Operating a homeschool group in multiple states

A homeschool group leader contacted me recently. She ran a homeschool group that was established in Kentucky as a nonprofit corporation, but now operated from a location in Ohio (just across the Ohio River). She was wondering what she needed to do in Ohio to be compliant with any reports Ohio required.

It is pretty rare for a homeschool group to operate or exist in multiple states, but it can happen when a group is located near a state line.

I found some helpful information from Floyd Green a nonprofit CPA.

Operating in Different States


Nonprofit organizations can operate nationwide, even though they are legally registered in one specific state as a domestic entity. Generally, charities incorporate in the state either where their headquarters are located in or where the majority of their activities take place. As your 501c3 organization grows and evolves, a need to operate in more than one state might often arise.

If you decide to expand your operations outside your state, you must keep in mind that you will have to comply with each specific state’s requirements where you choose to conduct your programs.   The federal/IRS part of the compliance standards will not change if operating in additional states. 

To be recognized as operating in another state, your nonprofit must be actively conducting its tax exempt program(s) outside its state of domicile. For instance, if you have a transitional housing facility in Georgia and you open another transitional housing location in Florida, you will be considered as operating in two states. In this case, you would have to register your Florida branch as a foreign corporation (here term “foreign” means “outside the state of domicile”). In some states, however, you will be required to file a “Certificate of Authority” to transact business in a particular state.

Please note that once you are registered as a foreign entity in a particular state, you are then required to do annual filings and reporting in the second state of operations, in addition to the filings you must do in your home state.

http://floydgreencpa.com/index.php/501c3/nonprofit-501c3-articles/101-operating-in-different-states



If you need help knowing what reports your state requires, HomeschoolCPA has two resources to help you:

Webinar: IRS and State Filings. This 60 minute recorded webinar equips to file on your own the IRS Form 990-N and state forms saving you hundreds of dollars in professional fees. The cost of the webinar is $10.

Service: Research your state filings and reports and send you a customized letter for your organization. The cost for this service is $100.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Homeschool group has victory with the IRS!

In a previous blog post I explained that the the IRS was going to deny 501c3 tax exempt status to a homeschool group, Sursum Corda in Southern California. The IRS employee claimed that this group of 35 families is only serving themselves and not serving a “public interest.”

I am happy to announce that after several weeks, the homeschool group received a letter stating that the IRS has determined they are tax exempt under 501c3 of the IRS Code! Yeah!

Victory for them and for all homeschool groups.

What helped convince the IRS that this homeschool group served a public interest?
In my 5 page fax to the IRS I outlined several key points:

  • Sursum Corda Community serves a public interest with activities that serve any and all homeschool families in three large counties, it primarily benefits children, a “charitable class,” and Sursum Corda serves the community at large in two ways: service projects and community-wide educational events (I think their service to the broader community was a very important factor with the IRS)
  • Sursum Corda is not exclusive; there is no significant private benefit; there is no inurement
  • Rev Ruling 69-175 is not applicable to Sursum Corda because they are not seeking 501(c)(3) status for parents’ personal expenses; Sursum Corda’s expenses are for the organization’s activities, not for the parents’ personal homeschool expenses.
  • Other cases of 501c3 status denied to charter schools is not applicable to Sursum Corda
  • Hundreds of homeschool organizations have 501c3 status

I concluded with this:

Sursum Corda Community, Inc. has an exempt purpose that serves a public interest, the education of children and parents and service to the larger community, and does not give significant private benefit to individuals. It is eligible for 501(c)(3) status and we look forward to the IRS determination letter.

Letter to IRS by Carol Topp, CPA

It’s hard to say what points changed the IRS’s mind, but I am grateful that HomeschoolCPA made a successful argument on behalf of Sursum Corda and all homeschool groups!

A special thanks to several nonprofit experts and several attorneys with Christian Home Educators Assoc of California (CHEA) and Home School Legal Defense Assoc (HSLDA) for their time in reviewing my response to the IRS. I greatly appreciate it!


HomeschoolCPA has two resources to help your homeschool organization apply for 501c3 tax exempt status
The IRS and Your Homeschool Organization book and the 501c3 Application webinar.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Microschool

Is your program a micro school or a homeschool group? It can be hard to tell the difference! This page of resources and links may be helpful to you.

Can my micro school be a homeschool group (and avoid some headaches)?

Here is the handout and slides from a 30 minute presentation titled Can my micro school be a homeschool group? I (Carol Topp, CPA) did for the Meridian Learning Micro School Mini Conference in 2021.

Slides
Handout

Podcast episodes about micro schools

Pandemic Podschooling:Is it Homeschooling? epidsode 195

What’s the Difference between Pod schools and Homeschools? Episode 196

Blog posts about micro schools

Can a Micro School be a Homeschool Group (and avoid some headaches)?

Meridian Learning (www.meridian-learning.org) is hosting a Grassroots Microschools Online Conference

Wednesday June 30, 2021 10 am -1 pm ET

It will be hosted on their Grassroots Microschools Facebook page. Details here: https://fb.me/e/SsS86E05

This conference is free for the live event. The recording will be available to Galaxy and Constellation members of Meridian Learning in their member resource library. Follow their Facebook page for session previews, and RSVP via PM or email for event link: join@Meridian-Learning.org.

I pre-recorded a session titled: “Can a Micro School be a Homeschool Group (and avoid some headaches)?

In the session, I explain the difference between homeschool groups and micro schools. I also share a litmus test I use to determine of a micro school can call themselves a homeschool group (legally).

During and since the COVID-19 pandemic, I have heard from more and more groups that call themselves homeschool groups, but I wonder if they are really micro schools or something in between!

For example, I have heard from:

  • A group for 7 special education students that will meet 5 days a week and hire 2 qualified instructors.
  • A pandemic pod leader who wishes to continue her pod composed of her two children and five additional children meeting in her home four days a week.
  • A group that started homeschooling during the pandemic and now has has 15 pre-schoolers and 20 1st-3rd graders with one hired teacher operating Monday-Friday 8:30-3:30 pm.
  • A group of 1st and 2nd graders that will meet three days a week, 9:30 am -2:00 pm and charge $5,000 in tuition per year.

Is it legal for some of these groups to call themselves homeschool groups? Or are they micro schools?


Join the Grassroots Microschools Online Conference on June 30, 2021 and listen into my session on “Can a Micro School be a Homeschool Group (and avoid some headaches)?”

Event details at https://fb.me/e/3PX81wbbA

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

IRS threatens to deny 501c3 status to homeschool group

UPDATE: The IRS sent the homeschool group their 501c3 tax determination latter on July 19, 2021! Victory! Read more to learn what HomeschoolCPA wrote to the IRS to change their mind.

It’s my worst nightmare: The IRS denying one of my homeschool clients 501c3 status.

As a CPA who has helped over 200 homeschool organizations apply for 501c3 tax exempt status over the past 20 years, I have never had a client be denied tax exempt status by the IRS. Until May 2021.

An IRS employee is considering denying 501c3 status to my client, a small homeschool co-op in California. She is claiming that this group of 35 families is only serving themselves and not serving a “public interest.”

This could set a very bad precedent if homeschool nonprofits are denied 501c3 tax exempt status.

While on a phone call with the IRS specialist, I explained that homeschool groups are a lot like private schools, offering classes, etc and that some private schools are smaller than 35 families.

She said,
“Yes, but you homeschoolers want a tax break.”

IRS Exempt Organization employee on phone call on May 17, 2021

Wait! What? Did I hear her correctly? I informed the IRS that there are no federal tax breaks for homeschool families.

She then went on to explain that I needed to read Rev Ruling 69-175 because that is her basis for denying 501c3 tax exempt status to a homeschool group.

I contacted HSLDA and CHEA of California for their assistance. Then I got to work researching, reading, studying and writing. I had four attorneys and three other experts in nonprofit tax exempt status read my document.

I faxed the IRS a 5-page document with facts and details how a homeschool co-op is broadly serving the community and not just private interests. I also explained why Rev Rul 69-175 does not apply to this client’s situation.

As of June 17, 2021 we have not received the IRS determination.

I’ll update this post when we hear back.


I’d like to ask for prayers for clarity of thinking for the IRS and a favorable reply for this homeschool co-op and all homeschool groups applying for 501c3 tax exempt status.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

What to do about a controlling and narcissist leader

The leader of our co-op refers to the co-op as “her group to protect.” She has surrounded herself with a board who supports her fully and does her bidding without question. The difficulty is, when questioned about decisions she has made by co-op members, this leader has  told co-op members that the board makes decisions and that the way things are run are none of their (the co-op member’s) business. She is a very capable in many areas, however she is controlling and many times unkind.

Unfortunately, the board members are blind to all of this. They support her fully. Co-op moms are afraid to confront this leader for fear of the consequences. She is sweet to those who support her and speaks poorly/holds a grudge against those who conflict with her. 

My question is what can we do? Because our co-op is not under the authority of a church, there were no pastors, counselors, or elders to help resolve the conflict. Is it common for co-op boards to have some sort of outside oversight to help with internal conflict resolution?

This is such a great group of women, but I fear that even a loving confrontation with this leader would cause a split in the group. I do not want to “take down” this leader.  —

I appreciate any advice or counsel you can give. Thank you.

Elizabeth

Elizabeth,

I’m sorry to hear about the narcissistic and over-controlling leader you have. Unfortunately, there is not much oversight of nonprofit boards, unless they are doing something criminal. Then you report them to your state’s attorney general.

The group should have bylaws. Try to get your hands on a copy of the bylaws. Perhaps you could see where she is in violation of the bylaws and start there. I would recommend that you gather a small team and then a group of you approach a current board member with your concerns.

Don’t go it alone. Be very specific. List dates and specific examples of how the bylaws are violated. Ask for a current board member to request changes to the bylaws such as term limits on all officers. That’s a start.

It may not work because your leader sounds like a narcissist to me. Over-controlling and narcissistic leaders don’t listen to anyone.

Narcissistic leaders

I’ve been reading a lot about narcissism lately. Here’s an article that explains the characteristics of a narcissist leader. So-Called “Strong” Leaders

Almost all the experts like psychologist DorctorRammani on YouTube say that a lot of leaders (like your board members who do whatever the leaders wants) do not recognize narcissism or its dangers. They advise that the best approach is to stay away from the narcissist.

Your only choice may be to leave. That may be the only way to protect yourself from emotional harm. But be sure to speak privately with a board member (but not the narcissist leader) first so they know your reasons for leaving.

Be prepared to be gas-lighted (where they make you out to be the bad guy!) or slandered (trying to damage your reputation) or gossiped about or be called “a hater,” or “divisive” etc. Unfortunately, some narcissists can get nasty when they feel threatened.

Take care!

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Do we have to file as a non-profit to be an official homeschool co-op?

We are a group of families that came together last year to work collectively in sharing the role of teaching each other’s children one day a week. We have lots of interested families that want to join us next year. I’m thinking Co-Op is the way to go, but I’m still not sure of the road ahead.

Do we have to file as a non-profit to be an official Co-Op?



Well, I’m not sure what you mean by “official homeschool co-op.”

Perhaps you mean an “official” nonprofit organization.

As soon as you have a board, mission, and bylaws your organization IS a nonprofit organization!

It is an unincorporated association, but it is still a nonprofit organization. There is usually nothing to file at the state level to create an unincorporated association. The filing starts (at the state level) when you chose to be come a nonprofit corporation, as many co-ops do.

There is no such thing as an “official co-op.” The homeschool classes that you call “a co-op” are the main program or activity that your nonprofit organization operates. The nonprofit organization may also offer other activities such as parties, clubs, field trips, etc.

This blog post explains what an unincorporated association is: My Homeschool Group is an Unincorporated Association. What Does That Even Mean?

I think my Homeschool Co-ops book would be most helpful at this point.

Or my webinar on Create a Nonprofit for your Homeschool Community would be helpful at this stage as well.

If you still have questions (and you probably will!) I would be happy to arrange a phone consultation with you. I charge $85/hour for a consultation with a nonprofit organizations. $60 minimum. Contact me.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Handing out gift cards? Here’s how to record them

Vicki Boatright is a bookkeeper for churches (and other nonprofits). I have found her blog posts at Free Church Accounting and ebooks very helpful as I advise homeschool groups.

Gift cards as thank you gifts


In a blog post on FreeChurchAccounting.com, Vicki explains how to record gift cards that your organization may be buying and then passing out as gifts to volunteers or as benevolent gifts to a needy family.

Gift Cards: Were any gift cards purchased for staff, gifts/prizes, or benevolence? Those have to be “tracked”! We try to watch and catch them as soon as the church purchases them, so we can set up as a “cash on hand” account  in their accounting system. We then have to manually enter the “expense” each time a card is used or given away.

Lisa London, has a great article on how to handle gift cards on her “accountant beside you” site and provides a free log that you can use to track those gift cards! 

So in your homeschool group, you probably buy some gift cards to hand out as thank you gifts at the end of the year. You enter these purchases of gift cards as “Appreciation expense” probably as a General and Administrative expense in your bookkeeping.

If you purchase a stack of gift cards and don’t give them all away right away, then they need to be recorded as an asset just like cash in the bank. This could be called a “gift cards on hand” asset account. That’s what Vicki is talking about in her blog post I quoted above.

For more information on money management in a homeschool organization purchase my book Money Management in a Homeschool Organization.


Gift cards to a needy family


If you are helping needy families with gift cards, I condemned you! But be sure that you have clearly stated in your Articles of Incorporation, bylaws and IRS 501c3 Application that you have a charitable purpose as well as a educational purpose. You see, helping a needy family with a gift card is not in accordance with an educational purpose; it is a charitable act.

If your organizational documents and your IRS application only states your group has a educational purpose than you must stick to educational discounts to help a needy family.

Read this story of a homeschool group that I had to advise to stop their charitable activities. I didn’t like telling them that, but I didn’t want them to get in trouble with the IRS!

Can a homeschool group be charitable? Maybe not!

Carol Topp, CPA

HomeschoolCPA.com

Classical Conversations knowingly exposes churches to tax liabilities

(Photo Courtesy of JJ Veale

Classical Conversations, Inc. (TM), Inc. has been the subject of two investigative reports written by Josh Shepherd in 2021.

I was interviewed by Josh and quoted in the first article Whistleblowers Say Classical Conversations is Multi-Level Marketing Scheme that Exploits Homeschooling Parents.

I shared some background information in my blog post Does Classical Conversations Exploit Homeschooling Parents?

The second article titled “Classical Conversations Knowingly Exposes Unsuspecting Churches to Tax Liabilities, Sources Say” was released last week.

It reveals that in addition to exploiting homeschool parents, Classical Conversations knowingly and deliberately has been exposing churches to property tax liabilities.

Background


I first became aware of the problems with Classical Conversations “communities” (they are really businesses owned by a licensed CC Director) in 2017 when a CC Director in Illinois emailed me. She was having difficulty finding a church to host her CC business (what she called “a community”).

I replied to her question and explained the churches were concerned about their property tax exemption.
I thought Illinois was a particularly stringent state and did not think this was a wide spread problem. I was wrong. Very wrong!


Then in 2018 I heard from a CC Director in WA State having the same problem.

I started to realize that CC meeting in churches could be a problem in many states!

After hours of research, calling tax assessors and helping scores of CC Directors, Jamie Buckland of Classical Homeschool Consultant has determined that 47 states have restrictions on for-profit businesses using tax exempt property of churches. Only KY, TX and OK seem to not care much about for-profit use of a property-tax-exempt church building.

In April 2019, a pastor emailed me and explained he has received an anonymous letter with links to my website. This was the first time I’d heard of this letter.

I gave him a lengthy reply.

Then it all exploded!

Letters to churches expose the truth

Robert Bortins CEO of Classical Conversations, Inc. hosted a webinar for CC directors to discuss their opinion on CC “Communities” meeting in churches. The webinar was transcribed by one of the attendees and sent to me.

We also found out that the letter originated in Cincinnati, Ohio, …
Um, one of the accountants that they linked to in their letter lives in that state as well and so we followed up with that CPA to find out if we could discuss this matter with them, you know, as Christians are called to do and also offered to let her speak with our legal counsel so that she could gain a more full view of the matter that was referenced in the letter and that was referenced on her website. Unfortunately, she declined such an invitation. And so of course, that was sad to hear because we wanted to make sure she was well-informed of the laws as well.

Robert Bortins, transcript of “Q and A with Robert Bortins” webinar April 17, 2019

He implied I had sent the letters.

I didn’t. Why would I? I had already posted two blog posts that the letter referenced years earlier.

Robert Bortins came very close to committing slander against me during that webinar. I believe Robert Bortins did commit slander and libel against me in private conversations and tried to ruin my reputation and my business based on social media posts shared with me.

slander: the action or crime of making a false spoken statement damaging to a person’s reputation; make false and damaging statements about someone.


I did not send the letters. I do not know who sent the letters. I had no involvement in these letters sent to churches.

Nasty emails came my way like this one:

Because of you, my community has no place to meet. We are moms sacrificing a lot to live off of single incomes to stay home full time with our kids. I hope the money was worth it to you because obviously you don’t care about the people you’re speaking to. Such a stereotypical accountant. Actually, much nastier than any accountant I’ve met. 

Noelle, an angry CC mother

I visited an attorney and she advised me to reply individually to emails which is what I did. She also reminded me that I did not need to speak to CC’s legal counsel to “gain a more full view of the matter” or “be informed on the laws” by CC, Inc. or their legal team. If I need legal counsel, she would provide it to me or recommend another legal expert on property tax law.


FAQ on Churches and CC

In an attempt to get clear information to homeschool groups, CC Directors and churches I wrote a FAQ page. It was referenced in the article on The Roys Report.

And I wrote a a follow up blog post Tax Assessor Clears Confusion on CC Communities Using Churches that was also referenced in the investigative report by Josh Shepherd.


My real concern is for the churches who were innocently or ignorantly (or perhaps deliberately) deceived by CC Directors. The Directors hid the fact that they were business operating in a church.

Some were ignorant of why they were instructed by CC, Inc. to tell a church host “We’re just a bunch of homeschool moms” or “we’re a Christian homeschool program.”

CC Directors, as instructed by CC, Inc., hid the fact that they were businesses operating in a church. Some Directors had the gall to ask for free rent for their “community” (remember it’s really their business) too!

There is a saying that a whole truth told as a half truth is a whole lie!

Yes, CC communities are “a bunch of homeschool moms.” That’s a half truth told as a whole truth. The half omitted is that the CC “community” is a BUSINESS!

The local CC Director may not have understood the difference prior to 2019, but CC, Inc. has understood the difference since at least 2016, probably much earlier! In fact, they sent a cease and desist letter in June 2016 threatening financial damages to a CC mom, April Palmer (as mentioned in the article), who told ten local churches that the CC communities they were hosting were profit businesses.

A homeschool mom tells ten local churches the truth and CC Inc. threatened her with a lawsuit.

Why?

Telling the licensed Directors and churches the truth would damage their business model which depends on churches not knowing the truth that CC “communities” are businesses owned by each Director. It’s crass to say, but it’s all about the money to CC Inc.


My concerns for churches and homeschool groups

I am concerned for churches potentially facing property taxes like the two mentioned in the article and perhaps unrelated business income tax because they believed they were hosting a legitimate nonprofit homeschool program.

And I am concerned that all homeschool groups may be viewed suspiciously by churches. This can make it harder for the legitimate, honest nonprofit homeschool groups to find church hosts (post COVID). I’ve been told of churches now asking homeschool groups for IRS 501c3 determination letters to prove the group is a nonprofit organization.

Shame on CC Inc. for making churches suspicious of all homeschoolers.

Shame on CC Inc. for putting churches at potential risk of incurring property tax.

Shame on CC Inc. for duping your own customers (i.e., licensed Directors), by not explaining the full truth to them, exposing them to potential liability (owing payment of a property tax bill to the church).

And shame on CC Inc. for not changing their business model back in 2016 (or earlier) and instead continuing to reap large financial rewards while putting all the risk and liability on CC Directors and churches.



Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Convert your homeschool group to a nonprofit corporation and keep your EIN!

We started as a homeschool group in 1998. I don’t think any bylaws or articles of incorporation were ever filed. So we were just an unincorporated association, as I leaned from reading your books. We are now adding classes to our program and want to move through the process of filing to be tax exempt as a 501c3. We will file Articles of Incorporation to re-form as a nonprofit corporation.

Should I file for a new EIN or just use the current one?

Lisa in California

Lisa,

Lisa’s homeschool group was an unincorporated nonprofit organization that now wants the benefits of limited liability for her members and board that nonprofit incorporation offers.

For years I told small homeschool groups:


“If you decide to incorporate as a nonprofit corporation in your state, then you must get a new Employer Identification Number (EIN) because you have formed a new, legal entity. It’s like a new baby was born and that new baby needs a new Social Security Number.

But now the IRS lets nonprofit organizations keep their EIN if they are just converting from an unincorporated association to a nonprofit corporation and not changing their “business structure,” meaning you were operating as a nonprofit organization (with a board, bylaws and a nonprofit purpose) and will continue to do so.

To use my baby and Social Security Number analogy: it’s like Lisa’s baby decided to grow up. It looks different now, but it is the same child and can keep its original Social Security Number. Lisa’s homeschool group “grew up,” but is still the same organization. It can convert to a nonprofit corporation and still keep it’s original EIN with the IRS.

The IRS website says:

“You will not be required to obtain a new EIN if any of the following statements are true….
Conversion at the state level (to be a corporation) with business structure remaining unchanged.”

Source: IRS.gov Do you need a new EIN.

So, you don’t need a new EIN if your unincorporated association converts to be a nonprofit corporation! That’s saves a lot of hassle!

But if your homeschool group is a for-profit business, owned by someone, like a Classical Conversations Community owned by the CC Director, then the business structure has changed and you’ll need a new EIN for the new nonprofit corporation.


My book The IRS and Your Homeschool Organization: Tax exempt Status for Homeschool Organizations will be very helpful as you apply for 501c3 tax exempt status.

If you have questions about nonprofit incorporation, 501c3 tax exempt status, or running your homeschool group, contact me.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders