What does it cost to get tax exempt status?

How much does it cost to be a 501c3? My homeschool group is new and we don’t have a lot of money.
-Homeschool leader

 

Dear homeschool leader,

It’s not as expensive to apply for 501c3 tax exempt status as it used to be, especially if your organization is small (revenues less than $50,000/year) and is eligible to file the shorter IRS Form 1023-EZ.

Here’s an explanation of the cost to get 501c3 status from my webinar on 501c3 Application for Homeschool Nonprofits

This webinar (90 minutes total length) will explain the benefits of tax exempt status, the application process and walk you through the application Form 1023-EZ line-by-line. At the end of the webinar you’ll be equipped to apply for tax exempt status by yourself. The cost of the webinar is $25.

 

Get more information on the webinar 501c3 Application for Homeschool Nonprofits

 

Carol Topp, CPA

HomeschoolCPA.com

Can my individual homeschool have a fund raiser?

Can we (an individual homeschool) be allowed to do fund raising similar to youth sports groups, scouts,etc?

What a good question. In general I say, Yes, you can participate in a fund raiser if the fund raising organization allows it. BUT, the profit you make is taxable income and you’ll need to report it on your tax return.

Another homeschooling mom e-mailed me with a similar question:

With 6 children needing school curriculum, we are coming up short in finances. We contacted a calendar company that said it would be permissible for us to sell calendars as a fund raiser for our homeschool. We accepted personal checks made out to our homeschool name (that we registered with the state school board, considered a non-profit private school). We do not have a checking account with our homeschool name on it. Therefore, we have no way to deposit them.

What is your advice to us? The checks amounted to $90. Is this method acceptable to continue as long as we pay taxes on it? Mrs. W.

By selling calendars Mrs W. was operating a small for-profit business. She is free to use the profit of the small business for anything she wishes, including homeschool books and supplies. Since Mrs W. didn’t mention what state she was in, I cannot determine if her state requires business registration. Many states do not require any type of registration for a sole proprietorship using your own name. You may have to file a name registration with your Secretary of State to establish a business name.

To deposit these checks Mrs W. needs to open a checking account in the homeschool’s name. You’ll have to get an EIN number from the IRS at www.irs.gov. You can then spend the money in the checking account on homeschool supplies and close it or keep a small amount in it until next year.

Mrs W. should report the $90 as income on her tax return as either Other Income on line 21 of the 1040 or on Schedule C Business Income if she had expenses from the sale of the calendars (postage, mileage, etc…)

Quite a lot of work for a $90 fund raiser, huh?

Before you try a fund raiser for you individual family homeschool make sure its worth the effort of getting a business name, EIN, and checking account.

Is it worth the time and effort for the money you will raise?
Maybe try having a garage sale or sell something to bring in income instead!

My book Money Management in a Homeschool Organization covers fundraising and offers some ideas for easy fundraisers.

 

Carol Topp, CPA
HomeschoolCPA.com

Homeschool groups and fundraisers. Do you know what your state requires?

Michelle asked a question about fund raisers in a homeschool group:

Hi Carol,
We have had fund raisers in the past (Butterbraids, a frozen pastry) and have made approx. $1,500 doing that fund raiser. We had a cooking class that prepared hot lunches and the co-op made money on those. We will have less than $100 left in the check book. We have a Fed ID #. What do we do? What about next year? Is fund raising not a good idea for us as you say in your website? We thought about charging more for membership (we charge $35/ yr now) and if people wanted to do individual fund raisers that would be up to each family. What do you think? Thank you so much for your help to the homeschool community and for whatever answers you can give us.
Sincerely,
Michelle P

Dear Michelle,

Did I say fund raising is not a good idea? I didn’t mean to. Hopefully, I just warned groups that fund raising can be a lot of work.

Charitable Solicitation filings 
If you hold fundraisers by selling products to the public (outside your own membership) you may need to report your “solicitation” to your state, typically the Attorney General’s office.

In my home state of Ohio, nonprofits have to file a Charity Registration form if they do fund raising to the public. One year my homeschool co-op sold candles door to door and had to file a seven-page financial report with Ohio’s Attorney General Office. That report was such a nuisance (and the fund raiser was so much work) that the co-op no longer does sales to the public.

Investigate what your state requires from groups doing fund raisers. These websites have information on nonprofit reporting requirements by state:

https://www.hurwitasociates.com/

https://www.harborcompliance.com/fundraising-registration

In general I encourage groups to get most of their income from membership fees and not depend too much on fund raising. Fund raising can be very successful or turn out very poorly. It is also a lot of work with sometimes only a few people doing all the work.

Individual fundraisers

I’m not sure what you mean by “individual fund raisers.” I do know that it is not proper to “award” a family for raising more money than another family, nor is it proper to set up individual accounts. It’s not right because it is not in keeping with the nonprofit motive or with the idea of a group benefit. In short, individuals are not supposed to benefit; the group is supposed to benefit.

 

My book Money Management in a Homeschool Organization covers fundraising and offers some ideas for easy fundraisers.

 

Are you up to date on your state filing requirements for your homeschool nonprofit organization? Do you even know that your state may require annual reports?

Most states require some reporting from nonprofit organizations on an annual basis. My webinar on IRS and State Filings for Homeschool Nonprofits will explain the state reports and help you research your state’s requirements.

 

 

Carol Topp, CPA

HomeschoolCPA.com

Still time to join the IRS and State Filings for Homeschool Nonprofits webinar

 

Carol Topp, the Homeschool CPA, will help you understand the IRS and state reports and file them yourself! In her webinar IRS and State Filings for Homeschool Nonprofits, Carol will explain the IRS annual returns and how to determine what your state may require as well.

You will learn:

  • The importance of maintaining 501c3 tax exempt status
  • The IRS Form 990 series. What form your group needs to file.
  • How to know if you’ve missed filing IRS returns
  • How to see Form 990-EZs and 990s from other nonprofits.
  • An explanation of the IRS Form 990-N.
  • What filings may be required by your state with examples

The live webinar will be TOMORROW evening Wednesday August 21, 2019 at 8 pm ET/7 pm CT/6 pm MT/5 pm PT

The webinar will last approximately one hour. There will be time for your questions. It will be recorded for viewing later.

The cost is $10 and you will receive:

  • Access to the live webinar on Wednesday August 21, 2019
  • An opportunity to ask questions via the live chat room
  • Handout of the slides
  • Recording to the webinar
  • IRS Forms, Instructions and samples
  • Template to summarize your state and IRS filing requirements for your board

 

I hope you can join me TOMORROW evening Wednesday August 21, 2019 at 8 pm ET.

 

Carol Topp, CPA

HomeschoolCPA.com

What do you do after your homeschool group has tax exempt status?

Getting 501c3 tax exempt status is a great accomplishment! If you’ve done it, congratulations!

But you’re not finished with government forms just yet! Your state and the IRS have several reports that must be filed regularly to maintain that precious tax exempt stats.

Almost every homeschool group will have some reporting with the IRS and their state.

Carol Topp, the Homeschool CPA, will help you understand the IRS and state reports and file them yourself! In her webinar IRS and State Filings for Homeschool Nonprofits, Carol will explain the IRS annual returns and how to determine what your state may require as well.

You will learn:

  • The importance of maintaining 501c3 tax exempt status
  • The IRS Form 990 series. What form your group needs to file.
  • How to know if you’ve missed filing IRS returns
  • How to see Form 990-EZs and 990s from other nonprofits.
  • An explanation of the IRS Form 990-N.
  • What filings may be required by your state with examples

The live webinar will be on Wednesday August 21, 2019 at 8 pm ET/7 pm CT/6 pm MT/5 pm PT

The webinar will last approximately one hour. There will be time for your questions. It will be recorded for viewing later.

The cost is $10 and you will receive:

  • Access to the live webinar on Wednesday August 21, 2019
  • An opportunity to ask questions via the live chat room
  • Handout of the slides
  • Recording to the webinar
  • IRS Forms, Instructions and samples
  • Template to summarize your state and IRS filing requirements for your board

 

More information at HomeschoolCPA.com/Filings

 

Carol Topp, CPA

Webinar: IRS and State Filings for Homeschool Groups

Getting 501c3 tax exempt status is a great accomplishment! If you’ve done that, congratulations!

But don’t think you are done with government forms just yet! Your state and the IRS have several reports that must be filed regularly to maintain your precious tax exempt stats.

Carol Topp, CPA the HomeschoolCPA has helped over 100 homeschool organizations apply for tax exempt status. She has prepared a webinar on IRS and State Filings for Homeschool Nonprofits. Carol explains the IRS annual reports for tax exempt nonprofits and how you can know what your state requires.

You will learn:

  • The importance of maintaining 501c3 tax exempt status
  • The IRS Form 990 series. What form your group needs to file.
  • How to know if you’ve missed filing IRS returns
  • How to see Form 990-EZs and 990s from other nonprofits.
  • An explanation of the IRS Form 990-N.
  • What filings may be required by your state with examples

After the webinar you will be equipped to file on your own the IRS Form 990-N and state forms saving you hundreds of dollars in professional fees.

 


This webinar is the third in a series of 3 webinar to teach homeschool nonprofit leaders how to create a nonprofit, get and maintain tax exempt status. The other two webinars are:

I highly recommend you watch the first two webinars on Create a Nonprofit for Your Homeschool Community and 501c3 Application for Homeschool Nonprofits. They are both a precursor to this webinar and tells you what to do to create a nonprofit and apply for 501c3 tax exempt status.


 

This third webinar on IRS and State Filings is for Homeschool Nonprofits if for groups that have received (or applied for) for tax exempt status with the IRS and:

  • Are unsure about IRS annual returns
  • Don’t know what forms their state requires from nonprofit organizations
  • Do fundraisers or ask for donations
  • Received a letter from the IRS or their state about missed reports
  • Need to know what to do to maintain their tax exempt status
  • Want to know what it takes to run a compliant nonprofit organization
  • People who want to DIY the IRS and state flings but need an experienced expert to teach them how.

The webinar will last approximately one hour.

The cost is only $10 and you will receive:

  • A recording of the webinar
  • Handout of the slides
  • IRS Users Guide for Form 990-N
  • Blank IRS Form 990-EZ and Instructions
  • Template to summarize your state and IRS filing requirements

 

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders maintain tax exempt status.

How to self declare tax exempt status

In my webinars on Creating a Nonprofit for a Homeschool Community and 501c3 Application for Homeschool Nonprofits, I briefly mentioned that some homeschool groups can self declare tax exempt status.

I didn’t go into detail of HOW to self declare this tax exempt status. This blog post explains the HOW.

Background:

Organizations that are eligible to self declare 501 tax exempt status do not have to apply for tax exempt status with the IRS. So no Form 1023/1023-EZ or 1024 needs to be filed! This saves you time and money! Hooray.

But self-declared tax exempt organizations must still maintain that tax exempt status by filing an annual report with the IRS. This annual filing is Form 990/990-EZ or 990-N.

 

If you are a 501c7 social club:

This status is common for homeschool support groups that focus on social activities and clubs rather than on educational activities

Self declare tax exempt status

Since you have not applied for 501(c)(7) status  (you can “self declare” 501(c)(7) status and don’t have to file the paperwork), you are not in the IRS database (yet) so you will not be able to file the 990-Ns. You will need to call the IRS Customer Account Services at 1-877-829-5500 and be added to their Exempt Organization database so you can begin filing the Form 990-Ns.

It typically takes 6 weeks after you call to be added to the IRS database.

Tips when calling the IRS

Say something like this,

“We’re a brand new 501(c)(7) Social Club and we needed to get added to the IRS exempt organization database so we can start filing our 990-Ns.”

 


If you are a 501c3 Educational Organization

This status is common for tiny homeschool groups including co-ops, tutorials, youth sports, music and arts organizations that focus on educational activities.

Your organization’s total gross revenues must be less than $5,000 per year to be eligible to self declare 501(c)(3) tax exempt status.* 501(c)(7) social clubs mentioned above do not have that $5,000/year limitation. They can have gross revenues of more than $5,000/year and still self-declare tax exempt status.

Read about the difference between 501(c)(7) Social clubs and 501c3 organizations.

Since you have not applied for 501(c)(3) status, you are not in the IRS database (yet) so you will not be able to file the 990-Ns. You will need to call the IRS Customer Account Services at 1-877-829-5500 and be added to their Exempt Organization database so you can begin filing the Form 990-Ns.

Tips when calling the IRS

Say this: “We’re a small 501(c)(3) educational organization with revenues of less than $5,000 per year. We understand we can self-declare our 501(c)(3) tax exempt status. We’d like to get added to the IRS exempt organization database so we can start filing our 990-Ns.”

 

*Note that only 501(c)(3) organizations with less than $5,000 annual gross revenues can “self-declare” their tax exempt status. 501(c)(3) s with more than $5,000/year in revenues must apply for501(c)(3) status using Form 1023 or the new, shorter Form 1023-EZ.


For both  501c7 Social Clubs and 501c3 Educational Organizations

During your call with the IRS, they will ask for your EIN and organization’s name, address, and probably a contact name. Have all that ready before you call.

They may also ask what date your fiscal year ends. Many support groups operate on a calendar year, but some operate on a school year with a year end of June 30 or July 31. You get to pick it!

They may ask if you have “organizing documents.” They mean bylaws, Articles of Association (or Articles of Incorporation). So tell them if you have bylaws or Articles of Association/Articles of Incorporation. Samples can be found here.

Call the IRS early in the morning. They open at 8 am local time and you can usually get through pretty quickly of you call then. Record the date you call, the IRS employee name and their identification number.

Don’t forget to the the 990-N every year!

Be sure you go online to file the Form 990-N anytime after your fiscal year ends and before its due date which is 4 1/2 months after the end of your fiscal year.

So if you operate on a calendar year, the 990-N is due May 15. If your fiscal year ends June 30, the From 990-N is due November 15 every year. File it at IRS.gov/990n

 

Have more questions about your homeschool organization’s tax exempt status? My book, The IRS and Your Homeschool Organization would be a big help.

 

 

 

 

If your 501(c)(3) educational organization grows and has more than $5,000 in revenues per year, it’s time to officially apply for 501(c)(3) tax exempt status.

This webinar 501c3 Application for Homeschool Nonprofits will explain how to do that.

 

Carol Topp, CPA

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Inurement: a funny word the IRS doesn’t like!

The IRS uses an unusual word that most of us don’t know the meaning of: inure or inurement. Here’s how the IRS uses it in their definition of a 501(c)(3) tax exempt organization:

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. (emphasis added)

Source: https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

What does inurement mean?

“Inurement” means “benefit.”  The IRS forbids a tax exempt organization to use its income or assets to directly or indirectly benefit an individual, a person with a close relationship with the organization or a person who is able to exercise significant control over the organization. These can be board members or donors.

Jeramie Fortenberry an attorney, gives an excellent explanation of inurement in his website article “The Inurement Prohibition & Non-Profit Organizations.”

Non-profit organizations are subject to what is known as the nondistribution constraint.  Simply stated, this means that non-profit organizations cannot distribute profits to those who control it.  The nondistribution constraint is the fundamental distinction between non-profit organizations from for-profit organizations.  (emphasis added)

Any time assets of the organization flow through to benefit the organization’s insiders, whether directly or directly, inurement is an issue.

What are some examples of inurement?

  • A nonprofit executive used the organization’s money to pay his child’s college tuition, lease a luxury car for his wife, have his kitchen remodeled, and rent a vacation house at the beach.
  • The CEO at a tax-exempt hospital used charitable assets to pay for personal items such as liquor, china, crystal, perfume, an airplane, and theater tickets.
  • A nonprofit art gallery exhibits artwork created by its members for a fee but grants board members the same service without cost.
  • The nonprofit organization’s sole activity is conducting seminars and lectures based on the program owned by its president and his for-profit company.
  • An educational organization had four board members who voted themselves free tuition to the program for their children. This benefit ranged from $2,000-$4,000 per board member per academic year.

Sources: https://www.nolo.com/legal-encyclopedia/what-is-private-inurement.html and https://boardsource.org/resources/private-benefit-private-inurement-self-dealing/ and https://www.forpurposelaw.com/the-private-benefit-rule-three-more-examples/

What happens if a nonprofit practices inurement?

I would hope inurement would never happen in a homeschool group, by Mr. Fortenbury discusses the IRS’s options against a nonprofit organization.

The inurement restriction is absolute: An organization that violates this prohibition will not qualify (or will cease to qualify) for tax exemption.

In cases involving inurement, the IRS may impose the penalties in lieu of or in addition to the revocation of tax exempt status. 

This system effectively gives the IRS two options to enforce the nondistribution constraint.  In blatant violations of the inurement prohibition, the IRS can both revoke tax exemption and impose monetary penalties under the intermediate sanction regimes. In less severe cases, the IRS may seek to correct the situation through intermediate sanctions alone.

For the full article visit: https://www.fortenberrylaw.com/inurement-prohibition-nonprofit-organizations,

 

So, please homeschool leaders, stay away from inurement (giving benefits or the assets that belongs to the nonprofit) to any insiders (those who exercise control over the organization).

We’re homeschoolers and we’re better than that.

Carol Topp, CPA

Making Sure Your Nonprofit Organization is Compliant

 

A lot of homeschool leaders ask me,

“What do I need to do after my homeschool gets nonprofit or tax exempt status?”

They are asking about being compliant with the laws of our land, both federal and sate.

This article Making Sure your Nonprofit Organization is Compliant from MoneyMinder.com has a great article that explains compliance in these areas:

Tax Exempt Status which includes federal income tax exempt granted by the IRS, and sales tax exemption from your state. Your nonprofit may even be eligible for property tax exemption if your own a building. The laws on sales tax and property tax exemption vary by state.

My article explains the IRS filing requirements Do You Know About Required IRS Filings? for tax exempt organizations.

Register with the State Registration laws vary from state to state but most require you to confirm your active status (especially if you are formed as a nonprofit corporation), contact information, mailing address, and name of board members. This reporting is usually to the Secretary of State’s Office.

Charitable Solicitations
Many states ask that you register before actually asking for donations or fundraising. This registration is usually to the Attorney General’s office in your state.

Donation Receipt Requirements
A donor should be given a receipt for any single contribution of $250 or more. The article gives more details on what your donation receipt should say.

 

To research what your state compliance requirements are visit this helpful website

https://www.harborcompliance.com/information/nonprofit-startup-guide.php

If you wish, I can research your state’s requirements and compose a letter explaining what you should do next for filing in your state. I will charge $50 for the research and letter. Just let me know if I can help you in this way.

 

I hope that helps you know what it takes for your homeschool nonprofit to be compliant in your state and with the IRS.

 

Carol Topp, CPA

HomeschoolCPA.com

FAQ on Property Tax for Churches Hosting Homeschool Programs

FAQ on Property Tax for Churches Hosting Homeschool Programs

By Carol Topp, CPA         HomeschoolCPA.com

Last update April 5, 2019

For a easy-to-print pdf version click here.

Many homeschool groups use churches for their educational programs. These groups are grateful to the churches for allowing homeschoolers to use their building, sometimes without charging rent.

But some homeschool programs are organized and operate as for-profit businesses and that could threaten the church’s property tax exemption. Churches are granted property tax exemption by their states for conducting religious activities or worship services. In most states, a church cannot let their building be used for activities with a “view to profit” or for “pecuniary gain” (gain of monetary value) or the church could lose part or all of its property tax exemption.

 

Here are some frequently asked questions about property tax, churches and homeschool groups.

If my homeschool group is a nonprofit organization, can we use the church building?

Yes, probably. Nonprofits, especially those with a religious purpose, do not have a “view to profit” or engage in activities for “pecuniary gain,” (those phrases are used in several state statues regarding property tax exemption) so they may use church property without posing a threat to the church’s property tax exemption.

What if my business doesn’t make a profit?

The property tax exemption is based on the use of an exempt property (i.e., the church building) by a for-profit business. Exemption is not based on the profitability of the business entity using the church’s property.

If I don’t make a profit from my business, I’m a nonprofit then, right?

No. An organization is only a nonprofit if it is organized (with a board, bylaws, etc.) and operated (with a religious, educational, or charitable purpose) as a nonprofit. What you are is an unprofitable business, but not a nonprofit organization.

I’m not a business; we’re just a bunch of moms gathered together to educate our children.

If you received money and in return offered a service (such as educational classes), then you are operating a business. You are not “just a bunch of moms.”

What if my business doesn’t pay rent to the church?

It is commonly assumed that if a church does not charge rent to a for-profit business, then no income tax would be owed by the church. That is usually correct and refers to unrelated business income tax (UBIT). No income, therefore no income tax to pay.

But income tax and property tax are two separate taxes. The property tax exemption is based on use of the church’s real and personal property, not on any income the church receives from rental activities. Therefore, the fact that a church is generous and does not charge rent to the business owner using the church building, does not change the fact that the church’s property tax exemption is at stake.

Renting out space could incur unrelated business income tax (UBIT). The IRS assesses UBIT on churches and all 501(c)(3) tax exempt nonprofits if they receive income from conducting a business unrelated to the church’s religious purpose. If a church rents space to a for-profit business, the church is conducting a business and may be required to pay UBIT. There are several exceptions to UBIT, so the church should discuss the issue with their CPA.

What if my business gives a love offering or donation to the church?

Calling what you give to the church a “donation” or “love offering” is a simply renaming the payment. Calling your payment a donation does not change the fact that you are giving money to the church in exchange for use of its space. Even if the church does not bill you, it is payment for use of space and not a donation. Be honest. Call it what it is: rent.

Attorney and CPA, Frank Sommerville, says

“Many churches try to disguise rents by using other terminology or by claiming that the other organization is simply giving a donation to the church. Other times the church calls it a “cleanup fee” or tells the tenant to pay the janitor directly for his services. None of these name games work. If any amount is paid by the other organization to the church or the church’s workers, then the IRS and state taxing authorities will likely treat it as rent paid to the church.”

Source:  https://www.wkpz.com/content/files/Use%20of%20Church%20Facilities%20by%20Outside%20Groups.pdf

Will the church lose its 501(c)(3) tax exempt status for hosting a for-profit business?

The church has 501(c)(3) tax exempt status as a religious organization and probably also charitable and educational purposes as well. As long as the church’s activities are exclusively religious, charitable, and/or educational, their 501(c)(3) status is not in jeopardy. But two other issues need to be considered: inurement and unrelated business income tax (UBIT).

The church could lose its 501(c)(3) tax exempt status if they practice inurement. Inurement means “benefit” and includes the transfer or use of property to insiders for less than fair market value. The IRS forbids a 501(c)(3) tax exempt organization to use its income or assets to directly or indirectly benefit an individual, a person with a close relationship with the organization, or a person who is able to exercise significant control over the organization. These “insiders” can be board members or donors and would also include the pastor, leaders, elders, deacons, trustees, and staff and their family members.

Here’s the IRS definition of inurement:

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.

Source: https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

For example, the spouse of a pastor operating his or her for-profit business on the church’s property could threaten the church’s 501(c)(3) tax exempt status because the church may be guilty of inurement.

Inurement is a very serious matter and the IRS has revoked the 501(c)(3) tax exempt status from churches for practicing inurement.

Renting space is a commercial activity and not a religious, charitable or educational activity. So the IRS considers income from renting space as “unrelated business income” and will charge an unrelated business income tax (UBIT) on the profits from the rented space.

Property tax and unrelated business income tax are two separate taxes. Property tax is determined by state laws and administered by local county government. It is an ad valorem tax, meaning based on value. An ad valorem tax is based on the assessed value of an item such as real estate or personal property.

UBIT is determined and administered by the IRS at the federal level. It is a tax based on income, specifically business income unrelated to the exempt purpose of the tax exempt entity. Most churches strive to avoid UBIT and many have policies prohibiting for-profit businesses to rent or use the church’s property to avoid UBIT.

My business has a religious purpose. I’m a Christian, we pray before classes and quote Bible verses. So I fit the religious purposes of the church, right?

Having a religious faith or conducting religious activities such as prayer, Bible teaching, etc. does not mean your business has an exempt religious purpose. As a business, your purpose is to make a profit. Many state statues regarding property tax exemption are specific on what type of entities can claim the religious exemption.

What if the church knows I’m operating a for-profit business and doesn’t mind or doesn’t care?

It is quite rare for a church to knowingly allow a for-profit business use their facilities. The church is putting itself at risk of losing part or all of its property tax exemption. The church may be ignorant of their state’s prohibition against using their tax-exempt property to conduct for-profit activities. Or you may have misrepresented the true nature of your business. Or you may have spoken with a pastor and not the church’s business administrator or board of trustees, who are more aware of the legal and financial matters of the church.

What if my homeschool program is a nonprofit but I hire my teachers/tutors as Independent Contractors? (added April 5, 2019)

Many small nonprofits desire to avoid the hassles of employees and payroll, but hiring workers who provide the key activity of the nonprofit’s purpose (education in the case of a homeschool program), means that these individuals are still conducting their for-profit businesses on the church’s property. That could still threaten the church’s property tax exemption. An educational nonprofit should treat workers (i.e., teachers or tutors) providing the key activity of their nonprofit (education) as employees.

Other workers such as a website designer or outside bookkeeper, who do not provide the primary or key services of the nonprofit, can be treated as Independent Contractor without threatening the church’s property tax exemption.

What if my business is an LLC (Limited Liability Company)?

A single-member LLC taxed as a sole proprietorship is still a for-profit business. If you regularly conduct your for-profit business on the church’s property, it could threaten the church’s property tax exemption.

Isn’t it the responsibility of the church to ask if my homeschool program is a for-profit business?

It is quite unusual for a church to let a for-profit business use their facilities, so they may not have even thought of asking. The church may be ignorant of their state’s prohibition again using their tax-exempt property to conduct for-profit activities. Additionally, you may have misrepresented yourself as “just a bunch of moms” or as a homeschool groups and not disclosed the for-profit nature of the business. You bear responsibility for disclosing the true nature of your business to the church.,

My church houses a bookstore/coffee shop/Weight Watchers, etc.? How is that legal but my homeschool business program is not?

These examples may be for-profit businesses operating in a church and may threaten the property tax exemption of the church. Alternately, the church may be paying property tax on the portion of the building being used by the businesses (if their state allows partial nonexempt use).

How do I know what my state laws say about property tax exemption for churches?

Do an internet search on property tax exemption and your state. Or search this pdf file (466 pages long) from The Civic Federation. https://www.civicfed.org/file/4794/download?token=3ifCi8dI. It lists the property tax laws or each state. After you do a search for state laws, call your local county tax assessor. The state sets the laws, but the local assessor applies the law to specific situations. Ask the assessor about business use of a church’s building affecting property tax exemption.

Our church pastor/deacon/elder’s spouse is the business owner. Is that a problem?

It could be. The church’s 501(c)(3) status makes them exempt from federal income tax and usually state income tax as well. Hosting a for-profit business does not typically threaten the church’s 501(c)(3) tax exempt status, but if the for-profit business is owned by a church “insider” or family member of an insider, the church could be guilty of inurement and that may threaten their 501(c)(3) status. Prohibited inurement includes the transfer or use of property to insiders for less than fair market value.

Aren’t the churches making a big fuss over nothing?

Maybe not. Read this story about a church in Miami, FL that was assessed a $7.1 million dollar property tax bill for conducting a for-profit school on their church property.

https://www.miamiherald.com/news/business/real-estate-news/article222993435.html?fbclid=IwAR2Ehjdp7kYjJQFeJHipP_wBKMXhJfc3U33vi0SNwwBMkqtzudi_dSryE9g

The facts in this case are different from most homeschool programs, but a tax assessor can levy a tax lien against a church for conducting a for-profit business (in this case a Christian school) on the church’s property.

What should I do if I am the business owner?

  • Become informed about the limits on business activities conducted by churches in your state’s property tax exemption laws. This document may help you start your research:https://www.civicfed.org/file/4794/download?token=3ifCi8dIThis pdf file is 466 pages and lists the state statuses for every state. Then do an internet search “YOUR STATE nonprofit property tax exemption” or “YOUR STATE church property tax exemption.”
  • Call the government agency responsible for assessing property tax. In most states that is your local county property tax assessor. In other states, it may be the state department of revenue.  Ask the person with the knowledge and authority to assess property tax, “Can a church let a for-profit business use the church’s building on a regular basis without harming our property tax exemption?” Ask for an assessment to be conducted and an estimate of the property tax to be calculated. Request a written report of their findings and opinion, especially of the county tax assessor declares there is “no problem.” Determine if your business can afford to pay the property tax bill. (expanded to clarify the proper agency to contact on April 5, 2019)
  • Talk to your host church about this issue. Ask what they know about limits on business activity for churches in your state.
  • Consider looking for a location that is not a church or other property tax exempt nonprofit organization.
  • Consider converting your business to a nonprofit organization with a religious and educational purpose. That involves forming a board to operate the program, drafting bylaws, etc. It takes time and money, but then the nonprofit organization could use the church’s space without being concerned about threatening the church’s property tax exemption.
  • Seek competent legal advice on your business’ use of church property regarding property tax exemption, UBIT, and inurement.

What should I do if I am a church leader/pastor/elder, etc.?

  • Call the government agency responsible for assessing property tax. In most states that is your local county property tax assessor. In other states it may be the state department of revenue. Ask the person with the knowledge and authority to assess property tax, “Can a church let a for-profit business use the church’s building on a regular basis without harming the church’s property tax exemption?” Ask for a written assessment to be conducted and an estimate of the property tax to be calculated. Request a written report of their findings and opinion, especially of the county tax assessor declares there is “no problem.” (expanded to clarify the proper agency to contact on April 5, 2019)
  • Cease offering space to for-profit businesses. Draft a policy prohibiting the use of the church’s property by for-profit businesses on a regular, continual basis.
  • Continue being generous, especially to nonprofit homeschool groups.
  • Explain to the business owner that she can convert her for-profit business to a nonprofit organization with a religious and educational purpose. It involves giving up control of her business activities to a board, drafting bylaws, incorporating as a nonprofit with the state, etc. It takes time and money, but then the nonprofit organization could use the church’s space without being concerned about threatening the church’s property tax exemption.
  • Ask anyone desiring to use the church’s space if they are a nonprofit organization and perhaps ask for bylaws, Articles of Nonprofit Incorporation, or the IRS 501(c)(3) determination letter as proof of their nonprofit status and religious purpose.
  • Seek competent legal advice on use of your church’s property regarding property tax exemption, UBIT, and inurement.