Parents paying homeschool teachers is getting cumbersome

paperworkrejection_istock

Hello Carol,

I am the Executive Director of a 501(c)3 non-profit homeschool co-op. We have always had all parents pay teachers directly for classes. Of course the number of checks written by members each semester,and unraveling the missing/lost checks each semester along with the myriad of other payment mysteries has prompted to us to wonder if we can have all parents submit the teacher payments to our group, then we cut a check to each teacher.

We would essentially gather all the money and then direct it to each teacher. One check from each parent for all their children’s classes, and one check to each teacher for all the classes they are teaching.

Can we do this?

Holly

Holly,

Thank you for contacting me.

Yes, you can collect all the payments from parents and then pay the teachers. This is how many homeschool groups, private schools, and college operate. But there are some things to warn you about:

1. Managing more money means you need good accounting software (links to some of my blog posts with software recommendations), one that can invoice parents and track who has paid and who still owes.

2. Additionally, since you have a lot more income, you may have crossed an IRS threshold and now need to be filing the annual Form 990 or 990-EZ (YouTube video explaining which form you need to file).

3. Worker classification. You need to determine if the teachers are employees or  Independent Contractors (opens a blog post series on worker status). This is not an easy determination to make. You need to consider many factors.


My book, Paying Workers in a Homeschool Organization. helps homeschool leaders determine if their teachers are employees, Independent Contractors or something else.

I also offer phone consultations to help you determine if your homeschool organization’s workers are employees or independent contractors. The phone call will be followed up with an email containing a fact-based determination and information to help you take the next steps. Worker Classification consultation.

Save

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Volunteer board members are not held liable

I just learned (through TheRoysReoprt) that volunteer nonprofit board members are frequently immune from any liabilities facing the nonporift.

Compensated board members may not have that same protection. That’s one of the reasons why many nonprofit experts discourage paying board members.

I frequently explain to homeschool group leaders that board members in a nonprofit should not be compensated. There are lots of good reasons for that and here’s one more:

Serving as a volunteer board member means that you will not be held liable for civil lawsuits, injuries, deaths or loss.

This volunteer protection may vary by state. I’m in Ohio and Ohio laws says this:

A volunteer is not liable in damages in a civil action for injury, death, or loss to person or property that arises from the actions or omissions of any of the officers, employees, trustees, or other volunteers of the charitable organization for which the volunteer performs services…”

https://codes.ohio.gov/ohio-revised-code/section-2305.38

Now almost all laws have caveats, so read the full law in context.

https://codes.ohio.gov/ohio-revised-code/section-2305.38

A volunteer is not immune from liabilities if:

  • With prior knowledge of an action or omission of a particular officer, employee, trustee, or other volunteer, the volunteer authorizes, approves, or otherwise actively participates in that action or omission.
  • After an action or omission of a particular officer, employee, trustee, or other volunteer, the volunteer, with full knowledge of that action or omission, ratifies it.
  • An action or omission of the volunteer constitutes negligence, willful or wanton misconduct, or intentionally tortious conduct.

In other words, knowingly committing an action or omission, being grossly negligent, or willful misconduct (to name a few) is not immune from liability, even for a volunteer.

So do you job as a board member, manage the organization well, put the interests of the organization before your own, and don’t lie, cheat or steal!


You might find my Board Member Manual helpful as you understand board duties. It’s a template for organizing your nonprofits important papers and a board training manual.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Can homeschool groups benefit from being a Private Membership Association (PMA)?

I have had several homeschool leaders contact me in the past few weeks asking about Private Membership Associations (PMAs). I had not heard that term before so I did some research.

I learned that PMAs are businesses or nonprofit organizations that have “members” like the Boy Scouts, a country club, a food co-op, or the National Rifle Association. Some homeschool groups have members. So do churches.

But then I kept reading and heard some statements that are hard to believe.

One of my clients gave me a link to a YouTube video of a webinar featuring a self-declared expert in PMAs (and an alternative called PEA-Private Education Associations), David Edwards, who clearly states he is not a licensed attorney. I am not linking to the video because I don’t want you to waste your time watching it! And I don’t want to be promoting it via my website.

Here are some things Edwards or the hosts of the webinar say:

  • (If you operate as a PMA) there is no authority for the government to tell you what to do.”
  • (for PMAs there is) “no government intrusion in your life.”
  • “If you are in the private domain you are no longer under the jurisdiction of the local state and federal government”
  • “If you’re educating within a private education association they (the government) can’t infringe upon any of the activities of your association or require that you turn over any documents to them”

The people in the video also advocate relinquishing your 501c3 tax exempt status, and says there is no need for general liability insurance and no need to look into daycare licensing.


Some of these claims are hard to believe. Some of it sounds too good to be true. And I believe it is.

In my research I came across a few court cases involving a PMA defense. Two especially sad cases were two newborns who died at the hands of unlicensed midwives in Indiana and Tennessee. Both midwives claimed they were not under any government jurisdiction and could not be sued because they were “a PMA.”. The courts determined otherwise, See https://www.thedailybeast.com/two-babies-die-in-care-of-conspiracy-minded-midwives-who-belonged-to-pmas

The advocates of PMAs and PEAs in the video and other related websites make a lot of vague promises and vague threats. They frequently claim that this information about PMAs was “hidden” until they started promoting it. The video promotes PMAs, PEAs, and Edward’s services. One of my clients was quoted $1,500 to draw up their “PMA paperwork.” (remember Edwards is not an attorney).


“The fake legal claims derive from the sovereign citizen movement,” said JJ MacNab, an expert on anti-government extremism. “It’s all phony legal theory. There’s nothing real there. If you look at the history of the sovereign and tax-protest movements, this is just a rehashing of an earlier scheme called the ‘pure trust.’ They just repackaged it,”

JJ MacNab, a fellow at George Washington University’s Program on Extremism quoted from https://www.thedailybeast.com/two-babies-die-in-care-of-conspiracy-minded-midwives-who-belonged-to-pmas

What the promoters of PMAs and PEAs don’t seem to tell you are the disadvantages of a PEA/PMA, the tax consequences of relinquishing your nonprofit or 501c tax exempt status, and the liability exposure you may have by not having liability insurance.

Sometimes it’s not just what people say, it what they are not saying that you need to be careful about!

That is very true in this situation.

If you would like to understand PMAs and PEAs for your homeschool group, I recommend that you contact an attorney.

Or for a consultation about 501c3 tax exempt status and 508 of the Internal Revenue Code (it was mentioned several times in the video) for homeschool organizations, you can arrange a consultation, a licensed CPA. Me! 🙂

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Political restrictions on 501c3 status. Should homeschool group not get 501c3 status?

Do you have an article on the pros and cons of tax exemption? I’m thinking we would like to just incorporate with the state and not apply for tax exemption. I don’t like the restrictions on endorsements for tax exemption.
-Gretchen

Dear Gretchen,

Most homeschool groups apply for 501c3 tax exempt status as educational organization for the benefits it brings.

Main pros of 501c3 status are:

1. Tax exemption. Not paying federal or state income tax. Sometimes exempt on state sales tax and property tax too.

2. Can accept tax deductible donations

3. Discounts and some programs only available to 501c3s like Box Tops, TechSoup software, use of libraries, churches, etc.

Main cons are:

1. Time and money to apply and maintain tax exempt status (but paying taxes takes time and money too!)

2. No endorsement of candidates for public office

It’s this last issue that concerns Gretchen. She wants her homeschool group to be able to endorse political candidates. But endorsing political candidates is prohibited by 501c3 organizations.

501c3 nonprofits can lobby on behalf of legislation, but endorsing a candidate is not allowed. I for one would not want my local homeschool group to endorse a candidate. It can be too divisive. Of course, any member can endorse a candidate, just not the organization.

The reason for this restriction is so that tax deductible donations that the 501c3 nonprofit receives will not be used for political campaigns. The donations are to be used for the nonprofit’s mission, but not to bolster the coffers of a political candidate. Additionally, American taxpayers can contribute to a candidate, but the IRS does not think that entitles them to a tax deduction. I agree with this reasoning. I don’t think nonprofits with 501c3 status should be using their funds or time to support a political candidate.

Most homeschool organizations find they can live with this limitation and enjoy the benefits of 501c3 status.

Some state-wide homeschool groups have tax exempt status as 501c4 Public Benefit Organizations so that they can endorse homeschool friendly candidates. 501c4 Public Benefit Organizations can be politically active and endorse candidates, but contributions to a 501c4 Public Benefit Organizations are not tax deductible donations.


For more information on the advantages and disadvantages of 501c3 tax exempt status for homeschool groups, please read:

Start with Do we need 501c3 status?
My book The IRS and Your Homeschool Organization


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

My homeschool group wants to be a 508 PMA not a 501c3. Can you help?

Hi, we are creating a homeschool pod. I was wondering if you think 501c3 or 508 is better for us. We would like to be a PMA.

Hello, I am interested in a conference call. We are looking at getting a 508(c)(1)(a). Have you experience with these?


I have been hearing from homeschool leaders like the two above about PMAs (Private Membership Associations) and 508 status for a few months.

I am familiar with Internal Revenue Code 508(c)(1)(a) . It is not a tax status by itself. For example I never hear, “I want to be a 508c1a” like I hear “I want to be a 501c3”. 501(c)(3) is a part of the IRS code that offers tax exempt status to qualified nonprofits including churches, charities, and educational organizations including most homeschool groups.

Instead, IRC 508, and specifically 508 (c)(1)(A), is a section of the IRS Code explains when a 501(c)(3) nonprofit organization does not have to officially apply for 501(c)(3) status.

The IRS gives “self declared” tax exempt status ability to two groups:

  1. churches
  2. tiny nonprofit organizations with less than $5,000/year in revenues

So when someone says they want to be a “508”, I have to ask:
“Do you plan to form a church?” I do not support the view that homeschool groups qualify to be churches (although some churches operate homeschool groups). But many homeschool groups have a religious purpose without being a church.
“Will your homeschool group be that tiny?” It’s pretty hard to operate with less than $5,000 in revenues per year unless everyone is a volunteer and fees (especially rent) are minimal.

If the homeschool group will have revenues of less that $5,000/year then section 508 (c)(1)(A) allows them to self declare 501(c)(3) tax exempt status. How to self declare your 501c3 tax exempt status. They should not call themselves a “508.” 508 is not a tax status. It is a clarification of the tax code that applies to qualified 501c3 organizations (churches and tiny organizations). There is no such thing as a “508” nonprofit organization. They are a 501c3 organizations (churches and tiny nonprofits) that self declared their tax exempt status.


There seem to be several blogs, websites and YouTube videos that promote IRC 508(c)(1)(a) as a status offering some hard-to-believe advantages such as :

  • no government intrusion
  • “true” separation of church and state
  • Not “signing away the rights of a organization or church to the IRS bureaucracy”
  • Free to serve God as a recognized minister of the Gospel of Jesus Christ

These advantages are not mentioned in IRC 508(c)(1)(a). Read it for yourself. It is actually quite narrow in scope and does not offer lofty, vague promises like freedom from government intrusion.


I find a lot of incomplete and even somewhat misleading information about IRC 508(c)(1)(a) on websites and videos about Private Membership Associations (PMAs) that I have been reading and watching.

Please read the IRS code yourself and maintain healthy skepticism when something sounds too good to be true.

It usually is.


I’ll post a separate blog post about PMAs Private Membership Associations and the research of three court cases where claiming to be a PMA did not allow the business owner to operate outside the law.

Of you have more questions, please Contact HomeschoolCPA. We can set up a phone consultation or Zoom meeting to discuss your homeschool group’s questions.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Does a homeschool group need a business license?

I recently just purchased business contents insurance for my nonprofit homeschool organization and the agent asked if we have a license to do business in Pennsylvania? This isn’t something that I had come across in research I wasn’t sure if we were required to obtain a business license. I know it wasn’t on the PA requirements you had sent us.

Thanks

CS in PA

Dear CS,

You asked if your homeschool group needs a business license in PA. Your insurance agent asked if it has a “license to do business in PA.”

1. Let me start with the idea of your group’s right to do business in PA or what is usually called “registering” a business in PA. Most states want businesses to register so that the state can collect taxes from the business.

For example, businesses  in PA (but remember that nonprofits are not businesses) must file a 14 page PA Form PA-100 to be assigned various tax accounts in PA. This link explains that PA-100 is used to get a sales tax ID number, pay employer taxes, get a Resellers permit,  pay Use tax, and for businesses selling certain products that PA taxes like cigarettes, alcohol, fuel, hotels, etc.

In your case only two of the taxes apply: sales tax exemption and employer taxes. HomeschoolCPA provided the information on sales tax exemption in a letter to you explaining PA required filings (I provide this service for homeschool organizations. Details HERE) . I did not supply information about employer taxes, because I assumed that your payroll service will help you get an PA employer tax ID when they set up your payroll.

So your homeschool group is registered in PA as a nonprofit corporation. That’s your right to do business in PA. That happened when you filed the Articles of Incorporation.

2. Now as for your homeschool group needing a business license: Most nonprofits don’t need a business license. They are not business. They may need to register their existence and right to do business, but your organization did that when it incorporated in PA, as mentioned above. And only some businesses need a license to operate. Lawyers, accountants, nurses, barbers, real estate agents, are examples of occupations (and businesses) that need to be licensed. None of these occupations or businesses apply to your organization. IOW, your homeschool nonprofit doesn’t need a business license to operate.

So the way to answer your insurance agent’s question is: Our homeschool organization is registered as a nonprofit corporation in PA and we do not meet the requirements to need a business license in PA because it is not a business and does not involve any of the occupations that require licensing in PA.”

To be honest, your insurance agent probably works with small businesses so much that he/she may have forgotten that your group is a nonprofit. And (s)he’s probably not very familiar with the registration (and licensing) requirements for nonprofits in PA.

P.S. I checked several reputable sources for checklists of forms that nonprofits need to file in PA including Nolo.com, Northwest Registered Agent. They did not mention registering as a business (Form PA-100) nor did they mention licensing in PA for nonprofits. That was as I expected.

I hope that helps!


If you have questions about starting or running your homeschool organization, contact HomeschoolCPA. We can arrange a phone or video (Zoom) consultation or reply to emails for a reduced fee.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Homeschool Groups: Prepare for new 1099-K reports if you use Paypal, Stripe, Venmo, etc.

Lots of homeschool groups use Paypal, Venmo, Stripe, Square, etc. and other third party payment processors to collect dues and fees. That’s a great way for your group’s families to pay the organization easily.

For 2022, these third party payment apps will start sending everyone who receives more than $600 though their service a tax form called a 1099-K and a copy goes to the IRS. This means that your homeschool group will receive a 1099-K in early 2023 showing all the funds (if greater than $600 in the previous calendar year) that flowed through Paypal, Venmo, etc. and a copy goes to the IRS!

Here’s the law itself (scroll to page 94 of the 114 page pdf). It is part of the American Rescue Plan Act of 2021. The new rule is effective beginning on January 1, 2022. President Biden signed the law with the threshold amendment in March 2021.

What to do with a 1099-K when it comes in early 2023?

If your organization is a tax exempt, nonprofit AND your payment account is set up under the organization’s name AND uses the organization’s EIN (Employer Identification Number) as their tax ID, you have nothing to worry about!

You should simply give the 1099-K to the treasurer or your bookkeeper and she should check the amount for accuracy. Then file it away. Your tax exempt organization should be filing an annual IRS Form 990/990-EZ/990-N with the IRS every year. The amounts on the 1099-K will be included in the total revenues on this 990 Information return. But you will not owe additional tax on this money, because your organization has tax exempt status. 🙂 The IRS Form 990/990-EZ/990-N are information returns for tax exempt organizations, not tax returns.

How do I know if my Paypal, Venmo is in the organization’s name?

Log onto your third party payment processor. Go to Settings>Account Information and click around until you find a Tax ID section or Identity Verification (on Venmo). Also look for Account Type. In PayPal and Venmo you should have a Business Account, not personal account for your homeschool group.

How do I know if my group is a tax exempt nonprofit?

Look up your organizations name in the IRS Exempt Organization database. https://apps.irs.gov/app/eos/

Here’s an example from a charity I serve as treasurer:

When I click on the hotlink of the organization’s name I learned a few more details and see that this organization is update date with filing annual IRS reports.

If your organization is not listed or it says Revoked with a date, your homeschool group is not tax exempt and must correct that immediately. Start by reading the blog posts and contact HomeschoolCPA to apply for tax exempt status or get tax exempt status reinstated if it expired.

How do I know if we are using the organization’s EIN as our tax ID?

Log onto your third party payment processor. Go to Settings>Account Information and click around until you find a Tax ID section or Identity Verification (on Venmo). In PayPal and Venmo you should have a Business Account, not a personal account for your homeschool group.

What if our Paypal account is a person’s name?

Well, now you have a problem! Paypal (I’m using Paypal generically to mean any payment processor) thinks this account belongs to an individual and he or she will get the 1099-K. A copy goes to the IRS and the IRS will expect to see this money reported on that person’s individual tax return! Expect to get a panicked call from this individual! She will probably have to hire a professional tax preparer to help her report this money (which is not really hers) and deduct any expenses, so she avoids a large tax bill. She will be very unhappy with your organization!

How to check your Paypal account: In Paypal go to Account Settings>Business Profile> Account Owner Information. Look under the Tax ID. There should be a number for the EIN, but NOT for SSN. That’s how it should be!

If your Paypal account is in someone’s SSN, change that immediately. You may need to contact Customer Service. They will want verification of your EIN (the IRS letter you received when you applied for your EIN) and perhaps other documents such as proof you are a nonporift and tax exempt with the IRS. If you do not have these documents, Paypal will likely close your account. So empty the cash first and create a new Paypal account under the name and EIN of your organization.

Here’s what to do NOW in the last weeks of 2021:

  1. Log onto all your third party payment processors (Paypal, Venmo, Zelle, etc). Verify that all the accounts are in the name and EIN of your organization. Verify that the address is up to date too. Take screen shots and save them permanently.
  2. Fix any incorrect information on the third party processor accounts. Take screen shots and save them permanently..
  3. Call the third party processor customer service if you have any problems updating your information online.
  4. Don’t have tax exempt status? Contact HomeschoolCPA to apply for tax exempt status. Start by reading these blog posts:

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Maintaining your tax exempt: IRS virtual workshop

I’ve attended lots of training by the IRS for nonprofit and tax exempt organizations. They are usually informative, but a little dull. The IRS training modules (videos, virtual workshops, live and virtual conferences, and lots of documents) apply to all sorts of nonprofit organizations, large and small. That’s why I created books, podcasts and webinars specifically for homeschool nonprofits.

But I recently found a few IRS training videos that were pretty good! One in particular on maintaining your tax exempt status was informative, interactive and easy to follow. This virtual workshop runs for 30 minutes and covers:

  • The IRS Form 990 annual exempt organization returns
  • Record keeping needed to prepare the Form 990
  • Unrelated business income tax filings
  • Public disclosure requirements
  • Prohibited political activities
  • Private benefit and inurement

I am asked about these topics all the time, so now you can get the information from the source: the IRS!

Maintaining Your Tax Exempt Status (IRS virtual workshop)

(if you’d rather read this information, a transcript is provided as well)


The IRS website called Stay Exempt has lots of other virtual workshops for small and medium-sized organizations. Click on any topic on the top menu that fits your circumstances such as Starting Out or Existing Organizations.

I think you will find them helpful and worth your time.

If you find any of the IRS information confusing and wonder if it applies to your homeschool group, please contact HomeschoolCPA. We can arrange a phone consultation or Zoom meeting to discuss your particular situation.


Carol Topp, CPA

HomeschoolCPA.com

How the IRS sees homeschool groups (podcast)

IRS and homeschool groups

UPDATE: This podcast episode originally aired in 2015. But it is still accurate and helpful in 2021, 6 years later!

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, nonprofit incorporation, for-profit homeschool groups, and what happen when a nonporift loses its 501(c)(3) tax exempt status.

Listen to the podcast

Listen to the first part of this presentation where Carol discussed homeschool support groups as IRS 501(c)(7) Social Clubs and co-ops as 501c3 Educational organizations.

Get a copy of the handout.

More information

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

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

The IRS and Your Homeschool Organization

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Who’s Afraid of the IRS? (podcast)

IRS and homeschool


UPDATE: This podcast episode originally aired in 2015. I am amazed at how accurate it still is 6 years later!


Are you afraid of the IRS? Should you be?

How does the IRS see homeschool organizations?

In this episode of the Dollars and Sense podcast, host Carol Topp, CPA discusses how the IRS sees homeschool organizations. Carol discusses homeschool support groups as IRS 501(c)(7) Social Clubs and homeschool co-ops as 501(c)(3) educational organizations.

Listen to the podcast here

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

More information

The second part of this podcast presentation, “How the IRS sees homeschool groups”

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

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

The IRS and Your Homeschool Organization

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders