IRS reinstates 501c3 status for homeschool music program

I am so pleased and relieved to announce that First Colony Homeschool Ensembles (FCHA) in Texas has had their 501c3 tax exempt status reinstated!

This case was particularly complex.

Over a year ago FCHA contacted me. FCHA had applied for and been granted 501c3 status back in 2016, but the CPA helping them incorrectly told the IRS that FCHA was a private foundation. They are not; they are a public charity because their support comes from member families, not a single wealthy individual.

Additionally, FCHA had no idea they needed to file annual reports with the IRS (the CPA never told them), so their 501c3 status was revoked after three years in 2020. We hoped that the IRS would reinstate FCHA’s 501c3 status and reclassify them as a public charity at the same time. Otherwise, FCHA was looking at a hefty $500 fee to get the private foundation classification corrected and may have to file prior year tax returns as well. 🙁

I had not tried to both reinstate 501c3 status AND switch to public charity at the same time.

But it worked! After a long wait (9 months) the IRS requested additional information which FCHA promptly and easily gave them, and the IRS reinstated 501c3 status and correctly classified FCHA as a public charity!

It was a long, slow process, but ended as we hoped! Now FCHA can continue serving homeschool families in Texas assured they are correctly classified as a 501c3 tax exempt organization.


Does your homeschool group need help with applying for 501c3 tax exempt status? HomeschoolCPA is here to help. Start by reading The IRS and Your Homeschool Organization.

Have questions? Contact us today and we can set up a phone or Zoom consultation.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Political restrictions on 501c3 status. Should homeschool group not get 501c3 status?

Do you have an article on the pros and cons of tax exemption? I’m thinking we would like to just incorporate with the state and not apply for tax exemption. I don’t like the restrictions on endorsements for tax exemption.
-Gretchen

Dear Gretchen,

Most homeschool groups apply for 501c3 tax exempt status as educational organization for the benefits it brings.

Main pros of 501c3 status are:

1. Tax exemption. Not paying federal or state income tax. Sometimes exempt on state sales tax and property tax too.

2. Can accept tax deductible donations

3. Discounts and some programs only available to 501c3s like Box Tops, TechSoup software, use of libraries, churches, etc.

Main cons are:

1. Time and money to apply and maintain tax exempt status (but paying taxes takes time and money too!)

2. No endorsement of candidates for public office

It’s this last issue that concerns Gretchen. She wants her homeschool group to be able to endorse political candidates. But endorsing political candidates is prohibited by 501c3 organizations.

501c3 nonprofits can lobby on behalf of legislation, but endorsing a candidate is not allowed. I for one would not want my local homeschool group to endorse a candidate. It can be too divisive. Of course, any member can endorse a candidate, just not the organization.

The reason for this restriction is so that tax deductible donations that the 501c3 nonprofit receives will not be used for political campaigns. The donations are to be used for the nonprofit’s mission, but not to bolster the coffers of a political candidate. Additionally, American taxpayers can contribute to a candidate, but the IRS does not think that entitles them to a tax deduction. I agree with this reasoning. I don’t think nonprofits with 501c3 status should be using their funds or time to support a political candidate.

Most homeschool organizations find they can live with this limitation and enjoy the benefits of 501c3 status.

Some state-wide homeschool groups have tax exempt status as 501c4 Public Benefit Organizations so that they can endorse homeschool friendly candidates. 501c4 Public Benefit Organizations can be politically active and endorse candidates, but contributions to a 501c4 Public Benefit Organizations are not tax deductible donations.


For more information on the advantages and disadvantages of 501c3 tax exempt status for homeschool groups, please read:

Start with Do we need 501c3 status?
My book The IRS and Your Homeschool Organization


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

My homeschool group wants to be a 508 PMA not a 501c3. Can you help?

Hi, we are creating a homeschool pod. I was wondering if you think 501c3 or 508 is better for us. We would like to be a PMA.

Hello, I am interested in a conference call. We are looking at getting a 508(c)(1)(a). Have you experience with these?


I have been hearing from homeschool leaders like the two above about PMAs (Private Membership Associations) and 508 status for a few months.

I am familiar with Internal Revenue Code 508(c)(1)(a) . It is not a tax status by itself. For example I never hear, “I want to be a 508c1a” like I hear “I want to be a 501c3”. 501(c)(3) is a part of the IRS code that offers tax exempt status to qualified nonprofits including churches, charities, and educational organizations including most homeschool groups.

Instead, IRC 508, and specifically 508 (c)(1)(A), is a section of the IRS Code explains when a 501(c)(3) nonprofit organization does not have to officially apply for 501(c)(3) status.

The IRS gives “self declared” tax exempt status ability to two groups:

  1. churches
  2. tiny nonprofit organizations with less than $5,000/year in revenues

So when someone says they want to be a “508”, I have to ask:
“Do you plan to form a church?” I do not support the view that homeschool groups qualify to be churches (although some churches operate homeschool groups). But many homeschool groups have a religious purpose without being a church.
“Will your homeschool group be that tiny?” It’s pretty hard to operate with less than $5,000 in revenues per year unless everyone is a volunteer and fees (especially rent) are minimal.

If the homeschool group will have revenues of less that $5,000/year then section 508 (c)(1)(A) allows them to self declare 501(c)(3) tax exempt status. How to self declare your 501c3 tax exempt status. They should not call themselves a “508.” 508 is not a tax status. It is a clarification of the tax code that applies to qualified 501c3 organizations (churches and tiny organizations). There is no such thing as a “508” nonprofit organization. They are a 501c3 organizations (churches and tiny nonprofits) that self declared their tax exempt status.


There seem to be several blogs, websites and YouTube videos that promote IRC 508(c)(1)(a) as a status offering some hard-to-believe advantages such as :

  • no government intrusion
  • “true” separation of church and state
  • Not “signing away the rights of a organization or church to the IRS bureaucracy”
  • Free to serve God as a recognized minister of the Gospel of Jesus Christ

These advantages are not mentioned in IRC 508(c)(1)(a). Read it for yourself. It is actually quite narrow in scope and does not offer lofty, vague promises like freedom from government intrusion.


I find a lot of incomplete and even somewhat misleading information about IRC 508(c)(1)(a) on websites and videos about Private Membership Associations (PMAs) that I have been reading and watching.

Please read the IRS code yourself and maintain healthy skepticism when something sounds too good to be true.

It usually is.


I’ll post a separate blog post about PMAs Private Membership Associations and the research of three court cases where claiming to be a PMA did not allow the business owner to operate outside the law.

Of you have more questions, please Contact HomeschoolCPA. We can set up a phone consultation or Zoom meeting to discuss your homeschool group’s questions.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Maintaining your tax exempt: IRS virtual workshop

I’ve attended lots of training by the IRS for nonprofit and tax exempt organizations. They are usually informative, but a little dull. The IRS training modules (videos, virtual workshops, live and virtual conferences, and lots of documents) apply to all sorts of nonprofit organizations, large and small. That’s why I created books, podcasts and webinars specifically for homeschool nonprofits.

But I recently found a few IRS training videos that were pretty good! One in particular on maintaining your tax exempt status was informative, interactive and easy to follow. This virtual workshop runs for 30 minutes and covers:

  • The IRS Form 990 annual exempt organization returns
  • Record keeping needed to prepare the Form 990
  • Unrelated business income tax filings
  • Public disclosure requirements
  • Prohibited political activities
  • Private benefit and inurement

I am asked about these topics all the time, so now you can get the information from the source: the IRS!

Maintaining Your Tax Exempt Status (IRS virtual workshop)

(if you’d rather read this information, a transcript is provided as well)


The IRS website called Stay Exempt has lots of other virtual workshops for small and medium-sized organizations. Click on any topic on the top menu that fits your circumstances such as Starting Out or Existing Organizations.

I think you will find them helpful and worth your time.

If you find any of the IRS information confusing and wonder if it applies to your homeschool group, please contact HomeschoolCPA. We can arrange a phone consultation or Zoom meeting to discuss your particular situation.


Carol Topp, CPA

HomeschoolCPA.com

How the IRS sees homeschool groups (podcast)

IRS and homeschool groups

UPDATE: This podcast episode originally aired in 2015. But it is still accurate and helpful in 2021, 6 years later!

In this episode of the Dollars and Sense Show podcast, host Carol Topp continues her topic “Who’s Afraid of the IRS?” and discusses how the IRS sees homeschool co-ops, nonprofit incorporation, for-profit homeschool groups, and what happen when a nonporift loses its 501(c)(3) tax exempt status.

Listen to the podcast

Listen to the first part of this presentation where Carol discussed homeschool support groups as IRS 501(c)(7) Social Clubs and co-ops as 501c3 Educational organizations.

Get a copy of the handout.

More information

Carol mentioned the article “Do You Know About IRS Required Filings for Homeschool Organizations?” Get it here.

Carol’s book, The IRS and Your Homeschool Organization, is available here.

The IRS and Your Homeschool Organization

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Do Articles of Incorporation have to be submitted if we’re not a nonprofit/501c3?

We are a group of families that came together last year to work collectively in sharing the role of teaching each other’s children one day a week. We have lots of interested families that want to join us next year. I’m thinking Co-Op is the way to go, but I’m still not sure of the road ahead. We have 5 Board members and are working on Bylaws now.

The Articles of Incorporation are not clear to me. Do they have to be submitted outside the Co-Op if we are not Non-Profit/501c3?

As soon as you have a board, mission, and bylaws your organization IS a nonprofit organization! Congratulations! It is an unincorporated association, but it is still a nonprofit organization.

Filing to be a nonprofit corporation in your state is another, more formal step that I highly recommend to homeschool co-ops (who are high risk operations) for all its benefits, mainly limited liability for your board and all members. Unincorporated associations have no such liability protection for their members or leaders.

These articles from my website should help:
Do we need to Incorporate?

5 Great Reasons to Incorporate

Like many people, you are mixing the concepts of nonprofit status and tax exempt status. It can be confusing! This short video should help: Is my homeschool group a nonprofit? short video





To be clear:

  • unincorporated association status and nonprofit corporate status are defined and granted at the state level. They are legal entities.
  • 501c3 is a tax status granted by the IRS to qualified unincorporated associations and nonprofit corporations.
  • The co-op is a program operated by the unincorporated association or nonprofit corporation.

So when you ask, “do they (Articles of Incorporation) have to be submitted outside the Co-Op if we are not Non-Profit/501c3,” it would really better be asked like this:

“When should the nonprofit organization we just started consider filing Articles of Incorporation? We run a high risk program: a homeschool co-op with lots of children and families and are worried about potential liabilities. We also want to know the advantages of 501c3 tax exempt status for our nonprofit organization.”

See the difference the word choice makes? Words are important and using the correct terminology helps you understand these confusing concepts. 🙂


I am very careful with my terminology; I am careful to say “nonprofit organization” or “501c3 tax exempt status” when I mean different concepts.


I think my Homeschool Co-ops book would be helpful at this point.

And perhaps my webpage of Articles and some podcast episodes.

Or my webinar on Create a Nonprofit for your Homeschool Community would be helpful at this stage as well.

If you still have questions (and you probably will!) I would be happy to arrange a phone consultation with you. Contact me.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Homeschool group has victory with the IRS!

In a previous blog post I explained that the the IRS was going to deny 501c3 tax exempt status to a homeschool group, Sursum Corda in Southern California. The IRS employee claimed that this group of 35 families is only serving themselves and not serving a “public interest.”

I am happy to announce that after several weeks, the homeschool group received a letter stating that the IRS has determined they are tax exempt under 501c3 of the IRS Code! Yeah!

Victory for them and for all homeschool groups.

What helped convince the IRS that this homeschool group served a public interest?
In my 5 page fax to the IRS I outlined several key points:

  • Sursum Corda Community serves a public interest with activities that serve any and all homeschool families in three large counties, it primarily benefits children, a “charitable class,” and Sursum Corda serves the community at large in two ways: service projects and community-wide educational events (I think their service to the broader community was a very important factor with the IRS)
  • Sursum Corda is not exclusive; there is no significant private benefit; there is no inurement
  • Rev Ruling 69-175 is not applicable to Sursum Corda because they are not seeking 501(c)(3) status for parents’ personal expenses; Sursum Corda’s expenses are for the organization’s activities, not for the parents’ personal homeschool expenses.
  • Other cases of 501c3 status denied to charter schools is not applicable to Sursum Corda
  • Hundreds of homeschool organizations have 501c3 status

I concluded with this:

Sursum Corda Community, Inc. has an exempt purpose that serves a public interest, the education of children and parents and service to the larger community, and does not give significant private benefit to individuals. It is eligible for 501(c)(3) status and we look forward to the IRS determination letter.

Letter to IRS by Carol Topp, CPA

It’s hard to say what points changed the IRS’s mind, but I am grateful that HomeschoolCPA made a successful argument on behalf of Sursum Corda and all homeschool groups!

A special thanks to several nonprofit experts and several attorneys with Christian Home Educators Assoc of California (CHEA) and Home School Legal Defense Assoc (HSLDA) for their time in reviewing my response to the IRS. I greatly appreciate it!


HomeschoolCPA has two resources to help your homeschool organization apply for 501c3 tax exempt status
The IRS and Your Homeschool Organization book and the 501c3 Application webinar.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

IRS threatens to deny 501c3 status to homeschool group

UPDATE: The IRS sent the homeschool group their 501c3 tax determination latter on July 19, 2021! Victory! Read more to learn what HomeschoolCPA wrote to the IRS to change their mind.

It’s my worst nightmare: The IRS denying one of my homeschool clients 501c3 status.

As a CPA who has helped over 200 homeschool organizations apply for 501c3 tax exempt status over the past 20 years, I have never had a client be denied tax exempt status by the IRS. Until May 2021.

An IRS employee is considering denying 501c3 status to my client, a small homeschool co-op in California. She is claiming that this group of 35 families is only serving themselves and not serving a “public interest.”

This could set a very bad precedent if homeschool nonprofits are denied 501c3 tax exempt status.

While on a phone call with the IRS specialist, I explained that homeschool groups are a lot like private schools, offering classes, etc and that some private schools are smaller than 35 families.

She said,
“Yes, but you homeschoolers want a tax break.”

IRS Exempt Organization employee on phone call on May 17, 2021

Wait! What? Did I hear her correctly? I informed the IRS that there are no federal tax breaks for homeschool families.

She then went on to explain that I needed to read Rev Ruling 69-175 because that is her basis for denying 501c3 tax exempt status to a homeschool group.

I contacted HSLDA and CHEA of California for their assistance. Then I got to work researching, reading, studying and writing. I had four attorneys and three other experts in nonprofit tax exempt status read my document.

I faxed the IRS a 5-page document with facts and details how a homeschool co-op is broadly serving the community and not just private interests. I also explained why Rev Rul 69-175 does not apply to this client’s situation.

As of June 17, 2021 we have not received the IRS determination.

I’ll update this post when we hear back.


I’d like to ask for prayers for clarity of thinking for the IRS and a favorable reply for this homeschool co-op and all homeschool groups applying for 501c3 tax exempt status.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Convert your homeschool group to a nonprofit corporation and keep your EIN!

We started as a homeschool group in 1998. I don’t think any bylaws or articles of incorporation were ever filed. So we were just an unincorporated association, as I leaned from reading your books. We are now adding classes to our program and want to move through the process of filing to be tax exempt as a 501c3. We will file Articles of Incorporation to re-form as a nonprofit corporation.

Should I file for a new EIN or just use the current one?

Lisa in California

Lisa,

Lisa’s homeschool group was an unincorporated nonprofit organization that now wants the benefits of limited liability for her members and board that nonprofit incorporation offers.

For years I told small homeschool groups:


“If you decide to incorporate as a nonprofit corporation in your state, then you must get a new Employer Identification Number (EIN) because you have formed a new, legal entity. It’s like a new baby was born and that new baby needs a new Social Security Number.

But now the IRS lets nonprofit organizations keep their EIN if they are just converting from an unincorporated association to a nonprofit corporation and not changing their “business structure,” meaning you were operating as a nonprofit organization (with a board, bylaws and a nonprofit purpose) and will continue to do so.

To use my baby and Social Security Number analogy: it’s like Lisa’s baby decided to grow up. It looks different now, but it is the same child and can keep its original Social Security Number. Lisa’s homeschool group “grew up,” but is still the same organization. It can convert to a nonprofit corporation and still keep it’s original EIN with the IRS.

The IRS website says:

“You will not be required to obtain a new EIN if any of the following statements are true….
Conversion at the state level (to be a corporation) with business structure remaining unchanged.”

Source: IRS.gov Do you need a new EIN.

So, you don’t need a new EIN if your unincorporated association converts to be a nonprofit corporation! That’s saves a lot of hassle!

But if your homeschool group is a for-profit business, owned by someone, like a Classical Conversations Community owned by the CC Director, then the business structure has changed and you’ll need a new EIN for the new nonprofit corporation.


My book The IRS and Your Homeschool Organization: Tax exempt Status for Homeschool Organizations will be very helpful as you apply for 501c3 tax exempt status.

If you have questions about nonprofit incorporation, 501c3 tax exempt status, or running your homeschool group, contact me.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Paying a homeschool leader to start business and benefit the homeschool group

We are a new unincorporated nonprofit association and our Director has applied to become a notary. Can we use our fundraising funds to cover the cost for her to become a notary?

She would be offering complimentary notary services to all our members. We would charging a fee for notary services for people who are not members of our homeschool group. What are the legal ramifications for this?

Thank you for your time and assistance!

TA in Illinois

Dear TA,

Thank you for contacting me.

Your homeschool group should not pay for the Director to become a notary. That’s like your homeschool group paying for someone to attend medical school if they promise to give free physical exams to all members. No! Okay, that’s an extreme example, but you get the idea. 🙂

Your homeschool organization’s purpose is educational, not to fund someone’s business.

Becoming a notary is a business expense for an individual and your nonprofit should not be paying personal, business expenses for an individual.

The IRS could see this as “inurement” which is when the assets of a nonprofit (the money from fundraising) flows to benefit an individual. Sometimes it’s better called “private benefit” or “self-dealing.” Inurement is strictly forbidden by the IRS and could cause your organization to lose its tax exempt status. That’s a pretty serious legal ramification!

Don’t pay for the leader’s personal expenses to become a notary with the nonprofit’s funds.

Additionally, making money by charging nonmembers for services that are not related to your purpose (education) is called Unrelated Business Income and is subject to income tax. So that’s a financial ramification on your Director’s idea.

I discuss unrelated business income and the tax here: What is Unrelated Business Income Tax?

And in this podcast episode:
What is Unrelated Business Income Tax or UBIT? (podcast)

I hope that helps!

Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders