The duty of compliance with the law for homeschool organizations

In addition to the duties of care and loyalty discussed in the previous episode #204, homeschool leaders have a duty of compliance with the law. What laws to leaders need to know about? What does a duty of compliance look like?

This is the third part of a 4-part series on tips for homeschool leaders a workshop given to homeschool leaders in Austin Texas in February 2020.

Carol Topp, CPA discusses three main areas of compliance:

  1. IRS filings and taxes
  2. Your state filings for nonprofit organizations
  3. Workers classification as an employee or independent contractors

In the 4 part podcast series Carol discusses:

  • Episode #203   Leader mindset and attitudes
  • Episode # 204 What do the duties of care and loyalty look like?
  • Episode # 205  The duty of compliance with the laws for nonprofit organizations
  • Episode #206 Managing records and finances in you homeschool group

Each episode can be found at HomeschoolCPA.com/Podcast.

Handout of the workshop: https://homeschoolcpa.com/wp-content/uploads/2020/11/Top-Tips-Handout-2020.docx

Helpful Resources

For more information on the IRS and state filings for your homeschool group, check out these resources

The IRS and Your Homeschool Organization

Does your homeschool group need to pay taxes? Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?

I have the answers for you in my book The IRS and Your Homeschool Organization. The information I share in my book has been helpful to homeschool support groups,

Podcasts #64 Annual Reports

Podcast #74 Keep up to date with state filings

A helpful webinar on IRS and state-required filings for nonprofit organizations HomeschoolCPA.com/Filings

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Homeschool mom has concerns about Classical Conversations

I’ve written several blog posts answering questions from Classical Conversations (CC) Directors regarding:

Usually these issues affect CC Directors the most since they are the business owners that carry the responsibility and liability for operating a licensed CC Community that is compliant with local, state, and federal laws.

But sometimes the individual families in a CC Community are affected by these issues as well.

Homeschool blogger at As for Me and My Homestead, Jamie, wrote a blog posts titled, “Why My Family Left Classical Conversations.” In her post she outlines several reasons her family left CC after four years.

If you scroll to the end, she explains several business practices that she found concerning enough to make the decision to leave behind a group of homeschool families she deeply enjoyed and loved.

Through all the rest of this, I pushed the nagging, “something isn’t quite right” issues out of mind, and tried to focus on the positives.  Fortunately for me, the person who brought the errata sheet to my attention also invited me to join a Facebook group where I learned more about Classical Conversations that went beyond the mistakes and poor curriculum.

Jamie writes about several issues that bothered her including:

  • CC Corporate calling themselves (and the Directors’ businesses) a “ministry,” which can be misleading
  • Communities (as for-profit business) using churches
  • Misclassifying tutors as Independent Contractors
  • CC Corporate and local Directors using teenagers and parents as volunteer labor

She calls these issues “the tip of the iceberg.”


It’s never easy to publicly criticize a homeschool program, especially if your friends are still enthusiastic about it.

Jamie ends her post with this wish:

My hope is that in reading this, other families will see that CC is a corporation that is not operating in a godly manner, while claiming the name of God, and will find out that they could do so much better with their money & time, than join a CC community.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

What do the Duties of Care and Loyalty look like?

HomeschoolCPA Carol Topp frequently mentions that homeschool leaders have a duty of care and loyalty to their groups. What does a duty of care look like? How does a leader know know if she is being loyal?

This is the second part of a 4-part series on tips for homeschool leaders a workshop given to homeschool leaders in Austin Texas in February 2020.

Some of the ways to demonstrate a duty of care and loyalty for a leader include:

  • Have Board meetings
  • Manage the money well
  • Have insurance
  • Avoiding conflict of interest
  • No self dealing (the board gives itself discounts)

In the 4 part podcast series Carol discusses:

  • Episode #203   Leader mindset and attitudes
  • Episode # 204 What do the duties of care and loyalty look like?
  • Episode # 205  The duty of compliance with the laws for nonprofit organizations
  • Episode #206 Managing records and finances in you homeschool group

Each episode can be found at HomeschoolCPA.com/Podcast.

Handout of the workshop: https://homeschoolcpa.com/wp-content/uploads/2020/11/Top-Tips-Handout-2020.docx

Helpful Resources

Money Management in a Homeschool Organization

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.


A checklist of best practices to avoid embezzlement. It is available at HomeschoolCPA.com/Fraud

Podcast # 105 Podcast episode on preventing fraud

How to avoid self-dealing. The board cannot vote themselves benefits like discounts.  Listen to Podcast #71 on how to thank volunteers without self-dealing.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Can a homeschool group be charitable? Maybe not!

I love knowing that  most homeschool groups are generous, especially toward families in financial need. They deliver meals, take up collections, and waive fees for a needy family.

But should a homeschool group serve as a charity?

Maybe, but maybe not.

Here’s a true story..

A homeschool group was given $5,000 with the specific purpose of gifting to members in the group that were experiencing difficult financial times.  They told me, “Our instructions from the donor was to gift it to members that were going through difficult financial times due to unemployment or illness.”

It was very nice of the donor and the organization to have a concern for the afflicted families in their program.

But this homeschool group has 501(c)(3) status as a religious and educational organization. There is no mention of “charitable” purpose in their founding documents (their Articles of Incorporation), or in their tax exempt application with the IRS.

Basically, they were not given tax exempt status to be collecting and distributing funds to needy people (i.e. charity).

Here’s part of what I wrote to them:

In general, your homeschool organization should not serve as a charitable conduit for someone to make a gift to a needy family (or families). The reason is because your 501(c)(3) status was for educational purposes, not charitable to help needy families with financial needs. Additionally, the donor used your homeschool organization to get a tax deductible donation, when he or she should have given the money as a gift (i.e. not tax deductible) to the needy families.

If you told me that you used the $5,000 to start a benevolent fund and reduced the tuition for several families, I’d say the IRS may approve that use of the money. Your homeschool organization is not a “charity” and should not be used to funnel money to a needy family, nor should you let your 501(c)(3) status be used to give a donor a tax deduction for what is a gift to an individual(s).

You were given tax exempt status for specific purposes. Stick to the purposes you told the IRS: educational and religious.

Now, I’m a religious person (a Christian, to be exact), so to me being generous and helping the needy is related my religious beliefs and this homeschool group may argue the same. But they should have been more clear in their explanation to the IRS and their organizing documents.

My advice to them is to:

  1. Not accept donations that are ear marked for helping the financial needs of a family. Direct the donor to other charitable organizations.
  2. Not give cash or checks to a needy family, but instead offer tuition discounts on their program to keep in line with their educational purposes.
  3. Not let your homeschool organization be used as a conduit for financial transactions that are outside of your exempt purpose.

All homeschool leaders should pull out their founding documents (their Articles of Incorporation and bylaws) and their tax exempt application with the IRS (Form 1023 or 1023-EZ) to refresh their memory on their organization’s stated purpose.

Then stick to that purpose.

The Homeschool Organization Board Manual will help you keep your important documents  in a binder for easy access.

Your board may wish to create a donation acceptance policy and include the 3 points above.

Carol Topp, CPA
HomeschoolCPA.com

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Mindset for Homeschool Leaders

HomeschoolCPA, Carol Topp spoke to a group of homeschool group leaders in Texas about a good mindset and attitudes that are necessary for leading a homeschool group. In this episode Carol reminds leaders of three things they may have forgotten:

  • You cannot be all things to all people-so stop trying!
  • Your organization is not essential to the success of homeschooling!
  • You are not responsible for homeschooling other peoples’ children!

This is the first part of a 4-part series on Tips for Homeschool Leaders, a workshop given to homeschool leaders in Austin Texas in February 2020.

In the 4 part podcast series Carol discusses:

  • Episode #203   Leader mindset and attitudes
  • Episode # 204 What do the duties of care and loyalty look like?
  • Episode # 205  The duty of compliance with the laws for nonprofit organizations
  • Episode #206 Managing records and finances in you homeschool group

Each episode can be found at HomeschoolCPA.com/Podcast.

Handout of the workshop: https://homeschoolcpa.com/wp-content/uploads/2020/11/Top-Tips-Handout-2020.docx

During the podcast Carol mentioned the I am a Homeschool Group Leader Facebook group. Please join us!  https://www.facebook.com/groups/72534255742/

Featured Resource

Phone Consultation with Carol Topp, CPA

Phone Consultation: A pre-arranged phone call to discuss your questions about being a homeschool group leader. My most popular service for homeschool leaders. It’s like having your own homeschool expert CPA on the phone!

Cost: $85/hour to nonprofit organizations. $100/hour to for-profit businesses. $60 minimum.

Contact HomeschoolCPA, Carol Topp, CPA, to arrange a telephone consultation.Click Here to request more information!

Has your homeschool group registered with your state’s Attorney General?

A homeschool group in Illinois formed in 2020. They filed paperwork with the Illinois Secretary of State to form a nonprofit corporation, got an EIN (Employer identification Number) from the IRS to open a checking account, and started running their homeschool program. They thought that was all that needed to be done.

Unfortunately the group never registered as a charitable trust with Illinois.

These kinds of situations come up fairly frequently here at HomeschoolCPA. I help homeschool groups understand their required reporting to their states.

So I helped this group understand Illinois reporting requirements. When I do that I always search the state laws for exceptions–situations where the nonprofit can avoid more government paperwork.


Most states want nonprofit organizations to register in their state and then most states have annual reporting requirements as well.


Did I find an exemption to registering as a charitable organization (called a charitable trust in Illinois) for this homeschool group? And what about the annual reports?

Maybe!

Illinois requires every charitable trust to resister with the Attorney General. They do allow an exception for religious organizations (churches), but even they must submit an application to be exempt from annual reports.

So this homeschool group should be registered with the Illinois Attorney General. And every homeschool nonprofit organization in Illinois should be registered with the Illinois Attorney General


But it may not need to file annual reports!

The Illinois Charitable Trust Act says this:
Exception: ” Any charitable organization which does not intend to solicit and receive and does not actually receive contributions in excess of $15,000 during any 12 month period ending December 31 of any year. However, if the gross contributions received by such charitable organization during any 12 month period ending December 31 of any year shall be in excess of $15,000, it shall file reports as required under this Act and the provisions of this Act shall apply.

https://codes.findlaw.com/il/chapter-225-professionsoccupations-and-business-operations/il-st-sect-225-460-3.html

“Contributions” includes donations and proceeds from fundraisers. It does not include your income from tuition, fees for offering your program, membership fees or dues.

Additionally, Illinois offers an exemption from annual reports to several specific types of organizations (Boys Club, school parent-teacher associations, etc), but not a homeschool program.

Research showed…

This homeschool group needed to register with the Illinois Attorney General, but since they did not receive more than $15,000 in donations and fund raisers, they did not have to file annual reports with the Illinois Attorney General.


Conclusion: Illinois nonprofit homeschool groups should register with the Attorney General.


Additionally, if your Illinois homeschool organization receives more than $15,000 in “contributions” it must file annual reports with the Illinois Attorney General as a charitable organization.

What about your state?

This reference guide lists the charitable solicitation requirements by state.
https://www.lowenstein.com/media/4152/final-charitable-solicitation-survey.pdf

You should look up your state and see if your homeschool group needs to register and see also if they should be filing annual reports.

Alarming stats

The Illinois Attorney General lists 8 organizations with “homeschool” or “home school” in its name. Yet the IRS Exempt Organization database lists 18 organization in Illinois with “homeschool” or “home school” in its name.

That means 55% of Illinois homeschool organizations never registered with the Illinois Attorney General!

Why have these homeschool groups not registered with the State of Illinois?

  • Ignorance of the Illinois Attorney General requirements.
  • The homeschool group did not use a professional who walks them through all issues of state compliance. HomeschoolCPA can do that. See below.
  • The homeschool group didn’t want to know about the state forms since the paperwork is a headache. But willful ignorance of the law is not a good excuse!
  • They thought they were exempt from registering since they don’t “solicit funds.”

So what?

Illinois can assess a fee for failure to register or failure to file reports of $500 to $1,000. Source: (760 ILCS 55/5)(from Ch. 14, par. 55)

In general, the states don’t want to assess fines; they just want your homeschool group to be compliant, resister and file annual reports.

What should you do now?

  1. Watch Homeschool CPA’s IRS and State filings webinar. This 60 minute webinar ($10), explains the typical filing requirements for states and the IRS. It’s a great place to understand your filing requirements and launch the research for your specific situation.
  2. Look up your state’s charity registration requirements.

    Here’s a good resource (a pdf from 2017) for charitable solicitation registration (but there may be more state reports than just this one!): https://www.lowenstein.com/media/4152/final-charitable-solicitation-survey.pdf

    I’ve also done research using this site: Harbor Compliance https://www.harborcompliance.com/information/nonprofit-compliance-guide
  3. If you’d rather not do the research yourself, you can hire HomeschoolCPA to do the research and compose a letter, gather all the forms and help you know what to do.

Carol Topp, CPA
HomeschoolCPA.com

My Homeschool Group is an Unincorporated Association. What Does That Even Mean?

Carol, My homeschool group has been around for 20 years. I was told that we are an “unincorporated association.” What does that mean?

-Lisa

Lisa,

You ask an excellent question. I’m going to share a reply from an attorney Stephen Fishman from Nolo.com, the publisher of very helpful legal book. I have several Nolo books on my shelf.

What is An Unincorporated Nonprofit Association?

By Stephen Fishman, J.D.

What happens, legally speaking, when a group of people get together and decide to perform some task without filing any legal paperwork or establishing any formal legal structure? Whether they know it or not, they have formed an unincorporated association. “Unincorporated association” means an unincorporated group of two or more persons joined by mutual consent for a common lawful purpose, whether organized for profit or not.

Now, if the lawful purpose they’ve joined together to accomplish includes earning a profit, their association is automatically a partnership or joint venture for tax and most other legal purposes. For example, if two people get together and decide to operate a food truck, they’ve formed a partnership, even if they file no paperwork.

But, if the purpose for the association is to benefit the public some way, and does not include earning a profit, the association’s members have formed an unincorporated nonprofit association. People form nonprofit unincorporated associations all the time; often without being aware of it. For example, if you and several of your neighbors get together to help raise funds to keep your local library branch open, you’ve formed an unincorporated nonprofit association.

Source: https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

So that’s what your homeschool group is: an association of people trying to benefit the public in some way. in your case, you are benefiting families who homeschool their children in your local area.

Drawbacks to unincorporated association

But Mr Fishman, the attorney rom Nolo.com goes on to warn that unincorporated association has some drawbacks…

The biggest drawback to the unincorporated nonprofit association, and the reason nonprofits often abandon this form in favor of a nonprofit corporation, is that it has no separate legal existence apart from its members. Because it is not respected as a separate legal entity, its members generally can be personally liable for its debts and liabilities. Some states, such as California, give some limited liability to nonprofit association members; but it’s not as good as the protection obtainable from a nonprofit corporation. Moreover, unless your state law contains an “enabling statute” granting such rights entities, an unincorporated association cannot hold or receive property, or sign contracts, in its own name.

Because of these limitations, nonprofit unincorporated associations are usually used to accomplish limited short-term goals, such as raising funds for a library. Nonprofits with long-term missions should usually incorporate. For more on incorporating, see Nolo’s article, Five Reasons to Incorporate Your Nonprofit.

Let me rephrase what Mr. Fishman is saying: Most homeschool nonprofits don’t stay as unincorporated associations. They file paperwork in their state (called articles of Incorporation) to form a nonprofit corporation. Nonprofit corporate status offers legal protection for members and leaders by limiting the liability to the nonprofit’s assets. The members and leaders are not personally liable for the debts of the nonprofit if they are sued. That helps leaders sleep better at night!

I also appreciate his point that groups that are temporary can get by with being an unincorporated association. But homeschool nonprofits with longevity should seriously consider filing the paperwork to become a nonprofit corporation.

Homeschool groups dealing with children are at higher risk as are larger homeschool programs with bigger budgets. They should file the paperwork to be a nonprofit corporation in their state.

Resources

My book the IRS and Your Homeschool Organizatoin discusses nonprofit incorporation, its benefits and costs.

These podcast episodes discuss nonprofit incorporation:

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Does a homeschool support group have to apply for IRS tax exempt status?

Our homeschool group was founded a few years ago with the mission of providing support for local homeschoolers. Since then the membership and monies have grown that we needed to establish a bank account.

The bank informed me that our group needed to apply for an EIN number online through the IRS which I did.  However, I found out that we need to file additional paperwork e.g. Form 1024 as a 501(c)7 nonprofit.

We are not a large group and don’t want to apply for a Nonprofit Corporation or 501(c)3 status.  We just want to open an account to deposit monies from membership dues and recently held a rummage sale that all our members donated items to be sold.  We don’t sell services or have paid employees. The monies go to website fees and events that our homeschool members participate in.

Tom

Tom,

From your description of your homeschool support group, it sounds as if you fit the IRS definition of a 501(c)(7) Social Club.

Here’s a blog post about what it takes to be classified as a 501(c)(7) social club
https://homeschoolcpa.com/are-homeschool-support-groups-automatically-tax-exempt/

501(c)(7) Social Clubs can “self proclaim” their tax exempt status and you do not have to file the Form 1024.

Here’s a blog post I wrote on the subject:
https://homeschoolcpa.com/can-a-homeschool-group-self-declare-501c7-social-club-status/

Be sure to maintain your tax exempt status too!

Be aware that while a 501(c)(7) Social Clubs can “self proclaim” their tax exempt status and not file the official IRS paperwork, social clubs must maintain their tax exempt status by filing the IRS Annual Information ePostcard, Form 990-N.

Since you didn’t apply for tax exempt using the IRS Form 1024, you’re not in the IRS database and cannot file the Form 990-Ns. So you need to call the IRS Customer Account Services at 1-877-829-5500 and be added to their database so you can begin filing the Form 990-Ns.

When you call the IRS, say something like this,

“We’re a 501c7 Social Club and my CPA said I needed to get added to the IRS exempt organization database, so we could start filing the 990-Ns.”

This blog post has a few more tips. How to get added to the IRS database and file the Form 990N

Learn more about getting tax exempt status

Tom’s organization wants tax exempt status as a 501(c)(7) social club, but more homeschool groups are eligible for 501(c)(3) status as educational organizations especially if they conduct classes for homeschool students.

For more information on applying for 501c3 tax exempt status as an educational organization check out HomeschoolCPA’s webinars. There’s one specifically on the IRS application Form 1023-EZ.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

I started a nonprofit CC Community. Can I pay myself?

Greetings, I’ve started a Classical Conversations Community in Washington state. To be able to host my community at my church, we were asked that we create a non-profit organization so I did. I created a separate non-profit banking account from my personal account, thankfully. Honestly all money that has gone out has been for supplies and Independent Contractor payments. Although, it would appear within the CC framework that I can pay myself, I’m unclear with the non-profit status if I actually should, so I have taken no stipend at all for my work.

Can I actually pay myself a small stipend to help off set my personal expenses?

Thank you for any and all help you might be able to offer. I’m feeling extremely overwhelmed with all of this.

-WA

Dear WA,
Last week I talked with another CC Director in Washington State who formed a nonprofit. Her situation sounds very similar to yours.

Both she and you seem to lack a board or team of leaders. You see, a nonprofit is not owned by anyone (unlike a for profit business which does have an owner). Nonprofit organizations are operated by a board or team of people. This board the hires and pays staff such as you, the Director, or the tutors.

So to answer your question: No, you cannot pay yourself. A board of people unrelated to you by marriage, blood or business relationship, must vote on what all workers get paid. That is how a nonprofit is very different from a for profit business.

Resources

My book Paying Workers in a Homeschool Organization explains how a CC nonprofit should be paying its Director and tutors (i..e, as employees not as Independent Contractors).

The book is available in paperback $9.95 or ebook format $3.99

You’ll find my latest ebook Business Q&A for CC Directors to be full of questions just like yours from CC Directors and my answers. There are so many issues to learn and understand when running a Classical Conversations Community. Get accurate information on running your business from a CPA who has consulted with dozens of CC Directors.

Ebook (pdf) format only: $10.00

I think you will find both books very helpful!


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Using Zoom and Giving Refunds (podcast)

During the COVID-19 pandemic many homeschool programs used Zoom to stay connected with members. Three group leaders share how they used Zoom in their programs in this podcast episode.

In June 2020, Carol Topp of HomeschoolCPA.com hosted a webinar titled Planning an Uncertain Future for homeschool group leaders. The purpose of the webinar was to help homeschool groups plan their fall activities given the COVID-19 pandemic was making it uncertain of they could operate.

This podcast will air the webinar highlights in small chunks over six episodes.

Join this episode and the other episodes as Carol and three panelists discuss: 

  • Part 1: Making decisions as a board or team
  • Part 2: Tools a homeschool group can use for planning an uncertain future
  • Part 3: Dealing with social distancing rules and wearing masks
  • Part 4: Questions regarding lawsuits, health restrictions, and accommodating new families
  • Part 5: How to communicate the plan to the members
  • Part 6: Using Zoom, offering refunds and other topics.

During the podcast Carol mentioned the I am a Homeschool Group Leader Facebook group. Please join us!  https://www.facebook.com/groups/72534255742/

The webinar is available to watch on YouTube or no charge. https://youtu.be/AaQ1c_XuUvY? It runs for one hour and 38 minutes!

Featured Product

Books for Homeschool Leaders

HomeschoolCPA has several books to help leaders start and run a homeschool program

  • Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out
  • Money Management for Homeschool Organizations
  • The IRS and Your Homeschool Organization
  • Paying Workers in a Homeschool Organization
  • Homeschool Board Member Manual
  • Taxes for Homeschool Business Owners

All these books can be found at https://homeschoolcpa.com/bookstore/