Seeking a homeschool group needing 501c3 status

A classical homeschool program in California no longer needs its 501c3 tax exempt designation and is willing to transition it to another homeschool organization. Isn’t that marvelous?

The organization will be operating as a ministry of a local church and no longer operate as a separate entity. Rather than waste all the time and effort going into establishing a nonprofit corporation and applying for 501c3 tax exempt status, they are willing to transfer its tax exempt status to another homeschool program. How generous!

To be eligible to receive the nonprofit corporate and 501c3 status your program must:

  • Be located in California
  • Be a homeschool organization, preferably a classical education program
  • Be a religious organization (Christian)
  • Be a new organization without an EIN (Employer Identification Number)
  • Not be incorporated as a Nonprofit corporation in any state
  • Must have a board of at least three unrelated people ready to file paperwork and launch a homeschool program

The recipient will get:

  • Nonprofit incorporation in California as a religious corporation with a specific purpose to provide a classical, Christian, home-centered education.
  • An Employer Identification Number (EIN)
  • 501c3 tax exempt status
  • Bylaws
  • Help with the transition paperwork from a current member of the board.
  • (Optional) Phone consultation with HomeschoolCPA Carol Topp, CPA and a board member to explain the transition and future filing requirements with the IRS and California. An hourly consultation fee of $85/hour payable to HomeschoolCPA Carol Topp, CPA applies.

These benefits would typically cost $300-$600 and several months of time. Being given this is a huge blessing to the right organization, saving time and money!

After the transition occurs, the new leaders can:

  • change the bylaws
  • add new board members
  • change the organization’s name to something else.

The new leaders MUST be willing to do several things including:

  • Agree to let one of the current board members remain on the board until all the transition paperwork is complete.
  • File the IRS Form 990/990-EZ/990-N  and all required California filings annually
  • Change the EIN’s Responsible Party name and address with the IRS
  • Change the California Agent for Service
  • Change the mailing address with the IRS and California

Is your group interested in this opportunity?

If so contact the board member liaison at cahomeschoolnonprofit@gmail.com.

Tell your story, your dreams for your homeschool program, something about your leaders, and why your program should be chosen.

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders

Homeschool mom has concerns about Classical Conversations

I’ve written several blog posts answering questions from Classical Conversations (CC) Directors regarding:

Usually these issues affect CC Directors the most since they are the business owners that carry the responsibility and liability for operating a licensed CC Community that is compliant with local, state, and federal laws.

But sometimes the individual families in a CC Community are affected by these issues as well.

Homeschool blogger at As for Me and My Homestead, Jamie, wrote a blog posts titled, “Why My Family Left Classical Conversations.” In her post she outlines several reasons her family left CC after four years.

If you scroll to the end, she explains several business practices that she found concerning enough to make the decision to leave behind a group of homeschool families she deeply enjoyed and loved.

Through all the rest of this, I pushed the nagging, “something isn’t quite right” issues out of mind, and tried to focus on the positives.  Fortunately for me, the person who brought the errata sheet to my attention also invited me to join a Facebook group where I learned more about Classical Conversations that went beyond the mistakes and poor curriculum.

Jamie writes about several issues that bothered her including:

  • CC Corporate calling themselves (and the Directors’ businesses) a “ministry,” which can be misleading
  • Communities (as for-profit business) using churches
  • Misclassifying tutors as Independent Contractors
  • CC Corporate and local Directors using teenagers and parents as volunteer labor

She calls these issues “the tip of the iceberg.”


It’s never easy to publicly criticize a homeschool program, especially if your friends are still enthusiastic about it.

Jamie ends her post with this wish:

My hope is that in reading this, other families will see that CC is a corporation that is not operating in a godly manner, while claiming the name of God, and will find out that they could do so much better with their money & time, than join a CC community.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Has your homeschool group registered with your state’s Attorney General?

A homeschool group in Illinois formed in 2020. They filed paperwork with the Illinois Secretary of State to form a nonprofit corporation, got an EIN (Employer identification Number) from the IRS to open a checking account, and started running their homeschool program. They thought that was all that needed to be done.

Unfortunately the group never registered as a charitable trust with Illinois.

These kinds of situations come up fairly frequently here at HomeschoolCPA. I help homeschool groups understand their required reporting to their states.

So I helped this group understand Illinois reporting requirements. When I do that I always search the state laws for exceptions–situations where the nonprofit can avoid more government paperwork.


Most states want nonprofit organizations to register in their state and then most states have annual reporting requirements as well.


Did I find an exemption to registering as a charitable organization (called a charitable trust in Illinois) for this homeschool group? And what about the annual reports?

Maybe!

Illinois requires every charitable trust to resister with the Attorney General. They do allow an exception for religious organizations (churches), but even they must submit an application to be exempt from annual reports.

So this homeschool group should be registered with the Illinois Attorney General. And every homeschool nonprofit organization in Illinois should be registered with the Illinois Attorney General


But it may not need to file annual reports!

The Illinois Charitable Trust Act says this:
Exception: ” Any charitable organization which does not intend to solicit and receive and does not actually receive contributions in excess of $15,000 during any 12 month period ending December 31 of any year. However, if the gross contributions received by such charitable organization during any 12 month period ending December 31 of any year shall be in excess of $15,000, it shall file reports as required under this Act and the provisions of this Act shall apply.

https://codes.findlaw.com/il/chapter-225-professionsoccupations-and-business-operations/il-st-sect-225-460-3.html

“Contributions” includes donations and proceeds from fundraisers. It does not include your income from tuition, fees for offering your program, membership fees or dues.

Additionally, Illinois offers an exemption from annual reports to several specific types of organizations (Boys Club, school parent-teacher associations, etc), but not a homeschool program.

Research showed…

This homeschool group needed to register with the Illinois Attorney General, but since they did not receive more than $15,000 in donations and fund raisers, they did not have to file annual reports with the Illinois Attorney General.


Conclusion: Illinois nonprofit homeschool groups should register with the Attorney General.


Additionally, if your Illinois homeschool organization receives more than $15,000 in “contributions” it must file annual reports with the Illinois Attorney General as a charitable organization.

What about your state?

This reference guide lists the charitable solicitation requirements by state.
https://www.lowenstein.com/media/4152/final-charitable-solicitation-survey.pdf

You should look up your state and see if your homeschool group needs to register and see also if they should be filing annual reports.

Alarming stats

The Illinois Attorney General lists 8 organizations with “homeschool” or “home school” in its name. Yet the IRS Exempt Organization database lists 18 organization in Illinois with “homeschool” or “home school” in its name.

That means 55% of Illinois homeschool organizations never registered with the Illinois Attorney General!

Why have these homeschool groups not registered with the State of Illinois?

  • Ignorance of the Illinois Attorney General requirements.
  • The homeschool group did not use a professional who walks them through all issues of state compliance. HomeschoolCPA can do that. See below.
  • The homeschool group didn’t want to know about the state forms since the paperwork is a headache. But willful ignorance of the law is not a good excuse!
  • They thought they were exempt from registering since they don’t “solicit funds.”

So what?

Illinois can assess a fee for failure to register or failure to file reports of $500 to $1,000. Source: (760 ILCS 55/5)(from Ch. 14, par. 55)

In general, the states don’t want to assess fines; they just want your homeschool group to be compliant, resister and file annual reports.

What should you do now?

  1. Watch Homeschool CPA’s IRS and State filings webinar. This 60 minute webinar ($10), explains the typical filing requirements for states and the IRS. It’s a great place to understand your filing requirements and launch the research for your specific situation.
  2. Look up your state’s charity registration requirements.

    Here’s a good resource (a pdf from 2017) for charitable solicitation registration (but there may be more state reports than just this one!): https://www.lowenstein.com/media/4152/final-charitable-solicitation-survey.pdf

    I’ve also done research using this site: Harbor Compliance https://www.harborcompliance.com/information/nonprofit-compliance-guide
  3. If you’d rather not do the research yourself, you can hire HomeschoolCPA to do the research and compose a letter, gather all the forms and help you know what to do.

Carol Topp, CPA
HomeschoolCPA.com

My Homeschool Group is an Unincorporated Association. What Does That Even Mean?

Carol, My homeschool group has been around for 20 years. I was told that we are an “unincorporated association.” What does that mean?

-Lisa

Lisa,

You ask an excellent question. I’m going to share a reply from an attorney Stephen Fishman from Nolo.com, the publisher of very helpful legal book. I have several Nolo books on my shelf.

What is An Unincorporated Nonprofit Association?

By Stephen Fishman, J.D.

What happens, legally speaking, when a group of people get together and decide to perform some task without filing any legal paperwork or establishing any formal legal structure? Whether they know it or not, they have formed an unincorporated association. “Unincorporated association” means an unincorporated group of two or more persons joined by mutual consent for a common lawful purpose, whether organized for profit or not.

Now, if the lawful purpose they’ve joined together to accomplish includes earning a profit, their association is automatically a partnership or joint venture for tax and most other legal purposes. For example, if two people get together and decide to operate a food truck, they’ve formed a partnership, even if they file no paperwork.

But, if the purpose for the association is to benefit the public some way, and does not include earning a profit, the association’s members have formed an unincorporated nonprofit association. People form nonprofit unincorporated associations all the time; often without being aware of it. For example, if you and several of your neighbors get together to help raise funds to keep your local library branch open, you’ve formed an unincorporated nonprofit association.

Source: https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

So that’s what your homeschool group is: an association of people trying to benefit the public in some way. in your case, you are benefiting families who homeschool their children in your local area.

Drawbacks to unincorporated association

But Mr Fishman, the attorney rom Nolo.com goes on to warn that unincorporated association has some drawbacks…

The biggest drawback to the unincorporated nonprofit association, and the reason nonprofits often abandon this form in favor of a nonprofit corporation, is that it has no separate legal existence apart from its members. Because it is not respected as a separate legal entity, its members generally can be personally liable for its debts and liabilities. Some states, such as California, give some limited liability to nonprofit association members; but it’s not as good as the protection obtainable from a nonprofit corporation. Moreover, unless your state law contains an “enabling statute” granting such rights entities, an unincorporated association cannot hold or receive property, or sign contracts, in its own name.

Because of these limitations, nonprofit unincorporated associations are usually used to accomplish limited short-term goals, such as raising funds for a library. Nonprofits with long-term missions should usually incorporate. For more on incorporating, see Nolo’s article, Five Reasons to Incorporate Your Nonprofit.

Let me rephrase what Mr. Fishman is saying: Most homeschool nonprofits don’t stay as unincorporated associations. They file paperwork in their state (called articles of Incorporation) to form a nonprofit corporation. Nonprofit corporate status offers legal protection for members and leaders by limiting the liability to the nonprofit’s assets. The members and leaders are not personally liable for the debts of the nonprofit if they are sued. That helps leaders sleep better at night!

I also appreciate his point that groups that are temporary can get by with being an unincorporated association. But homeschool nonprofits with longevity should seriously consider filing the paperwork to become a nonprofit corporation.

Homeschool groups dealing with children are at higher risk as are larger homeschool programs with bigger budgets. They should file the paperwork to be a nonprofit corporation in their state.

Resources

My book the IRS and Your Homeschool Organizatoin discusses nonprofit incorporation, its benefits and costs.

These podcast episodes discuss nonprofit incorporation:

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

I started a nonprofit CC Community. Can I pay myself?

Greetings, I’ve started a Classical Conversations Community in Washington state. To be able to host my community at my church, we were asked that we create a non-profit organization so I did. I created a separate non-profit banking account from my personal account, thankfully. Honestly all money that has gone out has been for supplies and Independent Contractor payments. Although, it would appear within the CC framework that I can pay myself, I’m unclear with the non-profit status if I actually should, so I have taken no stipend at all for my work.

Can I actually pay myself a small stipend to help off set my personal expenses?

Thank you for any and all help you might be able to offer. I’m feeling extremely overwhelmed with all of this.

-WA

Dear WA,
Last week I talked with another CC Director in Washington State who formed a nonprofit. Her situation sounds very similar to yours.

Both she and you seem to lack a board or team of leaders. You see, a nonprofit is not owned by anyone (unlike a for profit business which does have an owner). Nonprofit organizations are operated by a board or team of people. This board the hires and pays staff such as you, the Director, or the tutors.

So to answer your question: No, you cannot pay yourself. A board of people unrelated to you by marriage, blood or business relationship, must vote on what all workers get paid. That is how a nonprofit is very different from a for profit business.

Resources

My book Paying Workers in a Homeschool Organization explains how a CC nonprofit should be paying its Director and tutors (i..e, as employees not as Independent Contractors).

The book is available in paperback $9.95 or ebook format $3.99

You’ll find my latest ebook Business Q&A for CC Directors to be full of questions just like yours from CC Directors and my answers. There are so many issues to learn and understand when running a Classical Conversations Community. Get accurate information on running your business from a CPA who has consulted with dozens of CC Directors.

Ebook (pdf) format only: $10.00

I think you will find both books very helpful!


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Should My CC Community be For-profit or Nonprofit?

I am a new director of a Classical Conversations (CC) campus in Michigan. I’m trying to weigh how to set things up. Can you offer me a recommendation on if I should set up a for profit or non- profit based on your knowledge of CC.

Also I’m at a loss of how to even approach or explain CC and the situation to a CPA who has no understanding of it. Where do I start and what are important things s/he needs to know to help me make a good decision?

– Michelle

Michelle,

Thank you for contacting me.

I’d venture to estimate that 90% of CC Communities are set up as for-profit businesses, sole proprietorships owned by the Director. A few larger ones with a mission focus have established boards, filed to become nonprofit corporations, and applied for 501(c)(3) tax exempt status with the IRS.

The main differences between a for-profit business and a nonprofit organization are:

  • Profit motive. Nonprofits have a purpose other than making a profit; in most homeschool groups the purpose is to educate children, which the IRS says can be a purpose for a 501(c)(3) tax exempt organization. By default, a for-profit business has making a profit as their motive, even if the activities are educational in nature.
  • Ownership and Control. A nonprofit is not owned by anyone; the board runs everything and decides what everyone, even you the Director, will get paid. The board can also fire you and hire another Director. The board can decide not to renew the license with CC and decide to use another curriculum. So you surrender ownership and control of the CC community to the board.
  • Tax exemption and tax deductible donations. Nonprofits who apply for 501(c)(3) tax exempt status with the IRS will be tax free on their surplus and can receive tax-deductible donations.
  • Volunteers: For profit businesses cannot use volunteers nor can they ask their paid workers to volunteer. That would be a violation of the Federal Fair Labor Standards Act, which protects the rights of workers from unscrupulous employers. This no-volunteer-labor law puts a real crimp in the way that most CC Directors run their communities! Being formed as a nonprofit organization means you can legally (and cheaply) use volunteers!
  • Use of property-tax-exempt facilities such as churches and libraries. Most churches and libraries limit the use of their buildings to nonporift organizations, so they can avoid paying property tax. For profit bushiness such as most CC Communities should notify their church host that they are not a nonprofit homeschool group, but are a business owned by the Director.

My webinar, Create a Nonprofit for Your Homeschool Community, will be a big help is understanding the differences and how a CC Director can convert her business to be a nonporift organization.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

IRS Makes It Easier to Convert to a Nonprofit Corporation

For years I told small homeschool groups:

“If you never incorporated as a nonprofit corporation in your state, then by default, your organization is an unincorporated association.”

And I also told them that,

Unincorporated associations CAN apply for 501 tax exempt status,

BUT

If your association someday decides to incorporate, you have to reapply for 501 tax exempt status.

So it might be a good idea to just become a nonprofit corporation from the start.


That was good advice because nonprofit corporate status has many advantages over unincorporated associations:

  • Limited liability for leaders and members
  • Longevity beyond the current leadership
  • A legal entity that can buy property, lease space, etc.

But the IRS realized that sometimes tax exempt associations want the benefits of being a nonprofit corporation. The IRS was telling them they needed to reapply for 501c3 status, although nothing else changed!

This reapplication process (filing the IRS dreaded Form 1023, paying a $600 fee, and waiting 6 months for the IRS to reply) was termed “burdensome” by the IRS. Finally!

So the IRS wised up and in 2018 created a document called Revenue Procedure 2018-15 which says (basically):

A domestic, exempt nonprofit association (in good standing) that restructures into a nonprofit corporation does not have to reapply for 501 tax exempt status

But there are a few conditions that need to be met:

  1. Domestic (meaning formed in the United States not a foreign country)
  2. Exempt meaning the association was already tax exempt by the IRS and has maintaining it tax exempt status by filing the annual Form 990/990-EZ or 990-N.
  3. Good standing in their state
  4. Have the IRS required language in their organizing documents (Articles of Association, Constitution, or bylaws)
  5. Not be an LLC or a partnership

Here’s an example that might apply to your homeschool group:

A homeschool support group formed in Ohio (#1 domestic) applied for and was granted 501c3 tax exempt status (#2 exempt) as an educational organization. They filed all required reports with Ohio’s Secretary of State (#3 Good standing). Their Constitution had the IRS required language about their 501c3 purpose, prohibitions, and dissolution (#4).

Then the support group grew larger started adding sports programs and a co-op. The leaders learned about the benefits of limited liability if they were restructured as a nonprofit corporation. They voted to convert to a nonporift corporation and filed Articles of Incorporation in Ohio.

Under the old rules this homeschool group would have to re-apply for 501c3 status with the IRS by filing Form 1023 (what I call the beast), pay the IRS $600 and probably pay a professional to prepare their application.

Under the new IRS Rev Proc 2018-15, there is no need to reapply. That saves $600 or more! Plus a lot of time!

All the IRS asks is that your file your annual information return, Form 990 or 990-EZ, and explain the restructuring and attach the new Articles of Incorporation. That’s it!


Additionally, you can keep the original EIN. 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 Do you need a new EIN.

So, no you don’t need a new EIN! That’s saves a lot of hassle as well!


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

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Help a New Homeschool Group Start Up Quickly

Homeschooling is exploding in light of the COVID-19 pandemic and existing homeschool groups cannot accommodate all the newcomers.
But homeschool leaders want newbie homeschoolers to be successful and have support, so what’s to be done?

How about your existing homeschool group help start another homeschool group? It can be pretty easy. It’s called a “fiscal sponsorship” arrangement Here’s how it would work:

Step One:

Read up on a concept called “fiscal sponsorship.”
These blog posts will get you started:

Step Two:

Meet (online via Zoom) with the leaders of the new group. Explain the arrangement. The new group will exist as a “program” or a committee running the program under your existing homeschool organization.

The new program or committee leaders will get:

  • Use of the parent organization’s EIN (employer Identification Number)
  • Use of the parent organization’s nonprofit incorporation status. This means the new group does not have to form a new nonprofit entity
  • Use of the parent organization’s bank account. The parent organization may want to set up a new checking account for the new group with its existing EIN. Make sure the treasurer has online access to the new checking acocunt.
  • Use of the parent organization’s 501c3 tax exempt status. This is a HUGE advantage. The new group won’t have to apply to the IRS to grant tax exempt status. They can be up and running immediately!
  • Use of the parent organization’s bylaws. The new group will be under the parent organization’s bylaws as a new program, so the new group doesn’t need its own bylaws.
  • Use of the parent organization’s Policy Manuals, registration forms, etc.
  • Use of the parent organization’s website, Facebook account, and other online services for registration.
  • Coverage under the parent organization’s insurance policy. Another HUGE advantage. The parent organization should call its insurance provider and explain it is expanding. Ask for a new quote on what the increased cost will be. Make sure the new group pays the parent organization for their share of the insurance.

The new group will need to:

  • Set up a committee of at least 3 people to operate the new program. One of the parent group’s board members should be invited to all committee meetings to offer help and advice. She should report back to the parent organization on how the new program run by the committee is doing.
  • Find a location to hold their program, meet-ups, classes, etc.
  • Pay the parent organization their share of the insurance
  • Give financial reports to the parent organization at least every 3 months, although monthly is recommended.
  • Make 2-3 year plan for launching itself to be an independent organization.

Agreement in writing

I strongly recommend a written agreement signed by the Chair of the parent organization and the new program committee chair.

The agreement should outline the bullet points given above and add any other issues you think of.

If you want examples of agreements, you could look at some fiscal sponsorship samples
or read

Fiscal Sponsorship: 6 Ways to Do It Right by Gregory Colvin. It describes six models of sponsorship that have been approved and accepted by the IRS. It details how the models work and why, how they differ and how they are similar.

Summary of the book and its six models of fiscal sponsorship by the author: Fiscal Sponsorship: 6 Ways to Do It Right synopsis Colvin.pdf

Advantages

The advantage of this idea is that your group can help start a new group as a program and there is very little you need to do except offer advice! The new group will have the advantage of being able to focus on starting their activities and not have to worry about paperwork, setting up a bank account, government filings, etc. The parent group has already done all that!

This comparison chart of starting a new organization or creating a committee as a fiscal sponsorship under an existing nonprofit was created by attorney Gregory Colvin. It shows how fast a committee can get started on running a new program.

It can work!

This idea is really something new and existing homeschool groups could do together to help new homeschoolers learn from the experienced ones!

If you have more questions about fiscal sponsorship or starting a new homeschool group, I am happy to set up a phone consultation. Contact me and we can discuss what questions you have!

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Is Our Homeschool Group a Church?

Carol,
Our homeschool co-op would like a consultation with you. Our group is classified as a church in our state. Some of us feel that this is not the correct classification. While we have a religious purpose, offer a class in worship arts, and have Bible Studies, we are like more homeschool co-ops. We don’t have worship services, clergy or a theology.
Can you help?

I had a wonderful video call with five members of this homeschool group. Indeed they were formed as a church in their state.

We discussed religious purpose and most importantly their state’s definition of “church” (or in this state “ecclesiastical organization”). This homeschool group just didn’t fit the definition of an ecclesiastical erganization!

Their state’s definition of a church or ecclesiastical organization is (my emphasis added in italics):


The term “church” and/or “church organization” used in this act shall be construed to include any church, denominational unit, or church society as the term is commonly used and understood but shall not apply to such organizations as Sunday schools,…Bible classes and similar societies organized by and affiliated with the parent churches.

My recommendation was to dissolve the organization as is and start a new nonprofit corporation with a religious and educational purpose to run the homeschool activities.


The homeschool group followed that advice is pursuing nonprofit incorporation and 501c3 tax exempt status for a new organization.


At the same time, a Classical Conversations Director asked a tax assessor in North Carolina this question:

“Classical Conversations is Christian education. It aligns with the values and beliefs of the host church. Shouldn’t we be covered under the religious rather than nonprofit educational exemption?”

His rely, with my emphasis added in bold for brevity:

NCGS 105-278.3 defines a religious purpose as “one that pertains to practicing, teaching, and setting forth a religion. Although worship is the most common religious purpose, the term encompasses other activities that demonstrate and further the beliefs and objectives of a given church or religious body.” The Roman Catholic Church has long used a system of education as a method for instilling its particular beliefs and practices in the minds of the youth. Many protestant and other religious schools are operated by churches and church organizations in the hope of bringing the youth into conformity with the organization’s beliefs. In the developing world, Sunday Schools often teach literacy and language skills to attract children and their parents while teaching them using heavily theological materials. Thus, it is not a stretch to associate educational curriculum with organized religions and religious practices.

Problematically, CC Communities are not themselves religious organizations, denominations, or churches. NCGS 105-278.3 defines such as “a congregation, parish, mission, or similar local unit of a church or religious body; or a conference, association, presbytery, diocese, district, synod, or similar unit comprising local units of a church or religious body.”


It speaks of furthering the beliefs and objectives of “a given church or religious body” and extends exemption to “a general or promotional office or headquarters” of a group listed above, along with “residences for clergy, rabbis, priests or nuns assigned to or serving a congregation, parish, mission or similar local unit, or a conference, association, presbytery, diocese, district, synod, province or similar unit of a church or religious body.” Great lengths are taken to clearly describe who may benefit from religious exemption.

For a CC Community to benefit from the religious exemption it must prove that it is one of the above categories. Merely being a ministry, a Christian organization, etc. is insufficient, you must be a church body.

Source: Jeremy K. Akins,
Tax Administrator Alamance County
North Carolina


So although Mr Akin’s reply only applies to his county (based on North Carolina laws), it gives us an understanding that frequently the meaning of “church” for tax purposes (or property tax exemption in this case) is defined in the tax code of the states.

In other words, we as citizens, nonprofit leaders, or business owners cannot define what a church is or when our business or nonprofit group should be eligible to be called a church.

Those definitions are already in place. We just need to do our research.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

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