Can my family’s homeschool be a nonprofit?

I see several articles (on your website www.HomeschoolCPA.com) on setting up as a not-for-profit for homeschool organizations (e.g. homeschool co-ops), but I wonder if I could set my own family’s homeschool up as a non-profit. We’re in Texas, so we are considered a private school.
-Lauren in TX

Lauren,
You asked a good question and I’ve been asked it before in different ways. Nonprofit organizations have a lot of benefits including tax free income, discounts, and sometimes pay no sales tax!
I’m not a lawyer, nor familiar with Texas private school laws, but I’ll try to explain how I see things.

Briefly, a nonprofit organization exists to serve a group, not an individual. The IRS will not grant “recognized charity” 501(c)(3) tax exempt status to a group that is formed solely to benefit the founder’s family. A tax exempt organization must serve a public good.

The IRS forbids private “inurement” in 501(c)(3) tax exempt organizations. Inurement means to be beneficial or advantageous. Inurement occurs when an organization is formed or operates with an incorrect charitable purpose that allows individuals in control to profit from the organization. 501(c)(3) organizations can lose their tax exempt status for practicing inurement.

Inurement/Private Benefit – Charitable Organizations

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization.
From the IRS website at https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

So, in short the answer is no, your family homeschool cannot be set up as a nonprofit organization, even if your state classifies a homeschool as a private school. That’s how I see it.

Carol Topp, CPA

Now, here are my “lawyer words…”
Any tax advice contained in this communication was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

Comments

  1. First Carol I would like to say Thank You for all your hard work and organizing so much information for other homeschool families. I have read through your information on filing for non-profit status several times. I debated and prayed about this course several years ago but chose then to not do the big expense and start small,

    I decided to start as a small business owner first to see how the response would be in the homeschool community for what I wanted to offer to them. The response has grown over the last 3 years and I find myself at a major decision point.

    I have made no money – in fact have lost quite a bit in doing this endeavor but I feel if I change the status to non-profit – I could get deeper discounts on some costs and I would like to apply for educational grants.

    Do I have to go the 501c3 route? Can I raise funds to do the application process? Please check out my website to see what we are doing. I would greatly appreciate any input.

    Thank you for your time.
    Donna

  2. Carol Topp says

    The IRS does allow a for-profit business to convert to a non-profit organization, but certain requirements will need to be met. Your organization should be run by a board (not just you as the owner) with bylaws and a “charitable” mission. Education, especially to children, is considered “charitable.” You will have to clearly show the IRS how your new nonprofit organization will be significantly different from the old for-profit business.

    You do not *have* to file for 501c3 status; you could continue running you business at break-even or occasional losses. But, as you mentioned, there are advantages to 501c3 status, especially grants and discounts.

    You are wise to seek the opinions of many people before making this decision. I am available for phone consultation to discuss you particular situation.
    Drop me an email if you would like a phone consultation.

  3. Hello-

    I am in the midst of filing the affidavit for a private homeschool that will only have one of my children attending. On the affidavit it asks for tax status and I don’t know what to put. I live in California and the options are:

    Tax Status of School *

    40.Tax-exempt, nonprofit status under 501(c)(3) of the U.S. Internal Revenue Code
    41.Tax-exempt, nonprofit status under Section 23701d of the California Revenue and Taxation Code
    42.Property tax exemption under Section 214 of the California Revenue and Taxation Code
    43.None of the above

    I have homeschooled my children before but did it through a public charter school. At this point I am unhappy with all of the charter or other public homeschooling options. I’m finding this affidavit to being giving me more anxiety than it really should. So, which do I choose and what are the implications of any or all of the choices above? Also, I saw something above about having the ability to purchase items, tax-free, but I don’t know if any of the above are one of the things I could or should file that would allow that. HELP!!!

    Thank you,
    Chris

  4. Carol Topp says

    Chris, I am not familiar enough with California’s homeschool laws to guide you.
    I recommend you contact the CA Department of Education or a local or state-wide homeschool group in CA and ask for their guidance.

    As I discuss here, an individual family cannot be a 501(c)(3) organization, so option 1 is eliminated.

    Carol Topp, CPA

  5. We already have a non profit organization.
    We feed the homeless and give out care packages to the community.
    We want to know can we do a homeschool also

  6. Carol Topp says

    Probably not. From what you stated, your mission (what the IRS calls your exempt function) is feeding the homeless and giving care packages to the needy in your community. That’s very admirable, but does not include of the education of children.
    You were granted 501c3 status for some specific purpose and from what you told me education is not one of those purposes for which your were grated 501c3 status.

  7. We are trying to form a private school and already have our 501 c 3 tax exemption we offer educational services to at risk students through academic support and mentoring afterschool. We are seeking to establish a private school as an alternative solution to parents. Do we need to change anything with the IRS before we establish the private school option?

  8. Carol Topp says

    You asked, “Do we need to change anything with the IRS before we establish the private school option?” That depends on what you told the IRS when you originally applied for 501c3 status (on Form 1023). On the Form 1023 the IRS specifically asks in Part VIII, Line 19 “Do you or will you operate a school?” Schools have to provide additional information on Schedule B of the Form 1023.

    If you answered No to question 19, you will have to request specific permission from the IRS to expand your mission to start a school.

    This blog post addresses your situation. The Challenges of Expanding Your Nonprofit

    IRS Publication 4221 explains when you need to report changes to the IRS. Look at page 23; it states,

    “If a public charity is unsure about whether a proposed change in its purposes or activities is consistent with its status as an exempt organization or as a public charity, it may want to request a private letter ruling.”

    I suggest you read more about IRS private letter rulings. They can be expensive and you’ll need professional guidance, probably from a tax attorney or CPA with a specialty in private schools.

    I specialize in helping homeschool organizations so I am not the best person to help you with a private letter ruling to start your school.

    Carol Topp, CPA
    HomeschoolCPA.com

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