Can’t we operate without IRS tax exempt status?

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Carol,

Does my homeschool support group really need to apply to 501(c)(3) tax exempt status with the IRS? It seems like a lot of time and money. We have a small budget and we don’t accept tax deductible donations.

Can’t we just operate as we are?

You described your group as a support group, meaning you exists for the benefit of the members and you do not accept or plan to seek tax deductible donations.

Many larger homeschool organizations, especially co-ops that have an educational function and not just a support group purpose, seek 501(c)(3) tax exempt status for its many benefits:

  • tax exemption
  • ability to accept tax deductible donations
  • ability to participate in fund raisers only open to 501(c)(3) charities

See my article Do we need 501c3 status?

But homeschool support groups are different. They don’t hold classes; they focus on fellowship. Support groups don’t accept donations; they get all their income from membership dues and maybe a little bit of fund raising.

I attended an IRS webinar and asked your question. Here’s what the IRS said:

It is true the Tax Reform Act of 1969 requirement to “give notice,” (to apply for recognition of tax-exempt status) applies only to organizations wanting section 501(c)(3) status.
So, although other types of organizations are not required to file Form 1024, they may still wish to do so in order to receive a determination letter of IRS recognition of their status. Having the determination letter ensures public recognition of their status and may enable exemption from some state taxes.
Also, even though an organization may “self-proclaim” its tax-exempt status, it is still subject to the rules governing its particular sub-section. It is also subject to IRS examination to determine whether it meets the requirements for the exemption it is claiming.

Translation:

If your organization wished to obtain 501(c)(3) tax exempt status, then you must file an application for that. I can help . See my Services page

If  instead, your group fits the criteria of a social club (what the IRS calls a 501(c)(7)), then your organization can “self-proclaim” that you are tax exempt without filing the paperwork.

But you still have to obey the rules and fit the IRS definition of a social club. 

What it takes to be classified as a 501(c)(7) Social Club

And you don’t have a nice letter from the IRS to prove that you are tax exempt.

So there you have it…most homeschool support groups, if they operate as a social club, can be considered tax exempt without going through the time and expense of tax exempt application with the IRS.

P.S. But even if your group does not have to file the application paperwork (Form 1023 or 1024), your organization must still file an annual information return called a Form 990/ 990EZ or the simple on-line Form 990N with the IRS. Read more here: IRS Form 990N FAQ

Carol Topp, CPA

More nonprofits can file the easy Form 990N

2009 Form 990

Many homeschool organizations that have tax exempt status are small enough they do not have to file any tax forms with the IRS. And now new IRS guidelines mean even more groups are free from IRS filing requirements!

Small exempt organizations can file the simple Form 990-N, the electronic postcard, instead of the longer Form 990-EZ or  Form 990.

For tax years beginning on or after January 1, 2010, exempt organizations may file the e-Postcard if their annual gross receipts were not more than $50,000.  The previous filing threshold was annual gross receipts of no more than $25,000. Gross receipts include every dollar your organization brings in, even if it goes out immediately too.

The e-Postcard is an electronic notice filed at http://epostcard.form990.org.

Need help determining your gross receipts? Send me an email and we can arrange a private consultation over the phone. Email me here.

If your tax exempt homeschool organization needs help filing their Form 990EZ or Form 990, I can help. Read more here.

Would your homeschool group benefit from being tax exempt? Find out by reading my articles on the pros and cons of tax exempt status.

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

Hosting a booth at county fair makes history

The San Diego Christian Homeschools hosted an information booth at the San Diego county fair. It was the first time in the fair’s history that a homeschool organization had been featured there.

Leader Lisa Vaca, wrote to tell me about it:

I just wanted to share with you about how blessed we were to be able to host a homeschool information booth at our County fair yesterday. This all happened thanks, in part, to the encouragement and tips of you, Kristen and Denise (of HomeschoolGroupLeader.com) , and thanks to the huge help of Carol with our non-profit filing last year. (You’re very welcome!)

Our booth was a big hit and the organizers of the non-profit booths at our County fair are begging us to return again next summer. We were able to get HSLDA and other homeschool organizations to send us brochures and publications to hand out, plus we got some of our SDCH kids involved in the photography and displays.

Through this Homeschool Info Booth we were able to introduce homeschooling to our community in a fun, new and positive way, and answer the public’s many questions about home education.



Isn’t that a great idea? The San Diego Christians are reaching out to others in their community to share the benefits of homeschooling.

Carol Topp, CPA

P.S. The San Diego Christian Homeschoolers obtained 501c3 tax exempt status (with my help) which gives them extra credibility in the eyes of their community. Learn the benefits of 501c3 tax exempt status for your homeschool group  in this article Do we need 501c3 status?

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

Ultimate Homeschool Expo

I am happy to be one of the invited speakers for the 2010 Ultimate Homeschool Expo. This is on on-line homeschool convention.
  • Online Seminars with With 35+ Speakers! (I’m one of them!)
  • Virtual Vendor Hall! (I have a virtual booth there)
  • Free Gifts–ebooks, audios, downloads! (I’m giving away ebooks, audios and chapters form  my books)
  • Special offers from your favorite Online Vendors!
  • Mp3 Downloads for all audios (over $1,000 in workshops!)
One of the neat things about the Ultimate Homeschool Expo is that everything is ONLINE indefinitely. The Expo officially starts Monday May 3, 2010 but it lasts forever!
The host, Cindy Rushton, builds a private, exclusive membership site that includes everything from the UHSE in one place–it has audios (from all of the sessions and from the bonus gifts that the speakers give), ebooks, complete unit study guides, articles, printable notebooking pages, cookbooks, on and on.
All for only $39.95.

My workshops include:
Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out
Is Your Homeschool Groups Ready for 501(c)(3)Tax Exempt Status?
Micro Business for Teens: Starting a Micro Business

I also have a virtual vendor’s booth where I will be giving away the following prizes:
  • Chapter excerpt from Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out on Avoiding Burn Out for homeschool leaders
  • Chapter excerpt from Tax Exempt 501(3)(3) Status for Homeschool Organizations on Nonprofit Incorporation: When Should a Homeschool Organization Consider It?
  • Chapter Excerpt from Micro Business For Teens: Starting a Micro Business on Getting an Idea: A Collection of Micro Business Ideas Best for Teenagers
You will receive my workshops (on audio) and prizes and access all of the wonderful resources by purchasing a ticket to the Ultimate Homeschool Expo. See what is offered and buy your ticket here:

Ultimate Homeschool Expo 2010 Ticket

Carol Topp

HomeschoolCPA.com