A new nonprofit corporation. Do they need to reapply for 501c3 status?

homeschool nonprofit

Hi Carol,

I have been listening to your podcasts. Our group is already a 501c3 registered charity with the IRS. Unfortunately, we registered with our state as an unincorporated association. We would like the limited liability of a non-profit corporation and have the funds to apply, but after listening to your podcast I have a few questions:

1) Do we need to set up a new bank account? Or just change the set up on our current accounts? We have a Paypal linked, Amazon Smile account, Cash for Our Cause through our bank.

2) Will this affect anything with our IRS account? We won’t have to re-apply for 501c3 status will we?

Thanks for your help!
Misty in Texas

 

Misty,

I hope some of my podcasts were helpful! Thanks for listening.

Bad news: You need a new EIN and must reapply for tax exempt status

If your organization now wishes to become a nonprofit corporation (and I highly recommend it), you will have to get a new Employer Identification Number (EIN) and re-apply for 501(c)(3) tax exempt status in the name of your new corporation with its new EIN.

When you create a corporation, it is a new legal entity. So the IRS wants you to get a new EIN and makes you go through the 501(c)(3) application process again. Bummer.

Here’s a recent blog post on that issue: http://homeschoolcpa.com/incorporated-in-your-state-time-for-a-new-ein/

Good News: It’s easier to apply for 501(c)(3) status

Fortunately, the IRS does have a new short application for 501(c)(3) status, Form 1023-EZ. I have assisted about 25 nonprofit organizations get tax exempt status the new Form 1023-EZ. Some have received their tax exempt status in 10 days. That’s much faster than the 3 to 13 months in the past! Contact me if you’d like my help in applying (or reapplying) for tax exempt status.

The bank should make you open a new bank account with the new EIN. Paypal, Amazon Smile, etc. probably don’t care about your new corporate status, but you will need to re-connect them to your new bank account.

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

How to know your status with the IRS

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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)

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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

 

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.

Will fundraisers cause a homeschool support group to pay taxes?

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I looked at the description of the 501c(7) Social Club status, and also reviewed your comparison chart between c3 and c7 status. I agree that our homeschool group most closely fit the 501(c)(7) Social Club status.

However, I was wondering if our periodic fundraisers would cause us to be taxed – your chart says on income from other sources.  We hold the fundraisers when our funds from membership are too low to pay the rent and other costs.
Thank you,
Lisa R

 

Lisa,

I’m glad you’ve figured out the differences between 501c3 charity and 501c7 Social club status. It’s important to figure out where your group fits.

You asked if periodic fundraisers would cause you to be taxed. It could be a problem, but not likely.

In general, fundraisers are considered “unrelated income” and nonprofits must pay tax on unrelated income (called Unrelated Business Income Tax, or UBIT).

Fortunately, the IRS offers several ways to avoid the UBIT tax. The exceptions include:

1. If the fundraiser was substantially conducted by volunteers (if no one was paid to run the fundraiser, then the proceeds are not taxed)

2. The fundraiser proceeds under $1,000 is not taxed.

The IRS has more exceptions to UBIT, but one or both of these exceptions to paying unrelated business income tax probably apply to your group.

Additionally, the IRS requires 501c7 Social Clubs to have most of their income come from membership fees (65% or more). You probably saw that on the chart comparing 501c3 to a 501c7 Social Club.

So make sure that your fundraisers stay under 35% of your total income. You said they are periodic and sound as if they are secondary to your membership fees (“We hold the fundraisers when our funds from membership are too low to pay the rent and other costs”).

I hope that helps.

Carol Topp, CPA

How the IRS sees homeschool co-ops (podcast)

IRS and homeschool groups

In this episode of the Dollars and Sense Show podcast, host Carol Topp continues her topic “Who’s Afraid of the IRS?” and discusses how the IRS sees homeschool co-ops and 501(c)(3) tax exempt status.

Listen to the podcast

Listen to the first part of this presentation where Carol discussed homeschool support groups and IRS 501(c)(7) tax exempt status as a Social Club.

Get a copy of the handout.

Carol also mentioned the article “Do You Know About IRS Required Filings for Homeschool Organizations?” Get it here.

The IRS and Your Homeschool Organization

Carol’s book, The IRS and Your Homeschool Organization, is available here.

 

How can the IRS revoke my tax exempt status when I never applied for it?

TaxExemptRevoked

Carol,
About 15 years ago a couple of moms started a homeschool summer sports group. About 8 years ago, two leaders opened a bank account. The bank set them up with a “Club” account and secured a federal ID number (EIN) for the club. We never applied to the IRS for anything. We never filed any annual reports (the Form 990-N).

Now from reading your website and our emails, it sounds like our tax exempt status was revoked and we need to get it back.

How can something we never had (501c7 Social Club status) be revoked? 

Your help in clarifying this is appreciated, so we know how to move forward.

Lisa

 

Lisa,

I know this is confusing.

Your sports group is a recreational club that fits the IRS definition of 501(c)(7) social club.

501(c)(7) Social Clubs can “self declare” their tax exempt status without officially applying. Technically, you “self-declared” your tax exempt status when you said you “never applied to the IRS for anything.”

Since 2007, the IRS has required all tax exempt organizations, even those that self-declared their tax exempt status, to file the annual Form 990N.  Read more here: http://homeschoolcpa.com/irs-form-990n-faq/

Your organization failed to file the 990-N for three years the and IRS has revoked your “self declared” tax exempt status.

Now you need to file the paperwork (Form 1024) to get back your tax exempt status that you didn’t need to apply for in the first place!

Crazy? YES!
Frustrating? YES!

A lot of small organizations have learned that their tax exempt status had been revoked and they didn’t even know about it!

I don’t think the IRS thought this through. I wish they had not revoked the status of 501(c)(7)s, but they did. I also wish they would allow a simple phone call to get reinstated instead of filing the paperwork and paying the IRS $400 fee.

Here’s the IRS webpage explaining how to get your tax exempt status reinstated. They offer 4 methods.

How to Have Your Tax Exempt Status Reinstated

If you find reading the IRS webpage a bit confusing, feel free to contact me and we can set up a personal consultation by phone to discuss your options.

Carol Topp, CPA

 

Who’s Afraid of the IRS? (podcast)

IRS and homeschool

 

Are you afraid of the IRS? Should you be?

How does the IRS see homeschool organizations?

In the latest episode of the Dollars and Sense podcast, host Carol Topp discusses how the IRS sees homeschool organizations. Carol discusses homeschool support groups and IRS 501(c)(7) tax exempt status as a Social Club.

Listen to the podcast here

Get a copy of the handout Who’s Afraid of the IRS Handout

Carol mentioned the article “Do You Know About IRS Required Filings for Homeschool Organizations?” Get it here.

The IRS and Your Homeschool Organization

Carol’s book, The IRS and Your Homeschool Organization, is available here.

Did your homeschool group lose its tax status? (podcast)

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Your homeschool group may have lost its tax exempt status and not even know it! I explain this problem in an episode of the Dollars and Sense Show podcast.

Listen to the podcast here

In 2006, the IRS made filing an annual report (Form 990/990-EZ, 990-N) mandatory for nonprofit organizations. Nonprofits that failed to file the Form 990 for three consecutive years, had their tax exempt status automatically revoked.

In the podcast, I discuss how to know if your group’s tax exempt status was revoked and how to get it back.

Episode #36 Required IRS Reports for Homeschool Groups explains the Form 990.

My book The IRS and Your Homeschool Organization is a helpful resource for homeschool organizations considering the benefits of tax exempt status. Available here.

If you would benefit from a personal phone consultation, I’d would be happy to help your homeschool organizations. Contact Carol.

Carol Topp, CPA

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