Carol,
Does my homeschool support group really need to apply to 501(c)(3) tax exempt status with the IRS? It seems like a lot of time and money. We have a small budget and we don’t accept tax deductible donations.
Can’t we just operate as we are?
You described your group as a support group, meaning you exists for the benefit of the members and you do not accept or plan to seek tax deductible donations.
Many larger homeschool organizations, especially co-ops that have an educational function and not just a support group purpose, seek 501(c)(3) tax exempt status for its many benefits:
- tax exemption
- ability to accept tax deductible donations
- ability to participate in fund raisers only open to 501(c)(3) charities
See my article Do we need 501c3 status?
But homeschool support groups are different. They don’t hold classes; they focus on fellowship. Support groups don’t accept donations; they get all their income from membership dues and maybe a little bit of fund raising.
I attended an IRS webinar and asked your question. Here’s what the IRS said:
It is true the Tax Reform Act of 1969 requirement to “give notice,” (to apply for recognition of tax-exempt status) applies only to organizations wanting section 501(c)(3) status.
So, although other types of organizations are not required to file Form 1024, they may still wish to do so in order to receive a determination letter of IRS recognition of their status. Having the determination letter ensures public recognition of their status and may enable exemption from some state taxes.
Also, even though an organization may “self-proclaim” its tax-exempt status, it is still subject to the rules governing its particular sub-section. It is also subject to IRS examination to determine whether it meets the requirements for the exemption it is claiming.
Translation:
If your organization wished to obtain 501(c)(3) tax exempt status, then you must file an application for that. I can help . See my Services page
If instead, your group fits the criteria of a social club (what the IRS calls a 501(c)(7)), then your organization can “self-proclaim” that you are tax exempt without filing the paperwork.
But you still have to obey the rules and fit the IRS definition of a social club.
What it takes to be classified as a 501(c)(7) Social Club
And you don’t have a nice letter from the IRS to prove that you are tax exempt.
So there you have it…most homeschool support groups, if they operate as a social club, can be considered tax exempt without going through the time and expense of tax exempt application with the IRS.
P.S. But even if your group does not have to file the application paperwork (Form 1023 or 1024), your organization must still file an annual information return called a Form 990/ 990EZ or the simple on-line Form 990N with the IRS. Read more here: IRS Form 990N FAQ
Carol Topp, CPA
Hi! I’m wanting to set up a co-op providing classes with paid teachers for Middle School and Highscool Homeschoolers. A large group of parents have been doing this informally this year. We probably represent 30 families. We have a church location and will provide around 15-20 classes a week. Would it be wise or even possible to attain tax exempt status now, or should we wait a year to see what our budget is?
Thanks so much!
Chelsea,
It is possible to obtain tax exempt status in the first days of operation. Usually homeschool leaders are so busy organizing a board, bylaws, policies, etc that they put off filing for tax exempt status for the first year. This gives them time to gather the information, especially a financial history, that the IRS expects to see.
It’s also a good idea to plan ahead for the IRS filing fees of $400 or $800 and nonproft incorporation fees (vary by state but typically $25-$150).
The IRS does expect your organization to file for tax exempt status with in 27 months of formation, so don’t wait too long!
Carol Topp, CPA
Hi Carol,
“If you instead consider yourself a social club (what the IRS calls a 501(c)(7)), then your organization can “self-proclaim” that you are tax exempt without filing the paperwork.”
Could you clarify more on this statement? when you mean, “without filing paperwork”, is IRS is letting 501c7s operate without filing for tax exempt status within 27 months no matter their income requirement?
This seems different from the past where all groups whether you want 501c3 or 501c7 had to file within 27 months if their income is above $5000. Is this new information based on your talk with the IRS?
Teri (I had a consult with you before 🙂
Only 501(c)(3)’s are required to file for tax exempt status if their revenues were over $5,000 annually.
I could not find any dollar threshold for 501(c)(7) Social Clubs. That’s why I asked the IRS directly.
I have a new blog post explaining the criteria to be a self-proclaimed 501(c)(7) Social Club.
https://homeschoolcpa.com/are-homeschool-support-groups-automatically-tax-exempt/
Most homeschool support groups probably fit the Social Club criteria.
Most homeschool co-ops still fall under the definition of 501(c)(3) status because of their educational purpose.