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

Who’s Afraid of the IRS? (podcast)

IRS and homeschool


UPDATE: This podcast episode originally aired in 2015. I am amazed at how accurate it still is 6 years later!


Are you afraid of the IRS? Should you be?

How does the IRS see homeschool organizations?

In this episode of the Dollars and Sense podcast, host Carol Topp, CPA discusses how the IRS sees homeschool organizations. Carol discusses homeschool support groups as IRS 501(c)(7) Social Clubs and homeschool co-ops as 501(c)(3) educational organizations.

Listen to the podcast here

Get a copy of the handout Who’s Afraid of the IRS Handout

More information

The second part of this podcast presentation, “How the IRS sees homeschool groups”

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.

The IRS and Your Homeschool Organization

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

Tax and record keeping help for CC Directors

Carol,

I will be a director with Classical Conversations (TM) for the upcoming year and I wanted to keep track with all finances and stay on top of all the things for taxes but I am unsure of how to do that or find someone knowledgeable with something like Classical Conversations.

Would you be able to direct me in a better direction with things?

-Jillian M


Jillian,

Good for you to realize that directing a Classical Conversation program is a business and you need to be concerned about taxes and record keeping. Sadly, I have heard from many CC Directors that they had no idea they were running a business. Some have made terrible mistakes in their tax filings.

I have several resources for you:

Taxes for Homeschool Business Owners

The ebook is 60 pages long and contains information on

  • Business Start Up
  • LLC status
  • Tax Deductions
  • Tax Forms
  • Sample Tax Returns
  • Self Employment Tax
  • Paying Yourself
  • Paying Others
  • Businesses Using Churches
  • Should My Homeschool Program Be a Nonprofit?

Business Q&A for CC Directors: Answers You Need to Run Your CC Business

This 50 page ebook is a collections of questions CC Directors have asked the HomeschoolCPA, Carol Topp, CPA over the past few years. Carol answers each question and cover topics such as:

  • Business Set up: LLC status, nonprofit, ministry or business, checking accounts, record keeping
  • Relationship with your church-host: taxes for the church
  • Taxes: What forms to file, 1099-MISC, tax deductions
  • Employees: Independent Contractor or employee

I hosted a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to you as a CC Director. You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.


Bookkeeping spreadsheet for CC Directors is a free download.

I hope that helps!


Carol Topp, CPA
HomeschoolCPA.com
Helping homeschool leaders

Getting an EIN from the IRS

Many homeschool organizations find they need to open a checking account for their group expenses. The bank or credit union will ask for an EIN, Employer Identification Number. This number is similar to a Social Security Number for a business or nonprofit organization. It’s actually misnamed. You don’t need to be an employer to obtain an EIN. They are offered for free by the IRS.

Sometimes a leader opens a checking account and uses her Social Security Number (SSN). This is not recommended. If a personal checking account is used for handling the homeschool organization’s business, the cash in it could be seen as the leader’s personal income in the eyes of the IRS. I’m sure she doesn’t want that! Additionally, an unpopulous leader could run off with the money that is the organizations and there is nothing the organization can do about it!

Before you get an EIN

Before you get an EIN, you must first properly and legally form a legal entity. The IRS puts it like this: “If you believe your organization qualifies for tax exempt status (whether or not you have a requirement to apply for a formal ruling), be sure your organization is formed legally before you apply for an EIN.

To legally form a nonprofit organization you need three things:

  1. A board of at least three people (preferably unrelated).
  2. Bylaws which explain the mission and structure of the organization. If you don’t have bylaws. Sample bylaws are available at HomeschoolCPA.com/Samples
  3. An “organizing document” which would be either Articles of Incorporation (highly recommended and most common) or Articles of Association for an unincorporated association. Articles of Incorporation are filed in your state, usually the Secretary of State office. Most states have a form for you to use.

Sample Articles of Incorporation or Articles of Association are available at HomeschoolCPA.com/Samples.

I compare forming a new organization to birthing a baby. Only after the baby is born can you apply for a SSN. The same is true for birthing a nonprofit organization. First the “baby” nonprofit must be born by a board drafting bylaws and filing Articles of Incorporation with their state. Then the baby nonprofit can apply for an EIN.

Getting an EIN from the IRS

Go to www.irs.gov/taxtopics/tc755.html for more information on the EIN. The IRS uses Form SS-4. I highly recommend you look it over carefully. Keep a copy for yourself.

To get your EIN quickly, apply on line by going to the IRS Online EIN service at https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

After all validations are done you will get your EIN immediately upon completion. You can then download, save, and print your EIN confirmation notice.

EIN Tips:

  • Under Type chose” View Additional Types” and then “Other Nonprofit/Tax Exempt Organizations.” Educational organizations (which is what homeschool groups are, falls into this category).
  • Under “Reason for applying,” check the box “New business” or “Banking purposes”
  • The “Responsible party” is the person who exercises ultimate effective control over the entity. This is any one of the officers (Chair, Secretary or Treasurer). Some people are concerned about giving their Social Security Number to the IRS. This does not tie your personal taxes to the homeschool organization. It’s just the IRS’s way to be certain a true, living human being is applying for the EIN. The Responsible party can be changed in the future by filing IRS Form 8822-B. 
  • Your name on the EIN must match your legal name chosen when you filed Articles of Incorporation with your state’s Secretary of State.

If you have questions about applying for an EIN or the Form SS-4, read the chapter on “Checking Accounts Done Right” in my book Money Management in a Homeschool Organization

If you have questions about setting up or running your homeschool organization, visit HomeschoolCPA.com or consider a private phone consultation.


Carol Topp, CPA

HomeschoolCPA.com

Homeschool teachers or CC tutors: Stuck inside? Start doing your taxes!

Who would have thought that when I wrote this blog post in March 2020, that we would still be stuck inside because of the COVID-19 pandemic?

But tax season rolls around each year. So here we go again!

Are you stuck inside because of illness, social distancing, or the corona virus? Well, it’s a good time to work on your tax return!
(Not what you wanted to hear, I’m sure!)


I hear from lots of CC Directors and tutors about their taxes. It can be confusing running a business, paying tutors, etc.

If you’re confused about takes, I have a book for you!

I am pleased to offer my book, Taxes for Homeschool Business Owners!
Read more here.

I have spoken and emailed with so many CC Directors, tutors and teachers at homeschool programs that are confused about their taxes. This is my attempt to keep you out of trouble with the IRS!

This ebook is a great resource for:

  • Tutors or teachers for a homeschool program paid as an Independent Contractor
  • Classical Conversations(R) Directors
  • CC tutors
  • Coaches, musicians, artists, etc. hired to teach at a homeschool co-op


The ebook is 60 pages long and contains information on

  • Business Start Up
  • LLC status
  • Tax Deductions
  • Tax Forms
  • Sample Tax Returns
  • Self Employment Tax
  • Paying Yourself
  • Paying Others
  • Businesses Using Churches
  • Should My Homeschool Program Be a Nonprofit?

I hope you find the ebook helpful this tax season!

Carol Topp, CPA

HomeschoolCPA.com

Helping Homeschool Leaders

The IRS Says Our Homeschool Group is a Private Foundation. Is that Correct?

Carol,
I am wondering if we can get some clarification from you. I am looking through this IRS document we received after we reapplied for 501c3 tax exempt status per your direction back in January.

It says we have been determined to be a 501(c)(3) private foundation and are required to file a 990-PF.

I feel like this information is incorrect, am I right in thinking this? 

Thank you,
Ashley


Ashley,

Oh dear. This is very unfortunate.

I guess that whoever filled out the 1023-EZ checked the box saying your homeschool group was a private foundation rather than a public charity.

Almost all homeschool organizations are public charities not private foundations.

What’s a private foundation?

Private foundations are funded by an individual, family, or a corporation, like the Bill and Melinda Gates Foundation or the Ford Foundation.These individuals and corporations typically make large donations to the foundation. The foundation invests the donations. The goal of the foundation is to distribute the income from their investments to charitable works like universities or medical research.

So what’s a public charity?

On the other hand public charities are funded by the general public through donations, membership fees, or activities related to their exempt function.

Most homeschool organization receive their funds from membership fees, tuition, field trip fees, and class fees. They are not private foundations.

Almost all homeschool programs are public charities.

Why does it matter?

There are several reasons why being classified as a public charity rather than a private foundation is important:

  • Private foundations must distribute their income from their investments every year or pay taxes. In addition, private foundations must pay an excise tax on net investment income.
  • The annual report for a private foundation is the complex, multi-page form called the 990-PF. It will take a CPA to help you prepare this beast of a form. But small public charities can file the IRS Form 990-N electronically every year by themselves!
  • Dissolving a private foundation involves either paying an IRS fee or distributing the funds to another established private foundation. it’s complex to dissolve a private foundation and will probably require an attorney and a CPA.
  • Private foundations must to make public their list of contributors; pubic charities do not have to make their donor list public.
  • Private foundations are highly regulated by the Tax Code and subject to a host of technical rules and restrictions that do not apply to public charities.

The cause of the mistake

Here’s a snapshot of the Form 1023-EZ application for 501c3 status where a homeschool organization tells the IRS how it receives its funding.

The homeschool program that emailed me checked the wrong box on the Form 1023-EZ and said they were a private foundation when they are not.

How to avoid this mistake

This mistake could have been avoided.

I offered my services to help this homeschool group with the Form 1023-EZ While my fee is $300, I also pointed the leaders to a $25 webinar where I go though the Form 1023-EZ line-by-line and I explain the difference between public charity and private foundation.

This homeschool group never purchased my services or even my webinar, thinking they could save time and money. 🙁


The webinar on 501c3 Application for Homeschool Nonprofits costs only $25. In addition to the 90 minute webinar, you get a copy of my ebook The IRS and Your Homeschool Organization.


How to fix the mistake

To request the IRS change the status of Ashley’s homeschool program from private foundation to public charity, it must file IRS Form 8940. The form looks easy, but it is all the supporting documents and the explanation to the IRS that are the quite complex and burdensome.

Ashley will need to give the IRS a lot more documentation including bylaws and financial statements than she did when filling the Form 1023-EZ application.

I will charge Ashley’s organization $200 to request a change to public charity with the IRS on Form 8940. The IRS fee is an additional $500.

So a $700 expense could have been avoid by paying $25 and watching my webinar!

Don’t make the same mistake!

Carol Topp, CPA

HomeschoolCPA.com

Helping Homeschool Leaders

Stuck inside doing your taxes?

Are you stuck inside because of illness, social distancing, or the corona virus?
Well, it’s a good time to work on your tax return!
(Not what you wanted to hear, I’m sure!)


I hear from lots of CC Directors and tutors about their taxes. It can be confusing running a business, paying tutors, etc.

If you’re confused about takes, I have a book for you!

I am pleased and proud to announce my latest book, Taxes for Homeschool Business Owners!
Read more here.

I have spoken and emailed with so many CC Directors, tutors and teachers at homeschool programs that are confused about their taxes. This is my attempt to keep you out of trouble with the IRS!

This ebook is a great resource for:

  • Tutors or teachers for a homeschool program paid as an Independent Contractor
  • Classical Conversations(R) Directors
  • CC tutors
  • Coaches, musicians, artists, etc. hired to teach at a homeschool co-op


The ebook is 60 pages long and contains information on

  • Business Start Up
  • LLC status
  • Tax Deductions
  • Tax Forms
  • Sample Tax Returns
  • Self Employment Tax
  • Paying Yourself
  • Paying Others
  • Businesses Using Churches
  • Should My Homeschool Program Be a Nonprofit?

I hope you find the ebook and the webinar helpful this tax season!

Taxes for Homeschool Business Owners ebook

I am pleased and proud to announce my latest book, Taxes for Homeschool Business Owners!
Read more here.


I wrote this book because I have spoken and emailed with so many homeschool business owners that are confused about their taxes. This is my attempt to keep you put of trouble with the IRS!

Thank you so much for the tax resources you put out there, it’s been super helpful for me as a director of our CC Homeschool campus! -Jessica


The ebook is 60 pages long and contains information on

  • Business Start Up
  • LLC status
  • Tax Deductions
  • Tax Forms
  • Sample Tax Returns
  • Self Employment Tax
  • Paying Yourself
  • Paying Others
  • Businesses Using Churches
  • Should My Homeschool Program Be a Nonprofit?

This ebook is a great resource for:

  • Tutors or teachers for a homeschool program paid as an Independent Contractor
  • Classical Conversations(R) Directors
  • CC tutors
  • Coaches, musicians, artists, etc. hired to teach at a homeschool co-op

As we do our taxes this year I am thankful for your knowledge and being willing to share it. I GUARANTEE many women WEREN’T doing their taxes correctly. -Julie


Please do not share the ebook file with other people or post the ebook file on the internet. If you know someone who would be helped by the book, please send them to this page and they can purchase their own copy.
Share this link: HomeschoolCPA.com/TAXESHSBIZ


I hope you find the ebook helpful this tax season!

Carol Topp, CPA

HomeschoolCPA.com

Helping Homeschool Leaders