Our support group has been in existence over 20 years… and we are STILL not a 501(c)(3) …. and don’t want to be!
It would take so much more work, money, etc. to be a 501(c)(3)!!
Many times it is hard for our members to understand this — they think any group who’s not set up as a ‘business’ to ‘make money’ has to be a 501(c)(3). Our group does NOT take donations — membership fees cover our cost of doing business. And they are reasonable — $10 a year, to get our newsletter via email, $20 if you want it printed and mailed to you. We put out a group directory each year, pay for some things like church rental for our Back to School meeting, copies of membership forms & information about homeschooling that we distribute, etc.
I need to warn you in your some of your assumptions. I’m a CPA and work with homeschool organizations to organize properly and decrease their tax liabilities by obtaining tax exempt status with the IRS.
I answered a leader who asked, “Can’t we operate without IRS tax exemption?” in this blog post.
You wrote: “they think any group who’s not set up as a ‘business’ to ‘make money’ has to be a501(c)(3).” They are partially correct. If your organization makes a profit, it owes tax unless it is legally tax exempt.
If your group is a nonprofit (i.e. no profit motive) you have one of 4 legal choices:
1. Stay small and remain under the IRS threshold of $5,000 in annual gross revenues for filing for 501c3 status.The IRS allow small nonprofits to “self declare” their tax exempt status without filing an application. But even small nonprofits must file an annual report with the IRS, Form 990N.
2. Consider another tax exempt status such as 501(c)(7) Social Club if you are a support group. See my blog posts on that issue here. And, like #1, 501(c)(7) social clubs are still required to file an annual report Form 990/990EZ or 990N with the IRS.
3. File for tax exemption under 501(c)(3) as an educational organization. This just got easier with the new IRS Form 1023-EZ.
4. Or you can pay your taxes. When paying taxes is the alternative, tax exempt status doesn’t look so bad, huh?
Just because you do not accept donations does not exempt you from the IRS and tax regulations.
The USA offers a wonderful opportunity for nonprofit groups to keep all of their surplus and avoid paying taxes on it. But it does mean filing one time a document (Form 1023 or 1024) with the IRS to become a tax exempt organization.
I hope that clears things up a bit.
Carol Topp, CPA