(2) a club which in good faith limits its membership to the members of a particular religion in order to further the teachings or principles of that religion, and not to exclude individuals of a particular race or color. ( my emphasis added)

 

So, Lana’s homeschool support group can have a statement of faith and discriminate on the basis of religion provided their purpose is to further the teachings and principles of their religion (and they don’t discriminate on the basis of race or color).

Carol Topp, CPA

Tax Exempt Status for Homeschool Support Groups (podcast)

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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

 

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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.

IRS reports your homeschool group needs to file every year

IRS reports for homeschool groups

Your homeschool group should be filing some reports every year with the IRS. Did you know that?

Carol Topp, the HomeschoolCPA, explains what forms homeschool groups should be filing with the IRS in this episode of the Dollars and Sense Show podcast.

Listen to the podcast here

In the podcast, Carol answers common questions from homeschool leaders such as:

  • We were told if our income is under $25,000 a year, we don’t have to file anything with the IRS. Is that true?
  • What changed? We never had to file anything with the IRS before!
  • But we’re not a 501c3 organizations (or don’t want to be), so why do we need to file anything with the IRS?
  • We don’t like government intervention. Why do we need to have anything to do with the IRS?
  • Our homeschool group doesn’t make any profit, so why do we have to file a tax return?
  • We’ve never filed anything with the IRS? We didn’t know we had to! Now what? Will be owe back taxes?

Here’s a helpful FAQ page explaining the IRS Form 990-N.

How to get added to the IRS database to file the Form 990-N.

If all this is new to you, don’t panic!

We can arrange a phone consultation with your homeschool leaders. Together we can sort out what needs to be done.

Contact me here.

Carol Topp, CPA

 

How to get added to the IRS database and file the Form 990N

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Carol,
We’re a newly organized homeschool support group. Is there anything we need to do with the IRS to establish ourselves as a 501c7 social club, or do we just need to get our EIN and start filing the 990N?

Thanks again! I really appreciate your help. 🙂

Melissa

 

After you get your EIN (Employer Identification Number), you won’t be able to file the 990-Ns just yet.

Self declare tax exempt status

Since you have not applied on paper for 501(c)(7) status  (you can “self declare” 501c7 status and don’t have to file the paperwork), you are not in the IRS database (yet), 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.

Tips when calling the IRS

Say something like this,

“We’re a brand new 501c7 Social Club and my CPA said I needed to get added to the IRS exempt organization database, so we could start filing the 990-Ns.”


If you’re a homeschool educational program (co-op, etc)

Or if your homeschool group has an educational purpose, you’re most likely a 501c3 tax exempt organization. Read about the difference between 501c7 Social clubs and 501c3 organizations. In that case, you’ll say:

“We’re a brand new 501c3 educational organization and my CPA said I needed to get added to the IRS exempt organization database so we could start filing our 990-Ns.”

**Note that only 501c3 organizations with less than $5,000 annual gross revenues can “self-declare” their tax exempt status. 501c3s with more than $5,000/year in revenues must apply for 501c3 status using Form 1023 or the new, shorter Form 1023-EZ.


They will ask for your EIN and organization’s name, address, and probably a contact name.

They may also ask what 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 to see what you chose as your fiscal year end.

They may ask if you have “organizing documents.” They mean bylaws or Articles of Association (or Articles of Incorporation). So tell them if you have bylaws or Articles of Association/Articles of Incorporation. Samples can be found here.

Finally, if they tell you you must file a Form 1024 to obtain 501(c)(7) tax exempt status, tell them (with confidence) your CPA informed you that you can “self declare” tax exempt status as a social club and do not have to file the Form 1024.

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.

Don’t forget to the the 990-N every year!

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. So if you operate on a calendar year, the 990-N is due May 15.

Have more questions about your homeschool organization’s tax exempt status? My book, The IRS and Your Homeschool Organization would be a big help.

Carol Topp, CPA

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Coming soon…how to motivate every member in your homeschool group

Way back in 2009, I was asked by Denise Hyde to review her book One By One: The Homeschool Group Leader’s Guide to Motivating Your Members.

It was fantastic! Really good. Really helpful. Here was my review:

“One by One is a book that every homeschool leader needs, but does not realize the need until it is too late! Every leader has difficulty motivating members or getting volunteers, but they only ask for help when it’s too late and they are tired, frustrated and want to quit! Instead, leaders should read Kristen and Denise’s very practical and encouraging book.

Inside you will find the three secrets to successfully motivating every member and then practical, real-life ways to apply those skills to everyone from moms to teenagers. I especially appreciated the true stories of how Kristen and Denise implemented everything they suggest.

They know their stuff and have a heart to share what they know with others. Take some of the advice, share it with your fellow leaders, apply it and you will find happier members, a more relaxed leader and a successful group!”

 

Well, now I’m pleased to announce that Denise is updating the book and I will be helping her get out the word about this terrific resource.

She’s going to set the price a bit (well, a lot) lower and offer it in print and in ebook format.

There is a little more work to do on the book, but it should be ready  in a few weeks.

I’ll send out an email when it’s ready. And I’ll probably have Denise on my Dollars and Sense podcast to help you motivate every member!

 

Carol Topp

 

Facebook party for homeschool leaders!

I’m looking forward to joining homeschool leaders in Williamsburg, VA for the Home Educators Association of Virginia Leadership Conference March 13-14, 2015.

But first I get to meet these leaders online at a Facebook Party!

What: Facebook Party for Virginia homeschool leaders

Who:  The sponsor is Home Educator Association of Virginia

When: Tuesday, January 27, 2015 at 8-9 p.m. ET

Where: https://www.facebook.com/groups/HEAVLeaderSupport/

At the Facebook Party I will share about the topics I will discuss at the Leadership Conference

Homeschool Leadership is Like Marriage—Know What You’re Getting Into!

Who’s Afraid of the Big, Bad IRS? How the IRS Sees Homeschool Organizations

Top(p) Ten Tips for Running a Homeschool Organization

There will also be time for questions from leaders.

See you on Facebook and maybe in Williamsburg, too!

Carol Topp, CPA

What is the difference between a homeschool support group and a homeschool co-op?

From the Facebook group I Am a Homeschool Group Leader, came this question:

After much reading, I have come up with a question… What is the difference between a homeschool group and a homeschool co-op?

I took over the leadership of our local, small, informal, unincorporated homeschool group last year. We’re a group of families that meet for unstructured socialization/play time twice a month. We offer classes for all age groups, workshops for moms & dads, date nights/coffee nights for moms & dads, monthly field trips, monthly activity days, and even some on-going activity days. After reading Carol Topp’s book  Homeschool Co-ops, and talking with the HSLDA support group liaison in regards to support groups, I am thinking that the group I am in charge of is a style of co-op. Is this right, wrong, both or neither?

-Jacquelyn

 

I make a differentiation between co-op and support groups because their tax exempt status is different in the eyes of the IRS.

Homeschool co-ops have an educational focus and qualify for 501(c)(3) status as educational organizations.

Homeschool support groups have social interaction and support as their focus and the IRS would classify them as 501(c)(7) Social Clubs.

Here’s an article explaining the differences. It includes a chart comparing 501(c)(3) (co-ops) and 501(c)(7) (support groups). Homeschool Groups As Social Clubs.

501c3_c7Comparison

As homeschooling grows, I’ve seen support groups change into co-ops and co-ops add support activities. Things are not as clear cut as my chart make it seem! So when I consult with a group I ask about:

  • their activities
  • where do they spend their time and their money?
  • what is the source of most of their income and expenses? (that’s how CPA’s think!)

From hearing about their activities and money, I can usually help discern if their group is a 501(c)(3) (educational co-op) or 501(c)(7) social club (support group).

It sounds like Jacquelyn’s group is a support group. Support groups fit the IRS 501c7 social club status and can “self declare” their tax exempt status without officially applying. (educational organizations with more than $5,000 annual gross revenues must apply for 501(c)(3) status).

But the IRS says all nonprofits-even small support groups- are supposed to be filing the annual Form 990N.  Read more here: http://homeschoolcpa.com/irs-form-990n-faq/

For Jacquelyn’s group and hundreds like them, the tipping point comes when the group gets an EIN from the IRS to open a checking account. That’s then the IRS knows about your group and it will need to start filing the annual 990N (it’s online and only 8 question. it takes about 5 minutes once a year).

Important disclaimer: I stated that a co-op is a 501(c)(3) and  a support group is a 501(c)(7), but that is  my interpretation of the IRS tax code. You will not find homeschool groups mentioned in the IRS rules and regulations. (PTL!)  I have discussed homeschool group classifications with IRS employees, read a ton and have attended workshops put on by the IRS. I’m a CPA and homeschooled for 14 years. I still belong to my support group, even though I retired from homeschooling 4 years ago. But I want to make it clear that I am using my CPA knowledge and homeschool experience to help homeschool organizations understand and comply with IRS regulations.

I hope that helps!

Carol Topp, CPA

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P.S. Jacqueline found Homeschool Co-ops: How To Start Them, Run Them and Not Burn Out helpful.

Maybe you would, too.