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/

Communicating COVID Plans and Organizing Classrooms(podcast)

Carol Topp of HomeschoolCPA.com hosted a webinar titled Planning an Uncertain Future for homeschool group leaders in June 2020. 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.

The webinar is available to watch on YouTube at no charge. https://youtu.be/AaQ1c_XuUvY? It runs for one hour 38 minutes! This podcast will air the highlights in smaller chunks over six episodes.

Join this episode and the other five 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: How are the panelists 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 and organize a classroom
  • Part 6: Using Zoom, offering refunds and other topics.

During the podcast Carol mentioned:

Featured Product

Mentoring from HomeschoolCPA

Carol Topp, CPA, the homeschool CPA, is offering a mentoring opportunity to train mentees to assist homeschool groups and their leaders.

A potential mentee should have:

  • Love and passion for homeschooling.
  • Education and experience in accounting. A BS or BA in business or accounting. CPA license (even if currently inactive) is strongly preferred.
  • Experience in nonprofit leadership such as being on a board of a church or nonprofit organization

For more information go to https://homeschoolcpa.com/mentoring/

Do you have a concern about lawsuits related to COVID-19? (podcast)

As a homeschool group leader you may have concerns that a lawsuit could be brought against your group is someone contracts COVID-19.

On June 1, 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.

The webinar is available to watch on YouTube at no charge. https://youtu.be/AaQ1c_XuUvY? It runs for one hour 38 minutes! This podcast will air the highlights in smaller chunks over five episodes.

Join this episode and the other five 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: How are the panelists dealing with social distancing rules and wearing masks
  • Part 4: Questions regarding lawsuits, insurance, 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.

Insurance providers for homeschool groups https://homeschoolcpa.com/insurance-providers-for-homeschool-groups/

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

Featured Product

Phone Consultation with Carol Topp, CPA

Phone Consultation: A pre-arranged phone call to discuss your questions. 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!

Social Distancing in a Homeschool Group (podcast)

Three homeschool leaders discuss the challenges of social distancing during the COVID-19 pandemic.

 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 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.

The webinar is available to watch on YouTube at no charge. https://youtu.be/AaQ1c_XuUvY? It runs for one hour 38 minutes! This podcast will air the highlights in smaller chunks over six episodes.

During the podcast Carol mentioned:

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/

Tools for Planning an Uncertain Future for Homeschool Groups (podcast)

Tools for Planning an Uncertain Future

Carol Topp of HomeschoolCPA.com hosted a webinar titled Planning an Uncertain Future for homeschool group leaders in June 2020. 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.

The webinar is available to watch on YouTube at no charge. https://youtu.be/AaQ1c_XuUvY? It runs for one hour 38 minutes! This podcast will air the highlights in smaller chunks over six episodes.

Join this podcast episode on using a decision matrix and the other five 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: How are the panelists 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.

Download the Decision Matrix spreadsheet at HomeschoolCPA.com/DecisionMatrix

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

Featured Product

Webinars for Homeschool Leaders

HomeschoolCPA offers several recorded webinars for homeschool leaders. Most are 60-90 minutes and come with handouts and other resources. Prices range from free to $25 each.

Create a Nonprofit for Your Homeschool Community The first steps in starting a nonprofit: a board, bylaws and nonprofit incorporation

501c3 Application for Homeschool Nonprofit How to apply for 501c3 tax exempt status

IRS and State Filings What you need to do after 501c3 status

Tax Preparation for Homeschool Businesses How to prepare your tax return for homeschool business owners

Financial Reports How to present financial reports that are clear and easy to understand to board members  FREE

ABCs of an Academic Homeschool Program How to start an academic, classical homeschool program

Planning an Uncertain Future for Homeschool Groups (podcast)

On June 1, 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 if they could operate.

The webinar is available to watch on YouTube at no charge. https://youtu.be/AaQ1c_XuUvY? It runs for one hour 38 minutes! This podcast will air the highlights in smaller chunks over six episodes.

Join this episode and the next five 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: How are the panelists 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/

Featured Product

Board Manual

The  Board Manual for homeschool organizations will be very helpful to organize your board and run your homeschool organization successfully!

Author and homeschool advisor, Carol Topp, CPA, has created a Homeschool Organization Board Manual. It is a template to create a board member binder. It has:

  • A list of important documents to keep in your binder
  • Section dividers so you can organize the important papers
  • Tools to help you run your meetings smoothly including
  • A sample agenda that you can use over and over again
  • A calendar of board meetings

But this is more than just a few cover sheets for your binder. It is also a 55-page board training manual with helpful articles on:

  • Suggested Board Meeting Topic List
  • Board Duties
  • Job Descriptions for Board of Directors
  • What Belongs in the Bylaws?
  • Compensation and Benefits for Board Members
  • Best Financial Practices Checklist
  • How to Read and Understand Financial Statements
  • Developing a Child Protection Policy

Click Here to request more information!

The IRS Says Our Homeschool Group is a Private Foundation. Is that Correct?

Carol,
I am wondering if we can get some clarification from you. I am looking through this IRS document we received after we reapplied for 501c3 tax exempt status per your direction back in January.

It says we have been determined to be a 501(c)(3) private foundation and are required to file a 990-PF.

I feel like this information is incorrect, am I right in thinking this? 

Thank you,
Ashley


Ashley,

Oh dear. This is very unfortunate.

I guess that whoever filled out the 1023-EZ checked the box saying your homeschool group was a private foundation rather than a public charity.

Almost all homeschool organizations are public charities not private foundations.

What’s a private foundation?

Private foundations are funded by an individual, family, or a corporation, like the Bill and Melinda Gates Foundation or the Ford Foundation.These individuals and corporations typically make large donations to the foundation. The foundation invests the donations. The goal of the foundation is to distribute the income from their investments to charitable works like universities or medical research.

So what’s a public charity?

On the other hand public charities are funded by the general public through donations, membership fees, or activities related to their exempt function.

Most homeschool organization receive their funds from membership fees, tuition, field trip fees, and class fees. They are not private foundations.

Almost all homeschool programs are public charities.

Why does it matter?

There are several reasons why being classified as a public charity rather than a private foundation is important:

  • Private foundations must distribute their income from their investments every year or pay taxes. In addition, private foundations must pay an excise tax on net investment income.
  • The annual report for a private foundation is the complex, multi-page form called the 990-PF. It will take a CPA to help you prepare this beast of a form. But small public charities can file the IRS Form 990-N electronically every year by themselves!
  • Dissolving a private foundation involves either paying an IRS fee or distributing the funds to another established private foundation. it’s complex to dissolve a private foundation and will probably require an attorney and a CPA.
  • Private foundations must to make public their list of contributors; pubic charities do not have to make their donor list public.
  • Private foundations are highly regulated by the Tax Code and subject to a host of technical rules and restrictions that do not apply to public charities.

The cause of the mistake

Here’s a snapshot of the Form 1023-EZ application for 501c3 status where a homeschool organization tells the IRS how it receives its funding.

The homeschool program that emailed me checked the wrong box on the Form 1023-EZ and said they were a private foundation when they are not.

How to avoid this mistake

This mistake could have been avoided.

I offered my services to help this homeschool group with the Form 1023-EZ While my fee is $300, I also pointed the leaders to a $25 webinar where I go though the Form 1023-EZ line-by-line and I explain the difference between public charity and private foundation.

This homeschool group never purchased my services or even my webinar, thinking they could save time and money. 🙁


The webinar on 501c3 Application for Homeschool Nonprofits costs only $25. In addition to the 90 minute webinar, you get a copy of my ebook The IRS and Your Homeschool Organization.


How to fix the mistake

To request the IRS change the status of Ashley’s homeschool program from private foundation to public charity, it must file IRS Form 8940. The form looks easy, but it is all the supporting documents and the explanation to the IRS that are the quite complex and burdensome.

Ashley will need to give the IRS a lot more documentation including bylaws and financial statements than she did when filling the Form 1023-EZ application.

I will charge Ashley’s organization $200 to request a change to public charity with the IRS on Form 8940. The IRS fee is an additional $500.

So a $700 expense could have been avoid by paying $25 and watching my webinar!

Don’t make the same mistake!

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders