The IRS and Cooperative Fundraising

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Carol,

My homeschool group does several fund raisers where we divide the proceeds to each family to reduce the parents’ tuition. We have a shoppers reward program and I track how much of a tuition credit each parent earns by using their shoppers reward card.  We also let students or parents work off some tuition by volunteering to work a shift at our city’s major league baseball stadium concessions.  The team makes a donation to our homeschool group (a 501c3 organization).  I’m having a hard time finding information on the IRS website about these types of fund raisers.

Susan in Ohio (paraphrase from a spoken conversation)

Susan,

I’m sorry you found it so difficult to find information about fundraisers like your group is running. Sometimes you have to know the correct language to use in a search.

IRS Guidance on cooperative fundraising

The IRS does have a document titled Athletic Booster Clubs: Are They Exempt? written n 1993. I’ve read this document several times. It is a document that the IRS uses to train their employees. While it addresses athletic booster clubs, the principles apply to school booster clubs and homeschool groups that do fund raising.

Here is a white paper by Sandra Pfau Englund, an attorney with Renosi Law, P.A. www.nonprofitlaw.com where she explains the IRS’s 14 page document.

Her conclusion on what the IRS calls cooperative fundraising (fundraising activities in which individuals receive credit for funds raised) are pretty serious:

The following key conclusions are made based on a review of the federal law and the limited IRS writings regarding
cooperative fundraising and IFAs:
1. The IRS has found that engaging in cooperative fundraising activities using of individual fundraising accounts
(IFAs) may disqualify an organization for federal tax?exempt status under section 501(c)(3);
2. Cooperative fundraising activities are not strictly prohibited under federal law and IRS rules, and the IRS’
analysis and arguments are not convincing;. however,
3. If booster clubs engage in cooperative fundraising activities it is recommended that such activities make up only
an insubstantial amount of the booster clubs overall activities.

https://parentbooster.org/resources/documents/cooperative%20fundraising%20activities%20white%20paper.pdf

Ms Pfau Englund also founded an organization called ParentBoosterUSA. Her blog post on Athletic Booster Clubs Face Intense Scrutiny: 5 Tips to Keep Out of the Penalty Box is worth reading.

Your question about fund raising by working concessions at MLB games is also considered cooperative fundraising if you give credit to the participating families and therefore strongly discouraged by the IRS and most nonprofit experts.

Conclusion

I agree with ParentBoosterUSA, if you are using cooperative fundraising and giving credits or divide the proceeds among the participating families: STOP. Now. Use fundraisers to support the entire homeschool organization. Focus on paying for events or equipment that the entire group uses. Do not “credit” fundraiser proceeds to individuals or families based on the amount of funds raised or volunteer hours worked. 


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Are fundraisers harming your chances for tax exempt status?

Many homeschool organizations depend on fund raisers to help run their homeschool co-ops and support groups. These fund raisers could actually harm a group’s chances of obtaining tax exempt status.

Fundraiser income was significant for this homeschool group

Julie is treasurer of a homeschool co-op in Oklahoma that desires to file for 501c3 tax exempt status with the IRS. I examined her financial statements and saw that the group depended heavily on profit from fund raisers including candy, food and flower sales. These fund raisers required Julie to collect over $12,000 a year in sales. The co-op made a profit of nearly $4,000 every year from their fund raisers.

“It’s a blessing to the co-op, because many of our families cannot afford even the small co-op fees we charge. And friends and neighbors beg us to keep selling our products, especially the locally made food.”

The profit from the fundraisers was actually more than the amount collected in co-op dues.

Unfortunately, with most of the co-op’s income coming from fundraisers and not membership fees or the group’s educational programs, the IRS may not grant Julie’s co-op 501c3 tax exempt status.

The IRS requires a significant portion of your income come from public support (i.e., the dues from your families or your programs) and not from an “unrelated businesses” (i.e. selling products in a fund raiser). The IRS defines “significant” in this situation as having more than 1/3 of your income come from public support.

IRS exceptions

Fortunately for Julie’s group, the IRS has several exceptions. One of them worked for Julie’s group. Her fundraising efforts were all done by volunteers and so the IRS considers that fundraiser as not being “unrelated business income” and that means they meet the 1/3 test mentioned above.

The IRS rules and exceptions for “unrelated business income” get a bit complicated and both the homeschool leader and I did our research. We were very careful and thorough when explaining the fund raising program to the IRS when Julie’s nonprofit filed for tax exempt status with the IRS.

More information about fundraisers

If your group has concerns about their fundraising practices, these related blog posts might help:

The IRS’s Word on Fundraising Do’s and Don’ts

The IRS and Fund Raising

What does the IRS mean by not allowing “private benefit” in a fund raiser?

…working to keep you on  the right side with the IRS!


My book Money Management in a Homeschool Organization has been helpful to hundreds of homeschool groups. It includes a chapter on “Easy Fundraisers” too!

_____________________________________

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Should I start a homeschool co-op with volunteers or an academy with hired teachers?

I’m considering starting a homeschool group. How did you decide on a co-op with all volunteer teachers versus an academy with hired teachers? I think I have some moms who would be interested in participating, but I really don’t know yet.

I have briefly looked at your information and will continue to dive deeper, but would certainly love to hear your personal experiences, particularly if there is anything you would do differently.

Becky Abrams, a homeschool group leader in Oregon, and a consultant to other group leaders, has run both an all-volunteer co-op and an academy (she calls it a “hybrid homeschool program”) with hired teachers.

She has several blog posts at HomeschoolLeaders.com on paying employees.

Becky would be happy to do a phone consultation with you to sort through this decision. Contact Becky

Here’s a podcast interview I did with Becky about how she launched her all volunteer co-op. https://ultimateradioshow.com/necessity-leads-new-homeschooler-to-start-a-homeschool-co-op/


Additionally, my friend Jamie Buckland, of Classical Program Consultant has both hired teachers and used volunteers.

Jamie explained, “We, Appalachian Classical Academy (ACA), are a nonprofit organization with 501c3 tax exempt status and we employed teachers for three years and then went to all volunteers largely due to financial constraints. There are pros and cons to having volunteers. There are pros and cons to hiring employees!”

Here’s link to a podcast HomeschoolCPA did Jamie about why ACA employed teachers for 3 years.
https://ultimateradioshow.com/should-you-pay-homeschool-teachers/


Tips and Advice

From the experience of both these leaders, I have some tips to help you make this decision:

What experience do you have in running a homeschool group? Have you been on the leadership board of a homeschool group? If you are not very experienced (at least 3 years as a leader of a group) I would stick to the all volunteer co-op. Running a hybrid/academy with paid staff if significantly more work and responsibility that a co-op.

Do you have any experience in hiring and paying employees? If not, start with the all volunteer co-op. Then work at finding a payroll company and a good Treasurer and bookkeeper. You’ll need all three if you run an academy with hired teachers.

What are the ages of your children? If they are young (elementary age), stick with the all volunteer co-op. Don’t sacrifice your own children in attempting to homeschool other peoples’ children! As your children grow older consider adding a few paid instructors and grow into a full fledged academy as your experience grows.

Do you have the time, mental, and emotional capacity to research daycare licensing, employer laws, payroll companies, background checks, increased bookkeeping and cash management that come with an academy?

Are you doing this alone or do you have a strong board? Without a strong, active board, you will not succeed in launching a hybrid/academy. You may not even pull off a small volunteer co-op with out a strong board.
So get a board! They will help you make this decision. If you lack their full support and availability to take on an academy with hired teachers, don’t do it! Wait. Grow slowly.


Are you paying workers in your homeschool organization?
Carol Topp, CPA ‘s book Paying Workers in a Homeschool Organization. covers paying workers as employees or independent contractors. There are also chapters on paying volunteers and board members. It includes sample forms, tips and advice to help you pay workers in accordance with the IRS laws to help your organization pay their workers correctly. Written specifically for homeschool organizations.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Board members and officers explained visually

Are you confused by the jargon used with nonprofits?

  • Board member
  • Officers
  • Executive Director

Many homeschool leaders get confused by these titles and the roles they have in a homeschool nonprofit organizations, so I created a visual way to explain these terms using a Venn diagram (can you tell I used to be a homeschool mom?!)

Here’s an excerpt from the two part video set

Board Training for Homeschool Groups

The full video set is available for purchase at HomeschoolCPA.com/Board Training.



Bonus offer: Buy before April 11, 2022


If you purchase the Board Training for Homeschool Groups video set before April 11, 2022, you will be invited to a live Zoom call in to ask hosts Carol Topp and Becky Abrams any questions you have about nonprofit boards for homeschool organizations. The live session will be offered on Monday April 11, 2022 at 8 pm EDT. The recording will be added to the video set, so you will get three videos!

The video set costs $40 and includes two videos each about 40-50 minutes and a copy of Carol Topp’s ebook Homeschool Board Member Manual..


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

IRS asks if homeschool groups gives scholarships

I am helping my homeschool co-op apply for 501c3 tax exempt status with the IRS.On the application form (Form 1023), the IRS asks about scholarships. We provide scholarships for our members that cannot pay their $30 membership fee.  Should we check “yes”?
Tricia from TX

Tricia,

The IRS is asking about “real” scholarships like the kind a high school graduate is given to go to college.

What your group offers is a fee discount, specifically a benevolent discount to a needy family. I find that co-ops frequently call these fee discounts “scholarships.” That is the wrong word to use when dealing with the IRS.

I wish I could wave a magic wand and get homeschool groups to stop calling a fee discount a “scholarship.” But I’ve been trying for about 15 years with no success!

I recommend that you change your wording in your co-op and especially change the word on your application to the IRS.

I think you should check the box NO. Your homeschool group does not provide scholarships as the IRS is using the word. Your group gives a benevolent discount.

By the way, your discount of $30 seems insignificant and it’s for benevolence.

But some homeschool groups give rather large discounts to super volunteers, teachers, board members, etc. One homeschool group was giving a board member $4,000 in discounts every year!  These large discounts may be taxable income to the volunteer or paid worker!


I recommend you get a copy of Paying Workers in a Homeschool Organization to help you stay legal and compliant with compensation reporting.


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Are my homeschool co-op fees tax deductible?

I’m a homeschool parent and member of a homeschool co-operative that weeks weekly. I have to pay tuition to this group for the classes my children take there. Can my children’s tuition for the co-op be a tax deduction?

 

I assume you mean deductible as a charitable donation.

Co-op fees are not a tax deductible charitable donation because services (co-op classes for your children) were received in return for the tuition payments. Tuition payments are not a tax deductible donations.They are personal expenses and are not tax deductible.

But if a parent makes a charitable gift to the homeschool group (assuming it has 501c3 tax exempt status from the IRS) above and beyond the tuition and fee payments, then this amount would be a tax deductible donation.

Some homeschool parents ask if co-op fees can be deducted as childcare expenses. My reply is “usually not” and here are the details: Are homeschool co-op fees child care tax deductions?

 


Did you get paid for teaching at a homeschool program? You may have questions about your taxes? I offer webinar to help you understand the tax implications of being a paid homeschool co-op teacher or tutor:

I recorded a webinar on Tax Preparation for Homeschool Business Owners. It should be a lot of help to tutors, non-employee co-op teachers and other homeschool business owners! You can watch the recording at HomeschoolCPA.com/HSBIZTAXES for a small fee of $10.

Carol, thank you again for the webinar. It was one of the BEST webinars I’ve EVER attended. If you do hold another one, I would pay for it hands down. Totally worth the $10! -Denise, webinar attendee

“I actually don’t care for webinars at all – it is not my learning style at all and I struggle to focus, but this one was extremely value and had my attention”. -Mary, webinar attendee


I hope that helps!

Carol Topp, CPA

HomeschoolCPA.com

Helping homeschool leaders

How the IRS sees homeschool groups (podcast)

IRS and homeschool groups

UPDATE: This podcast episode originally aired in 2015. But it is still accurate and helpful in 2021, 6 years later!

In this episode of the Dollars and Sense Show podcast, host Carol Topp continues her topic “Who’s Afraid of the IRS?” and discusses how the IRS sees homeschool co-ops, nonprofit incorporation, for-profit homeschool groups, and what happen when a nonporift loses its 501(c)(3) tax exempt status.

Listen to the podcast

Listen to the first part of this presentation where Carol discussed homeschool support groups as IRS 501(c)(7) Social Clubs and co-ops as 501c3 Educational organizations.

Get a copy of the handout.

More information

Carol mentioned the article “Do You Know About IRS Required Filings for Homeschool Organizations?” Get it here.

Carol’s book, The IRS and Your Homeschool Organization, is available here.

The IRS and Your Homeschool Organization

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Who’s Afraid of the IRS? (podcast)

IRS and homeschool


UPDATE: This podcast episode originally aired in 2015. I am amazed at how accurate it still is 6 years later!


Are you afraid of the IRS? Should you be?

How does the IRS see homeschool organizations?

In this episode of the Dollars and Sense podcast, host Carol Topp, CPA discusses how the IRS sees homeschool organizations. Carol discusses homeschool support groups as IRS 501(c)(7) Social Clubs and homeschool co-ops as 501(c)(3) educational organizations.

Listen to the podcast here

Get a copy of the handout Who’s Afraid of the IRS Handout

More information

The second part of this podcast presentation, “How the IRS sees homeschool groups”

Carol mentioned the article “Do You Know About IRS Required Filings for Homeschool Organizations?” Get it here.

Carol’s book, The IRS and Your Homeschool Organization.

The IRS and Your Homeschool Organization

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Ideas of easy fundraisers for homeschool groups

DSS#30Graphic

UPDATE: This podcast episode originally aired in 2014, but it is still very applicable in 2021, except that Box Tops has now gone digital! No more clipping coupons. 🙂



Your homeschool organization probably looks for extra ways to bring in money. Carol Topp, the Homeschool CPA, shares ideas for easy fundraising in this episode of the Dollars And Sense Show podcast.

Listen to the podcast here

Show Notes

Coupon and reward programs
Box Tops for Ed cation. Need 501c3 status
Shopping reward like Kroger Plus program
E Scrip

Food as a fundraiser
Pizza sales, bake sales to members
Candy, popcorn sales to public could impose a reporting to you state’s AG office
Restaurant (Chik-Fil-A) give a percent of proceeds from one night to your organization
Dinners as fundraisers

Donations
Via email, website, crowd funding, etc
Read-a-thon or walk-a-thon
Car washes and bake sales

Sell products
Ideas at TopSchoolFundraisers.com
Used curriculum sale. Charge an entrance fee, or a table fee to the sellers (or both!)

Reporting the Fundraiser income:
The IRS considers fundraisers to be unrelated to your nonprofit purpose and therefore, subject to taxation. Exceptions to the Unrelated Business Income tax:

  • Under $1,000 income from fundraisers in a year
  • All volunteer labor (no hired help to run the fundraiser)
  • Not regularly carried on
  • Selling donated items

State Charity Registration for fundraisers

Your state may require reporting to their Charitable oversight agency (usually the state Attorney General) if you sell to the public or solicit donations from the public. Some exceptions to registering with your state include: only making sales to your members, a dollar threshold ($25,000 is common), using all volunteer labor for your fundraisers. These exceptions vary by state.

Unsure about what reports your state requires or what exceptions you qualify for? HomeschoolCPA offers a service to research your states laws and required reports. IRS and State Filings Research

Here’s a helpful link to start researching what your state requires. Fundraising Compliance Guide

Warning: No Individual fundraising accounts!
See Scouts don’t allow individual fundraising account (and neither should you!)

More information

Money Management in a Homeschool Organization book

Blog posts on fundraising

Article “Easy Fundraisers for Homeschool Groups”

Unsure about what reports your state requires? HomeschoolCPA offers a service to research your states laws and required reports. IRS and State Filings Research

Money Mgmt HS OrgCover

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Paying Workers in a Homeschool Organization Part 2 podcast

DollarsSenseShow18

UPDATE: I aired this podcast originally in 2014, seven years ago. It’s still very useful and paying workers is a topic that come up frequently for homeschool group leaders. I’ve updated this blog post with a few changes of IRS forms and links.

Do you pay workers in your homeschool organization?

Do you know what form to to filing with the IRS?

Homeschool CPA, Carol Topp, will share the details of what you need to know about paying workers in a homeschool organization in this 30 minute podcast. Part 2 of a 2 part series.

Listen to the podcast

Be sure to listen to the first part of this podcast (Episode #17) where Carol explains the difference between employees and independent contractors.

Show Notes:

Applying for EIN. Use IRS Form SS-4. Read this helpful article first Getting an EIN from the IRS. (updated link)

IRS forms to give to independent contractors (IC).

  • Use IRS Form W-9 to collect the IC’s legal name and EIN.
  • Read IRS Pub 15A Employers Supplemental Tax Guide.
  • Give Form 1099-MISC (UPDATE: as of Jan 2021, the Form is now 1099-NEC Nonemployee Compensation) to every IC paid more than $600 in a calendar year. Unfortunately Form 1099-MISC (now 1099-NEC) cannot be printed on your home printer. You must order them from the IRS or buy a set at an office supply store. I use FileTaxes.com (now called Yearli.com) to file and mail Form 1099-MISC. Yeali’s fee is now $5.50-$6.50 per 1099-NEC. (2021)

IRS forms to give to employees

  • Collect a W-4 and an I-9 (Immigration) from each employee. Get employment forms at IRS.gov
  • Read IRS Pub 15 Employers Tax Guide
  • Give each employee a W-2 at the end of the year. (I recommend Yearli.com to file and mail the W-2’s to employees)
  • Form 941 or 944 to pay your employer taxes (Social Security and Medicare). Find employment forms at IRS.gov.  I use Yearli.com to prepare and file 941/944.

What to do if you are paid by homeschool organization an receive a 1099-NEC?

  • File Schedule C Profit or Loss from Business of the Form 1040. List all your income and expenses from being a independent contractor.
  • Pay federal income tax and  self-employment tax (same as Social Security and Medicare for self-employed people) using Schedule SE (attached to your Form 1040.

Helpful Resources

Money Management in a Homeschool Organization

Cover Money Mgmt HS Org

Paying Workers in a Homeschool Organization

And if you are a workers in a homeschool organization and receive a 1099-NEC or need to report your earnings even without an 1099-NEC, this ebook will be very helpful:
Taxes for Homeschool Business Owners


Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders