We’re not 501c3 and don’t want to be!

IRS 1040 Forms Post Office April 14, 20113
Creative Commons License photo credit: stevendepolo

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.

Karleen
Conroe, TX

Karleen,

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
HomeschoolCPA.com

Comments

  1. Kristen says:

    Would you still have to file for a 501c3 if your home education cooperative falls under the umbrella of your church as a ministry?

  2. Carol Topp says:

    Kristen,
    You’re in luck! Since your homeschool co-op is under the umbrella of a church, your group does NOT have to apply for 501c3 status or file the annual reporting Form 990, like independent homeschool groups do.
    Churches do not have to file for 501c3 status; they are automatically 501c3 charities. Additionally, churches do not have to file the annual reporting IRS Form 990, like other charities.
    This is one area where the separation of church and state works to the church’s advantage (and yours too!).

    Be sure and thank the church!

    Carol Topp, CPA

  3. Edward says:

    Hi Carol,

    Thanks for the great article! This stuff gets really confusing.

    We are a homeschool robotics club.

    It seems like we would not qualify for 501c7 status because we are 1) raising more than $5000 and 2) it is more than 35% of the total needed. Membership dues only covers 20%.

    It seems like we have to become a 501c3. However, that seems like a lot of work and also expense.

    If we went for an umbrella 501c3, what would the requirements be for us to be able to join with one.

    If we were able to have a church “sponsor” us, would the fundraising “check” be made payable to the church. And all the funds basically flow through the church?

    Thanks!

    Ed

  4. Carol Topp says:

    Ed,
    The $5,000 annual gross revenues limit applies only to small organization who can self-declare their 501c3 status; it does not apply to 501c7 social clubs. IOW, 501c7s can always self declare tax exempt status, regardless of their annual gross revenues.
    But your group fails the membership revenues test. To qualify for501c7 social club, 65% or more of your revenues need to come from membership fees. You’d have to significantly raise your membership fees to qualify for 501c7 social club status.

    I would think that a robotics club could qualify as an educational organization (501c3). The Form 1023-EZ has made it quicker and easier to apply.

    Of course finding a church or another 501c3 to take you under their tax exempt umbrella would be very beneficial to your club. I’m writing two blog posts on setting up arrangements like that. It’s called “fiscal sponsorship. Google it to learn more.

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