Are fundraisers harming your chances for tax exempt status?

Many homeschool organizations depend on fund raisers to help run their homeschool co-ops and support groups. These fund raisers could actually harm a group’s chances of obtaining tax exempt status.

Fundraiser income was significant for this homeschool group

Julie is treasurer of a homeschool co-op in Oklahoma that desires to file for 501c3 tax exempt status with the IRS. I examined her financial statements and saw that the group depended heavily on profit from fund raisers including candy, food and flower sales. These fund raisers required Julie to collect over $12,000 a year in sales. The co-op made a profit of nearly $4,000 every year from their fund raisers.

“It’s a blessing to the co-op, because many of our families cannot afford even the small co-op fees we charge. And friends and neighbors beg us to keep selling our products, especially the locally made food.”

The profit from the fundraisers was actually more than the amount collected in co-op dues.

Unfortunately, with most of the co-op’s income coming from fundraisers and not membership fees or the group’s educational programs, the IRS may not grant Julie’s co-op 501c3 tax exempt status.

The IRS requires a significant portion of your income come from public support (i.e., the dues from your families or your programs) and not from an “unrelated businesses” (i.e. selling products in a fund raiser). The IRS defines “significant” in this situation as having more than 1/3 of your income come from public support.

IRS exceptions

Fortunately for Julie’s group, the IRS has several exceptions. One of them worked for Julie’s group. Her fundraising efforts were all done by volunteers and so the IRS considers that fundraiser as not being “unrelated business income” and that means they meet the 1/3 test mentioned above.

The IRS rules and exceptions for “unrelated business income” get a bit complicated and both the homeschool leader and I did our research. We were very careful and thorough when explaining the fund raising program to the IRS when Julie’s nonprofit filed for tax exempt status with the IRS.

More information about fundraisers

If your group has concerns about their fundraising practices, these related blog posts might help:

The IRS’s Word on Fundraising Do’s and Don’ts

The IRS and Fund Raising

What does the IRS mean by not allowing “private benefit” in a fund raiser?

…working to keep you on  the right side with the IRS!


My book Money Management in a Homeschool Organization has been helpful to hundreds of homeschool groups. It includes a chapter on “Easy Fundraisers” too!

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Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

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