What does it take to be a nonprofit?

For years, I have heard homeschool groups leaders say things like this:

“We’re not an official nonprofit.”

“We’re not a recognized nonprofit?”

“We’re not a registered nonprofit”

Or sometimes, the leaders say this:

“We’re a nonprofit but we don’t have bylaws.”

“We’re a nonprofit, but we don’t have a board.”

So this blog post will explain what it takes to become a nonprofit organization!

Three things you need to be a nonprofit:

1. Board: Chose a group of at least 3 unrelated people to lead the group so no one carries the burden of leading alone (and because it is required in most states).

2. Bylaws: Write up bylaws to structure your group. This is the basic formation document that establishes a nonprofit, its purpose and basics of how it is structured.

Sample bylaws here

3. A purpose or mission other than to make money! For homeschool groups their purpose is education, usually the education of children, but it can be education of parents as well.

But we’re not an “official” nonprofit

So what do homeschool group leaders mean when they say their group is not “official” or “registered”?

They probably mean that they have not formed a nonprofit corporation in their state (which is done by filing Articles of Nonprofit Incorporation) in their state.

Advantages of Nonprofit Incorporation

But these “unofficial” groups may not realize it, but they have probably formed a unincorporated nonprofit association when tho or more people gathered for a common purpose or cause. Unincorporated nonprofit association the default when two or more people unite for a common purpose to benefit the public in some way.

They ARE a nonprofit, just an unincorporated nonprofit! 🙂

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.

Stephen Fishman, J.D., https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

So dear homeschool leader, if your group is two or more people united for a common purpose to benefit the public, call yourself what you are: an Unincorporated nonprofit association!

If you lack bylaws

Well, your group may not need bylaws if it is just a gathering of friends like a playgroup or a group that informally meets for park days or field trips.

But if your group has a bank account, charges fees, needs insurance, rents space, and has some sort of leadership, then you should create bylaws.

Most state laws for nonprofits require some sort of “formation document” and bylaws can be that formation document. Other formation documents are Articles of Incorporation for nonprofit corporations or Articles of Association for unincorporated nonprofits.

I offer sample bylaws to get you started

If you lack a board

Every group (except the informal gathering of friends, playgroup or park group) needs to have leaders-at least 3 is recommended by most nonprofit experts. A nonprofit should not (and legally CANNOT) be operated by one person.

So gather two other people who show an interest in your group’s activities and purpose. Ask them to help you lead. It will more firmly establish that you are a nonprofit and lessen the burden on you.

If you lack a board or leaders, then this homeschool group you’ve been running could be seen by the law as your business-which means you were supposed to be reporting the income and expenses to the IRS! And it also means that you are 100% responsible for any bad thing that happens when your group gathers! That’s pretty risky!

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.

Stephen Fishman, J.D., https://www.nolo.com/legal-encyclopedia/what-an-unincorporated-nonprofit-association.html

Get your act together

So it’s not that hard to establish an unincorporated nonprofit association. You may have done it without realizing it!

  1. Assemble a board of at least 3 people to help lead
  2. Create bylaws
  3. Clarify your purpose and include it in your bylaws

Helpful Resources for the next step

Your group may need to move beyond the unincorporated nonprofit association to be an “official” nonprofit (meaning a nonprofit corporation) if your group collects money, needs insurance, or involves more risk, especially if your group involves children who are risk-magnets!

These resources will help you grow beyond the informal gathering of friends to official nonprofit status:

Board Training video set: Training in the roles and duties of board members and how to run a board meeting

Board Member Manual: a template for board member binders to keep important information

IRS and Your Homeschool Organization: 501c3 Tax exempt Status book that explains nonprofit incorporation and applying for 501c3 status

Create a Nonprofit Webinar: 90 minute webinar that explains forming a board and a nonprofit corporation.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Non-profit or for-profit for a homeschool co-op?

I am planning to start a homeschool nature-based co-op, where the parents will stay on-site, and we will meet 1-2 days per week. I believe we would be a for-profit organization. Is there some reason to choose non-profit status versus for-profit, in the case of a homeschool co-op? Any insight on how to get started would be very helpful. I have been a small-business owner for many years, but have never been in the non-profit administration world.
Shay

Shay,

Let’s start by addressing the word “co-op.” A homeschool co-op is a group of parents voluntarily cooperating to teach each others’ children. The word voluntarily is important. Co-ops depend on volunteer labor. So most co-ops are formed as nonprofits. A business cannot have volunteers working for it. That’s a violation of the Fair Labor Standards Act. So if you run the group as your business, you cannot have volunteers. Everyone must get paid if they work for the business.

But maybe you meant “co-op” in a broader sense to mean a group of homeschoolers. Your business can sell a service to a group of homeschool families. But that’s not a co-op and you shouldn’t call it a co-op. It confutes the customers.

There are many reasons why homeschool co-ops form and operate as nonprofit organizations rather than businesses. I already explained the first reason: volunteers. Here’s the more of reasons:

  1. Volunteers: a businesses cannot have volunteers working for it. A nonprofit can have volunteer labor. So homeschool co-ops that depend on volunteer labor are formed as nonprofit organizations.

  2. Ownership and Control: A nonprofit is not owned by anyone; the volunteer board runs the group and decides what everyone will get paid. The board can fire any staff including the Executive Director (the head honcho) and hire another Executive Director. The board can also vote to remove other board members including the founder. So if you want to remain in control, then you may chose to operate this homeschool group as a business. Don’t call it a co-op and don’t expect the parents to help out. Call it a homeschool service.

    This issue of ownership and control is a big stumbling block for many. Some homeschool leaders want so much to remain in control that they run their groups as a business owned by them. That’s perfectly legitimate. But then they miss out on tax benefits, donations, volunteer labor and the support of a board.

    I had a phone consultation with two women, former teachers, who wanted to start a homeschool program. Their lawyer joined in on the call. They said they were considering forming as a nonprofit and wanted 501c3 status as an educational organization. I explained that as the founders, they would have to surrender control to a board. They could serve on the board as volunteers. If they wanted to be paid, they would no longer be voting members on the board. They didn’t like the sound of that. They politely but firmly said they wanted to remain in control. So I advised them to operate as a for-profit businesses, likely a partnership. The call ended after 5 minutes. I never got to explain the rest of this list! Ownership and control was the tipping point for them.

    Many leaders, especially the founders, ask how they can remain in control and still lead a nonprofit group. I explain they cannot be in control, but they can influence who is on the board. Nonprofits can have the board replace itself with like-minded individuals. That keeps their vision and mission where they want it. This is mostly what they care about: keeping the vision and mission pure.

  3. A team/board helps carry the responsibility: When you run a business, all the responsibility is on your shoulders. All the profit is yours as well, but you don’t have anyone else to help shoulder the responsibility. It’s all on you. I frequently have this conversation with homeschool leaders. I explain the liability they carry for things like record keeping, taxes, background checks, rental leases, safety, insurance, hiring, firing and paying workers. Here’s a list of liabilities and responsibilities you carry as a business owner using a Classical Conversations Director in this case: Liabilities CC Directors Carry.

    In a nonprofit these responsibilities are carried by a group of people: the board. The workload is spread out. The treasurer handles the finances. The officers sign the leases. The board as a whole makes decisions.

  4. 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. Businesses cannot get tax exemption nor accept tax deductible donations. Any fundraisers belong to the owner and she must report it on her taxes as taxable income. So if you want and expect to get donation or grants, you should form as a nonprofit, not a business.

  5. Profit motive. Nonprofits have a mission other than profit. The purpose of a homeschool nonprofit is primarily education, but faith-based homeschool groups have an religious purpose as well. For-profits are presumed to have profit as their primary motivation. While many business owners are also motivated by an educational or even religious purposes, at the end of the day the general public, your customers, and federal, state and local governments all assume you are in business to make a profit.

  6. Other perks including Use of property-tax-exempt facilities such as churches, parks and libraries. Most churches, public parks, and libraries limit the use of their buildings to nonprofit organizations, so they can avoid paying property tax. A bushiness should notify the church, park or library that they are not a nonprofit homeschool group, but are a business.

Does that help you sort though the differences between running a homeschool group as a nonprofit or as you for-profit business?

I would estimate that probably 80-90% of homeschool groups are run as nonprofit organizations, primarily for reasons 1,3,4 and 6 (volunteers, teamwork, tax exemption, and use of tax-exempt property). For-profit business owners are swayed by reason # 2 (control) and #5 (profit).



For more information on forming your homeschool group as a nonprofit my books may be very helpful particularly:

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

The IRS and Your Homeschool Organization


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Form an LLC to homeschool your own children: Good idea or not?

Hi Carol, I love your website – so much great information!
Can I incorporate and form an LLC where my husband would hire me/my company to teach our children? If not, would I need to start some sort of online “resources for homeschool families/consulting” company in order to incorporate?
Thanks so much, Allison

Allison,
Thank you for the kind words about my website. I’m glad to hear it was helpful.

I’ve been asked questions like yours before.

Here’s a blog post on a similar question:
“Incorporate yourself and write off homeschool expenses.” Really?

And in this blog post, I explain why your idea to incorporate or form a business as an LLC and be hired by your husband to homeschool your own children doesn’t work from a financial and tax perspective:

“Sometimes homeschool families try to get clever and think that they will form a homeschool business and deduct the expenses. The idea is for the dad to hire his wife to teach their children. Then they can deduct school supplies, the mom’s wages as a homeschool teacher, etc.
Sounds pretty clever, huh? Except it doesn’t work anymore than paying mom to cook and feed the family by running an “in-house restaurant” won’t work. That’s because in both these plans (homeschooling as a business and in-house restaurant) there are no customers that are paying for the mom’s services.
Also, the mom has to declare her income to the IRS and she will have to pay taxes on it! That’s why families don’t hire mom to run an in-house restaurant and they shouldn’t hire mom to homeschool the kids either.
So forget the idea of forming your family homeschool as a business.”

Let me explain the cash flow a bit and why this idea doesn’t work.

Mom forms a business. Her only customer is her husband. They agree to pay her business $20,000 a year to homeschool and teach the children.
Dad moves $20,000 from the couple’s checking account into Mom’s business checking account. By the way, Dad has already paid income tax on this $20,000. Let’s assume its about $2,400 in federal income tax he has paid using a 12% tax rate.

Mom pays for supplies to homeschool her own children from the business checking account, which may not be allowed by the IRS as a business deduction because it is a personal expense of the business owner, but we’ll ignore that fact for now.

At the end of the year Mom’s business has a profit of $15,000.

She files a tax return (and pays extra for a tax professional or tax software to prepare the business’s tax return). She must pay federal income tax on her business profit of $15,000. It will be about $1,800 in federal income tax assuming a 12% tax rate. Remember that Dad already paid $2,400 in federal income tax on this money when he purchased Mom’s services!

In addition, Mom will pay Self-Employment tax of 15.3% of her $15,000 profit. That comes to $2,295 more in tax. Self-employment tax is Social Security and Medicare tax for self-employed people.

Did Dad get to deduct the $20,000 he paid to Mom’s business? No! Why not? Because nowhere on the IRS Form 1040 is there a deduction for homeschooling expenses! They are personal expenses for Dad and not tax deductible!

So in total Mom pays an additional $4,095 in federal income tax with this idea.

Creating a business to homeschool your own children doesn’t make sense from a cash and tax perspective!


If you are interested in starting a business to the homeschool market, my ebook Taxes for Homeschool Business Owners will be a big help.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Can homeschool groups benefit from being a Private Membership Association (PMA)?

I have had several homeschool leaders contact me in the past few weeks asking about Private Membership Associations (PMAs). I had not heard that term before so I did some research.

I learned that PMAs are businesses or nonprofit organizations that have “members” like the Boy Scouts, a country club, a food co-op, or the National Rifle Association. Some homeschool groups have members. So do churches.

But then I kept reading and heard some statements that are hard to believe.

One of my clients gave me a link to a YouTube video of a webinar featuring a self-declared expert in PMAs (and an alternative called PEA-Private Education Associations), David Edwards, who clearly states he is not a licensed attorney. I am not linking to the video because I don’t want you to waste your time watching it! And I don’t want to be promoting it via my website.

Here are some things Edwards or the hosts of the webinar say:

  • (If you operate as a PMA) there is no authority for the government to tell you what to do.”
  • (for PMAs there is) “no government intrusion in your life.”
  • “If you are in the private domain you are no longer under the jurisdiction of the local state and federal government”
  • “If you’re educating within a private education association they (the government) can’t infringe upon any of the activities of your association or require that you turn over any documents to them”

The people in the video also advocate relinquishing your 501c3 tax exempt status, and says there is no need for general liability insurance and no need to look into daycare licensing.


Some of these claims are hard to believe. Some of it sounds too good to be true. And I believe it is.

In my research I came across a few court cases involving a PMA defense. Two especially sad cases were two newborns who died at the hands of unlicensed midwives in Indiana and Tennessee. Both midwives claimed they were not under any government jurisdiction and could not be sued because they were “a PMA.”. The courts determined otherwise, See https://www.thedailybeast.com/two-babies-die-in-care-of-conspiracy-minded-midwives-who-belonged-to-pmas

The advocates of PMAs and PEAs in the video and other related websites make a lot of vague promises and vague threats. They frequently claim that this information about PMAs was “hidden” until they started promoting it. The video promotes PMAs, PEAs, and Edward’s services. One of my clients was quoted $1,500 to draw up their “PMA paperwork.” (remember Edwards is not an attorney).


“The fake legal claims derive from the sovereign citizen movement,” said JJ MacNab, an expert on anti-government extremism. “It’s all phony legal theory. There’s nothing real there. If you look at the history of the sovereign and tax-protest movements, this is just a rehashing of an earlier scheme called the ‘pure trust.’ They just repackaged it,”

JJ MacNab, a fellow at George Washington University’s Program on Extremism quoted from https://www.thedailybeast.com/two-babies-die-in-care-of-conspiracy-minded-midwives-who-belonged-to-pmas

What the promoters of PMAs and PEAs don’t seem to tell you are the disadvantages of a PEA/PMA, the tax consequences of relinquishing your nonprofit or 501c tax exempt status, and the liability exposure you may have by not having liability insurance.

Sometimes it’s not just what people say, it what they are not saying that you need to be careful about!

That is very true in this situation.

If you would like to understand PMAs and PEAs for your homeschool group, I recommend that you contact an attorney.

Or for a consultation about 501c3 tax exempt status and 508 of the Internal Revenue Code (it was mentioned several times in the video) for homeschool organizations, you can arrange a consultation, a licensed CPA. Me! 🙂

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

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

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

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

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

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

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

5 Great Reasons to Incorporate

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





To be clear:

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

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

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

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


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


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

And perhaps my webpage of Articles and some podcast episodes.

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

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

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Operating a homeschool group in multiple states

A homeschool group leader contacted me recently. She ran a homeschool group that was established in Kentucky as a nonprofit corporation, but now operated from a location in Ohio (just across the Ohio River). She was wondering what she needed to do in Ohio to be compliant with any reports Ohio required.

It is pretty rare for a homeschool group to operate or exist in multiple states, but it can happen when a group is located near a state line.

I found some helpful information from Floyd Green a nonprofit CPA.

Operating in Different States


Nonprofit organizations can operate nationwide, even though they are legally registered in one specific state as a domestic entity. Generally, charities incorporate in the state either where their headquarters are located in or where the majority of their activities take place. As your 501c3 organization grows and evolves, a need to operate in more than one state might often arise.

If you decide to expand your operations outside your state, you must keep in mind that you will have to comply with each specific state’s requirements where you choose to conduct your programs.   The federal/IRS part of the compliance standards will not change if operating in additional states. 

To be recognized as operating in another state, your nonprofit must be actively conducting its tax exempt program(s) outside its state of domicile. For instance, if you have a transitional housing facility in Georgia and you open another transitional housing location in Florida, you will be considered as operating in two states. In this case, you would have to register your Florida branch as a foreign corporation (here term “foreign” means “outside the state of domicile”). In some states, however, you will be required to file a “Certificate of Authority” to transact business in a particular state.

Please note that once you are registered as a foreign entity in a particular state, you are then required to do annual filings and reporting in the second state of operations, in addition to the filings you must do in your home state.

http://floydgreencpa.com/index.php/501c3/nonprofit-501c3-articles/101-operating-in-different-states



If you need help knowing what reports your state requires, HomeschoolCPA has two resources to help you:

Webinar: IRS and State Filings. This 60 minute recorded webinar equips to file on your own the IRS Form 990-N and state forms saving you hundreds of dollars in professional fees. The cost of the webinar is $10.

Service: Research your state filings and reports and send you a customized letter for your organization. The cost for this service is $100.

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Do we have to file as a non-profit to be an official homeschool co-op?

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

Do we have to file as a non-profit to be an official Co-Op?



Well, I’m not sure what you mean by “official homeschool co-op.”

Perhaps you mean an “official” nonprofit organization.

As soon as you have a board, mission, and bylaws your organization IS a nonprofit organization!

It is an unincorporated association, but it is still a nonprofit organization. There is usually nothing to file at the state level to create an unincorporated association. The filing starts (at the state level) when you chose to be come a nonprofit corporation, as many co-ops do.

There is no such thing as an “official co-op.” The homeschool classes that you call “a co-op” are the main program or activity that your nonprofit organization operates. The nonprofit organization may also offer other activities such as parties, clubs, field trips, etc.

This blog post explains what an unincorporated association is: My Homeschool Group is an Unincorporated Association. What Does That Even Mean?

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

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

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

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

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

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

Lisa in California

Lisa,

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

For years I told small homeschool groups:


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

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

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

The IRS website says:

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

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

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

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


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

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

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

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