Can my CC group become a nonprofit and use the Form 1023-EZ?

I have been a director of a homeschool educational group (Classical Conversations) as an individual DBA. I have been paid but the money goes back into paying others for my kids’ education and materials for the group – generally no profit. It is not an LLC or corporation. Can I incorporate in the state and file the IRS Form 1023-EZ form?
Jodi

Jodi,
Even though your CC business was not profitable, it was still a business. Having no profit does not make your business a properly formed nonprofit organization. To be a legitimate nonprofit organization you need a board, bylaws, and nonprofit mission.

By the way, your children’s tuition and homeschool expenses are not a business deduction on your tax return. So you may have been profitable from a tax perspective after all. See my ebook Taxes for Homeschool Business Owners for details on what are tax deductible expenses.

Therefore, you can convert your business to a nonprofit organization, but you will not be able to use the shorter, online IRS Form 1023-EZ to apply for 501c3 tax exempt status.

The Form 1023-EZ specifically asks if the nonprofit organization is a “successor to a for-profit business.” The newly formed nonprofit would be a successor to your business because most of the assets or activities are taken over by the nonprofit.

So you must file the IRS full version Form 1023 to receive tax exempt status for the newly formed nonprofit organization. The IRS will request an explanation of your prior business and how the nonprofit is different from the business on Schedule G Successors to Other Organizations.

I addressed this specific situation in my first webinar of this series on Create a Nonprofit for Your Homeschool Community. You might find it very helpful to decide if you want your CC Community to convert to a nonprofit. I discuss the difference in mindset, setting up a board, and more.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

How are nonprofits monitored, regulated, and governed?

A homeschool leader asked me recently, “Who holds nonprofit organizations accountable? Is it the IRS?”

While there are some issues, such as taxes and tax-exempt status, where the IRS has some oversight of nonprofits, the true watchdogs of nonprofit organizations are their own boards and their states.

BoardSource.org has a article that explains who monitors and regulates nonprofit organizations. They list the organization’s board of Directors as the “first line of defense against fraud and abuse.” The board is followed by the states’ Attorney General, the IRS, donors and finally the media.

No government agency exists exclusively to monitor the activities of nonprofits

BoardSource.org

“Nevertheless, nonprofits have many lines of defense against fraud and corruption:

  • Boards. All nonprofits are governed by a board of directors, a group of volunteers that is legally responsible for making sure the organization remains true to its mission, safeguards its assets, and operates in the public interest. The board is the first line of defense against fraud and abuse.
  • Private watchdog groups. Several private groups (who are themselves nonprofits) monitor the behavior and performance of other nonprofits. Some see their mission as serving as advisors to donors who want to ensure that their gifts are being used effectively; others are industry or “trade” groups that provide information to the public and encourage compliance with generally accepted standards and practices.
  • State charity regulators. The attorney general’s office or some other part of the state government maintains a list of registered nonprofits and investigates complaints of fraud and abuse. Often the state attorney general serves as the primary investigator in cases of nonprofit fraud or abuse. Almost all states have laws regulating charitable fundraising.
  • Internal Revenue Service. A small division of the IRS (the exempt organizations division) is charged with ensuring that nonprofits are complying with the requirements for eligibility for tax-exempt status. IRS auditors investigate the financial affairs of thousands of nonprofits each year. As a result, a handful of organizations have their tax-exempt status revoked; others pay fines and taxes. In 1996, legislation authorized the IRS to penalize individuals who abuse positions of influence within public charities and social welfare organizations. Formerly the only weapon available to the IRS was to revoke tax-exemption, which resulted in the denial of service to the clients and constituents the organization was created to help. Because they fall short of revocation of tax-exempt status, these provisions are called intermediate sanctions.
  • Donors and members. One of the most powerful safeguards of nonprofit integrity are individual donors and members. By giving or withholding their financial support, donors and members can cause nonprofits to reappraise their operations.
  • Media. Most of the major scandals involving nonprofit organizations in recent years have surfaced as a result of media investigations and the resulting news stories. While many nonprofit leaders feel misunderstood or even maligned by negative media coverage, this media watchdog role has resulted in increased awareness and accountability throughout the sector.”

The full article (and many more excellent articles about nonprofit boards) is available at :

https://boardsource.org/resources/legal-compliance-issues-faqs/


Resources for Homeschool Boards

So how is your board doing in its oversight and prevention of fraud and abuse?

My book Money Management in a Homeschool Organization devotes a chapter to helping your nonprofit avoid financial mismanagement.

Additionally, the Homeschool Board Member Manual will help train your board in its duties and help organize your important papers.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

San Antonio, Austin and Houston: Q&A with HomeschoolCPA this week

San Antonio, Austin and Houston, Texas will all be getting live Q&A time this week with Carol Topp, CPA, the Homeschool CPA!

San Antonio: Tuesday February 25, 2020
from 7:00 to 8:30 pm
on the lovely grounds of
Family Educators Alliance of South Texas (FEAST)
7735 Mockingbird Lane • San Antonio, TX • 78229
Register here for San Antonio

Austin: Wednesday February 26, 2020
from 6:30-9:15 pm
at
Calvary Worship Center (North Austin, close to TX 45 & N Mopac Expy)
14901 Burnet Road
Austin, TX 78728 
More information and to RSVP for Austin

Houston: Thursday February 27, 2020
from 6:30-9:15 pm
at
University Baptist Church  (Chapel area)
16106 Middlebrook Dr
Houston, TX 77059  
More information and to RSVP for Houston

Each event is free, but the organizers would appreciate you register so they have a head count.

The San Antonio event is sponsored by Family Educators Alliance of South Texas and the Austin and Houston events are sponsored by Texas Homeschool Coalition with much appreciation!


Each event will have:

  • A brief session presented by Carol Topp, CPA, the HomeschoolCPA on “Topp Tips for Running a Homeschool Organization”
  • A Town Hall session for you to ask question and get advice from other homeschool leaders
  • Q&A time with Carol Topp, CPA
  • Professional advice on finances, legal structures, taxes, employees, insurance, etc.
  • A chance to look at HomeschoolCPA’s books
  • An opportunity to be encouraged by other leaders who understand you!

I hope to see you in San Antonio, Austin or Houston!

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Set Up Homeschool Family as a Charity

Carol Topp, the Homeschool CPA is sometimes asked if a homeschool family can be a charity.  Sometimes a homeschool spouse wants to set up a business and hire their spouse to homeschool their children.

Can this be done?

Are there tax breaks for doing this?

R.A. writes, “I would like some preliminary information on setting up a 501(c)(7). I would like to set up my homeschool (my wife and 3 kids) up as a charitable organization. We have been homeschooling for 12 years.”

Here’s Carol’s reply to these situations on today’s episode of the Homeschool Leader podcast.

  • Can R.A. set up his family as a charitable organization?
  • What’s a 501c3?
  • What’s a 501c7?
  • What’s the difference between a 501c3 and a 501c7?
  • Why your family cannot be a nonprofit
  • Why you shouldn’t hire your spouse to homeschool your children.

In the podcast, Carol referenced a few sources from the IRS:

A nonprofit tax exempt organization must serve a public good, not the private interests of the founder or his family. The IRS is very clear on this point. https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-section-501c3-organizations

501c7 Social clubs must be formed for exempt purposes. Serving only your family is not an exempt purpose. See: https://www.irs.gov/charities-non-profits/other-non-profits/social-clubs

Carol has a few blog posts on this idea:

Incorporate yourself and write off homeschool expenses

Can my family’s homeschool be a nonprofit?

Is my homeschool a nonprofit?

Featured Product

In the podcast I mentioned my book

The IRS and Your Homeschool Organization

Does your homeschool group need to pay taxes? Could they avoid paying taxes by being a 501c3 tax exempt organization? Do you know the pros and cons of 501c3 status? Do you know what 501c3 status could mean for your homeschool group?

I have the answers for you in my book The IRS and Your Homeschool Organization. The information I share in my book has been helpful to homeschool support groups, co-ops, music and sports groups and will help you understand:

  • The benefits of 501c3 status
  • The disadvantages too!
  • What it takes to make the IRS happy
  • What your state requires
  • Why your organization should consider becoming a nonprofit corporation
  • What is the difference between nonprofit incorporation and tax exemption
  • IRS requirements after you are tax exempt

The webinar Create a Nonprofit for Your Homeschool Community is also helpful.

Flowchart for Starting a Nonprofit

While helping a homeschool organization in Washington, I found a nice 44 page book from WA state on forming a nonprofit.

https://www.sos.wa.gov/_assets/charities/training/starting-a-nonprofit-pdf.pdf

I really liked the flowchart on page 5. It has steps to take at the State level, the Federal level, with people, planning milestones and operations milestones.
Many tasks can be some simultaneously. Some must come after another. The flowchart shows all that!

It’s a lot to digest, but it puts all the important steps in one flowchart!

I created a checklist to apply for 501c3 tax exempt status. It is sequential; it doesn’t show that many tasks can be simultaneous, but it should still be very helpful.

If you’d like helping starting a nonprofit or apply for 501c3 tax exempt status, my webinars will help !

I have several services to help homeschool groups apply for 501c3 status.

Or you can arrange a phone consultation with me.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Where to get initial funding for a homeschool nonprofit start up?

A homeschool parent is launching a new homeschool program. Like many nonprofits, she needs some money to start up.

The main concern for our group at the moment are funds for filing (for nonprofit incorporation and 501c3 tax exempt status).

We have brained stormed and agreed on holding a spaghetti dinner fundraiser but we aren’t positive that this will bring the funds we are hoping for. Another idea is to present the exact cost to those members interested and see if they will be willing or able to divide the start up cost.

Sounds like you have an exciting adventure ahead of yourself by forming a  homeschool nonprofit!

You asked about initial funding. Many homeschool groups get their initial funding from donations (or loans) from the board members. You could also ask friends, family and potential members for donations.

Having a fundraiser or soliciting donations can be tricky because you need a bank account and to get that you need an EIN and you should get an EIN only AFTER you form a nonprofit corporation. But that’s what you need the funds for, so you’re caught in a Catch-22 cycle!

Additionally, some state require organizations to register before conducting a fund raiser or soliciting contributions from the general public. Here’s a source to see what your state requires: https://www.harborcompliance.com/information/nonprofit-compliance-guide

So it seems donations (or temporary loans) from the board members or potential members is your best option.

Helpful Resources

I have three podcast episodes  to explain starting a nonprofit or converting a homeschool business into a nonprofit organization. My podcast can be found at HomeschoolCPA.com/Podcast The episodes are:

  • Episode 168 Part 1 Nonprofit basics
  • Episode 169  Part 2 Nonprofit corporation
  • Episode 170  Part 3 Tax exempt application

Additionally, I have a webinar that goes into much more in-depth on starting a nonprofit organization. Unlike the podcasts which are free, the webinar costs $10.


Get details for Create a Nonprofit for Your Homeschool Community webinar at HomeschoolCPA.com/CreateNP

If you don’t want to be taxed on any surplus, then you’ll need nonprofit AND tax exempt 501c3 status for your new group. The webinar will explain that. 🙂

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

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 webinar was live in August 2019 but you an purchase the recording for $10.

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

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.

Tiny Homeschool Groups: Do We Need to File Anything?

Tiny Homeschool Groups: Do We Need to File Anything?

Tiny homeschool groups have different challenges than large programs. They are limited on resources, volunteers, and activities. But they still have questions about legal status, money and taxes that the large homeschool organizations have.

In this 4-part podcast series, Carol Topp, CPA answers the common questions that tiny homeschool groups face. All podcasts are available at HomeschoolCPA.com/Podcast

  • Episode #175 Are We a Nonprofit?
  • Episode #176 Do We Need to File Anything?
  • Episode #177 Do We Need to Pay Taxes?
  • Episode #178 Do We Need a Bank Account?

In this episode of the HomeschoolCPA podcast, Carol Topp discusses:

  • Bylaws do not typically need to be filed anywhere. They are an internal document. Sample bylaws for a homeschool group
  • Articles of Association (if you remain an unincorporated association) or Articles of Incorporation (if you formed a nonprofit corporation in your state). Samples available here
  • Charitable solicitation registration if you solicit donations or hold fund raisers in your state. Get information on your state’s filing requirements from https://www.harborcompliance.com/information/nonprofit-compliance-guide
  • Business licenses for nonprofits (only 6 states require a business license)
  • Employer Identification Number. Helpful tips.

 

Join the Facebook group for homeschool leaders: I am a Homeschool Group Leader. 600+ homeschool leaders offer ideas, encouragement and respectful exchange of ideas. https://www.facebook.com/groups/72534255742/

 

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Homeschool Co-ops:
How to Start Them, Run Them and not Burn Out

Have you ever thought about starting a homeschool co-op? Are you afraid it will be too much work? Do you think you’ll have to do it all by yourself? Starting a homeschool co-op can be easy! This book Homeschool Co-ops: How to Start Them, Run Them and Not Burn Out will give you ideas, inspiration, tips, wisdom and the tools you need to start a homeschool co-op, run it and not burn out!

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