Due to some circumstances, our homeschool group will no longer be able to offer classes and we wish to refund members the dues paid to our group within the past few months. Will we run into any taxation problems or other problems involving the IRS? Thank you!Andrea
It is perfectly acceptable for your homeschool group to refund the class dues since you never delivered the service (i.e. the classes).
Since you didn’t deliver the classes the customer is due a refund.
What is not allowed for a 501(c)(3) tax exempt nonprofit group like yours is to distribute any funds if your group dissolves. The IRS requires that assets (money in the bank and anything you own) of a 501(c)(3) organization must go to another 501(c)(3) organization when it closes. The assets cannot be divvied up among the members or leaders.
This refund is not taxable income to the parents. It is just a refund of a payment for services that were never delivered.
Carol Topp, CPA