Oh this is a sad, sad story.
I’ve seen this twice recently: a homeschool group prepares their own 501(c)(3) application (Form 1023 or 1023-EZ) with the IRS and incorrectly tells the IRS they are a private foundation.
Homeschool co-ops or other nonprofit educational programs are not private foundations. Private foundations are charitable organizations that are funded by an individual, family, or corporation, like the Bill and Melinda Gates Foundation.
Homeschool organizations are public charities, serving the public good (the education of children). Both of these homeschool organizations didn’t think of themselves as charities. They misunderstood that the IRS uses the word charity to include educational organizations. They also didn’t think of themselves as “public,” because they didn’t not understand the IRS use of that word.
The IRS means serving a public good and being supported financially by the “public” (meaning lots of people) but that does not mean you have to open your doors to the general public! You may still have an application process and limit your membership or participation to your programs.
Now they have a real mess on their hands.
They have to file IRS Form 8940 Request for Miscellaneous Determination to change their status. The Form is deceptively simple. The Instructions explain all the paperwork that must be given to the IRS including financial statements, explanations, and supporting documents and IRS fees. Meanwhile, they have to be filing a Form 990-PF, which is quite complex. They will need an experienced CPA to prepare a 990-PF.
This is going to be expensive and time consuming. It will probably cost hundreds of dollars in IRS and CPA fees to get it straightened out.
Sad, sad, sad…
Carol Topp, CPA
Helping homeschool leaders with tax and legal compliance