I am organizing a history tour of the East Coast for some homeschooling families. We would like to do some fundraising to help us with the cost of the tour (most businesses require an EIN to participate with their fundraiser programs). Is it okay for me to apply for an EIN, have the families fund raise and then distribute the funds to them?
Thank you for your help!
I am assuming you would declare your group as a nonprofit on your EIN application. If so, it would not be appropriate to distribute your fundraising proceeds to each family. That is because the purpose of a nonprofit its to serve some greater good, not the personal interests of individuals who stand to gain. I’ve covered this issue in several blog posts on fund raising. https://homeschoolcpa.com/the-irs-and-fund-raising/
Simply checking a box “Nonprofit” on the EIN doesn’t make your organization a nonprofit organization! Nonprofits are established under state laws and require a board of directors and bylaws at a minimum. See Nonprofit Governance by State.
If instead the families formed as a partnership, then it would be appropriate to distribute the “profits” of a fundraiser, because that’s what a partnership does: it distributes its profits to the partners. Each partner would include the income and expenses from the partnership on their personal income tax returns. Unfortunately, I’m not sure you want to set up a partnership for a single fund raiser. The tax forms are quite complicated and require professional help.
An individual family could hold a fundraiser, but the proceeds and expenses must be declared as income (probably business income, Schedule C of Form 1040) on their personal tax return.
Fund raisers may not be tax free!
You see, just because something is called a fund raiser does not mean it is tax free income. Usually fund raisers are held by churches, schools, and nonprofit organization (Boy Scouts, etc). These organizations all have nonprofit status in their states and tax exempt status with the IRS and their states, so they don’t pay taxes on the “profits” from fundraisers.
A group of parents who gather together to do a fund raiser to pay for a vacation (even if it is educational) will not be granted tax exempt status and so the proceeds of any fundraising is considered taxable income to the parents.
So my bottom line is this: you should not apply for an EIN unless you are willing to form a nonprofit organization first. Here are the steps involved. I doubt you want to do that for one single event: the trip.
Or you could conduct the fundraiser as a business, but all of the members will pay taxes on the proceeds of the fund raiser. Get professional help in preparing the tax return.
In the end, it is not likely that a fundraiser for a group of families to go sightseeing will raise much money.
This is probably not what you wanted to hear…
Carol Topp, CPA
Helping Homeschool Leaders