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

Can a homeschool group be charitable? Maybe not!

I love knowing that  most homeschool groups are generous, especially toward families in financial need. They deliver meals, take up collections, and waive fees for a needy family.

But should a homeschool group serve as a charity?

Maybe, but maybe not.

Here’s a true story..

A homeschool group was given $5,000 with the specific purpose of gifting to members in the group that were experiencing difficult financial times.  They told me, “Our instructions from the donor was to gift it to members that were going through difficult financial times due to unemployment or illness.”

It was very nice of the donor and the organization to have a concern for the afflicted families in their program.

But this homeschool group has 501(c)(3) status as a religious and educational organization. There is no mention of “charitable” purpose in their founding documents (their Articles of Incorporation), or in their tax exempt application with the IRS.

Basically, they were not given tax exempt status to be collecting and distributing funds to needy people (i.e. charity).

Here’s part of what I wrote to them:

In general, your homeschool organization should not serve as a charitable conduit for someone to make a gift to a needy family (or families). The reason is because your 501(c)(3) status was for educational purposes, not charitable to help needy families with financial needs. Additionally, the donor used your homeschool organization to get a tax deductible donation, when he or she should have given the money as a gift (i.e. not tax deductible) to the needy families.

If you told me that you used the $5,000 to start a benevolent fund and reduced the tuition for several families, I’d say the IRS may approve that use of the money. Your homeschool organization is not a “charity” and should not be used to funnel money to a needy family, nor should you let your 501(c)(3) status be used to give a donor a tax deduction for what is a gift to an individual(s).

You were given tax exempt status for specific purposes. Stick to the purposes you told the IRS: educational and religious.

Now, I’m a religious person (a Christian, to be exact), so to me being generous and helping the needy is related my religious beliefs and this homeschool group may argue the same. But they should have been more clear in their explanation to the IRS and their organizing documents.

My advice to them is to:

  1. Not accept donations that are ear marked for helping the financial needs of a family. Direct the donor to other charitable organizations.
  2. Not give cash or checks to a needy family, but instead offer tuition discounts on their program to keep in line with their educational purposes.
  3. Not let your homeschool organization be used as a conduit for financial transactions that are outside of your exempt purpose.

All homeschool leaders should pull out their founding documents (their Articles of Incorporation and bylaws) and their tax exempt application with the IRS (Form 1023 or 1023-EZ) to refresh their memory on their organization’s stated purpose.

Then stick to that purpose.

The Homeschool Organization Board Manual will help you keep your important documents  in a binder for easy access.

Your board may wish to create a donation acceptance policy and include the 3 points above.

Carol Topp, CPA
HomeschoolCPA.com

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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

What does it cost to get tax exempt status?

How much does it cost to be a 501c3? My homeschool group is new and we don’t have a lot of money.
-Homeschool leader

 

Dear homeschool leader,

It’s not as expensive to apply for 501c3 tax exempt status as it used to be, especially if your organization is small (revenues less than $50,000/year) and is eligible to file the shorter IRS Form 1023-EZ.

Here’s an explanation of the cost to get 501c3 status from my webinar on 501c3 Application for Homeschool Nonprofits

This webinar (90 minutes total length) will explain the benefits of tax exempt status, the application process and walk you through the application Form 1023-EZ line-by-line. At the end of the webinar you’ll be equipped to apply for tax exempt status by yourself. The cost of the webinar is $25.

 

Get more information on the webinar 501c3 Application for Homeschool Nonprofits

 

Carol Topp, CPA

HomeschoolCPA.com

Change your homeschool group’s name on your EIN

Carol,

Our homeschool group formed a nonprofit corporation in our state with the name Grace Home School Organization. We just discovered that our EIN with the IRS has Grace Homeschool Organization with  “Homeschool” as one word, not two words. What do we do?

Dave

 

Dave,

The name on your incorporation paperwork takes legal precedent over the name on the EIN, so you need to notify the IRS that there is an error in the EIN’s name. Here is what I found on how to change your name on your EIN.

https://www.irs.gov/charities-non-profits/charitable-organizations/change-of-name-exempt-organizations

Write a letter to  IRS Exempt Organization (P.O. Box 2508  Cincinnati, OH 45201) or Fax: (855) 204-6184. Include a copy of the amendment to the Articles of Association, Constitution, or other organizing document (i.e., original Articles of Incorporation) , showing the effective date of the change of name and signed by at least two officers, trustees or members.

The letter or fax reporting the change of name must include your organization’s 

  • full name (both the prior name and the new name) 
  • Employer Identification Number and 
  • authorized signature (an officer or trustee) 

The individual signing the letter must state the capacity in which he or she is signing (for example, “John Smith, President”).

 

Include a copy of your original incorporation paperwork (Articles of Incorporation) from your state proving your legal name is Grace Home School Organization. The IRS should simply correct the incorrect spelling of “Home School” on the EIN.


Have you set up your homeschool group as a nonprofit corporation? Do you know the benefits and the process?

Carol Topp’s webinar Create a Nonprofit for Your Homeschool Community walks you through the steps of forming a nonprofit and getting incorporated in your state.


 

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders

Still time to join the IRS and State Filings for Homeschool Nonprofits webinar

Carol Topp, the Homeschool CPA, will help you understand the IRS and state reports and file them yourself! In her webinar IRS and State Filings for Homeschool Nonprofits, Carol will explain the IRS annual returns and how to determine what your state may require as well.

You will learn:

  • The importance of maintaining 501c3 tax exempt status
  • The IRS Form 990 series. What form your group needs to file.
  • How to know if you’ve missed filing IRS returns
  • How to see Form 990-EZs and 990s from other nonprofits.
  • An explanation of the IRS Form 990-N.
  • What filings may be required by your state with examples

The webinar was live in August 2019 but you an purchase the recording for $10.

The webinar will last approximately one hour. There will be time for your questions. It will be recorded for viewing later.

The cost is $10 and you will receive:

  • Access to the live webinar on Wednesday August 21, 2019
  • An opportunity to ask questions via the live chat room
  • Handout of the slides
  • Recording to the webinar
  • IRS Forms, Instructions and samples
  • Template to summarize your state and IRS filing requirements for your board

Carol Topp, CPA

HomeschoolCPA.com

What do you do after your homeschool group has tax exempt status?

Getting 501c3 tax exempt status is a great accomplishment! If you’ve done it, congratulations!

But you’re not finished with government forms just yet! Your state and the IRS have several reports that must be filed regularly to maintain that precious tax exempt stats.

Almost every homeschool group will have some reporting with the IRS and their state.

Carol Topp, the Homeschool CPA, will help you understand the IRS and state reports and file them yourself! In her webinar IRS and State Filings for Homeschool Nonprofits, Carol will explain the IRS annual returns and how to determine what your state may require as well.

You will learn:

  • The importance of maintaining 501c3 tax exempt status
  • The IRS Form 990 series. What form your group needs to file.
  • How to know if you’ve missed filing IRS returns
  • How to see Form 990-EZs and 990s from other nonprofits.
  • An explanation of the IRS Form 990-N.
  • What filings may be required by your state with examples

The live webinar will be on Wednesday August 21, 2019 at 8 pm ET/7 pm CT/6 pm MT/5 pm PT

The webinar will last approximately one hour. There will be time for your questions. It will be recorded for viewing later.

The cost is $10 and you will receive:

  • Access to the live webinar on Wednesday August 21, 2019
  • An opportunity to ask questions via the live chat room
  • Handout of the slides
  • Recording to the webinar
  • IRS Forms, Instructions and samples
  • Template to summarize your state and IRS filing requirements for your board

 

More information at HomeschoolCPA.com/Filings

 

Carol Topp, CPA

Webinar: IRS and State Filings for Homeschool Groups

Getting 501c3 tax exempt status is a great accomplishment! If you’ve done that, congratulations!

But don’t think you are done with government forms just yet! Your state and the IRS have several reports that must be filed regularly to maintain your precious tax exempt stats.

Carol Topp, CPA the HomeschoolCPA has helped over 100 homeschool organizations apply for tax exempt status. She has prepared a webinar on IRS and State Filings for Homeschool Nonprofits. Carol explains the IRS annual reports for tax exempt nonprofits and how you can know what your state requires.

You will learn:

  • The importance of maintaining 501c3 tax exempt status
  • The IRS Form 990 series. What form your group needs to file.
  • How to know if you’ve missed filing IRS returns
  • How to see Form 990-EZs and 990s from other nonprofits.
  • An explanation of the IRS Form 990-N.
  • What filings may be required by your state with examples

After the webinar you will be equipped to file on your own the IRS Form 990-N and state forms saving you hundreds of dollars in professional fees.


This webinar is the third in a series of 3 webinar to teach homeschool nonprofit leaders how to create a nonprofit, get and maintain tax exempt status. The other two webinars are:

I highly recommend you watch the first two webinars on Create a Nonprofit for Your Homeschool Community and 501c3 Application for Homeschool Nonprofits. They are both a precursor to this webinar and tells you what to do to create a nonprofit and apply for 501c3 tax exempt status.


This third webinar on IRS and State Filings is for Homeschool Nonprofits if for groups that have received (or applied for) for tax exempt status with the IRS and:

  • Are unsure about IRS annual returns
  • Don’t know what forms their state requires from nonprofit organizations
  • Do fundraisers or ask for donations
  • Received a letter from the IRS or their state about missed reports
  • Need to know what to do to maintain their tax exempt status
  • Want to know what it takes to run a compliant nonprofit organization
  • People who want to DIY the IRS and state flings but need an experienced expert to teach them how.

The webinar will last approximately one hour.

The cost is only $10 and you will receive:

  • A recording of the webinar
  • Handout of the slides
  • IRS Users Guide for Form 990-N
  • Blank IRS Form 990-EZ and Instructions
  • Template to summarize your state and IRS filing requirements

Carol Topp, CPA
HomeschoolCPA.com
Helping Homeschool Leaders maintain tax exempt status.

How to self declare tax exempt status

In my webinars on Creating a Nonprofit for a Homeschool Community and 501c3 Application for Homeschool Nonprofits, I briefly mentioned that some homeschool groups can self declare tax exempt status.

I didn’t go into detail of HOW to self declare this tax exempt status. This blog post explains the HOW.

Background:

Organizations that are eligible to self declare 501 tax exempt status do not have to apply for tax exempt status with the IRS. So no Form 1023/1023-EZ or 1024 needs to be filed! This saves you time and money! Hooray.

But self-declared tax exempt organizations must still maintain that tax exempt status by filing an annual report with the IRS. This annual filing is Form 990/990-EZ or 990-N.

 

If you are a 501c7 social club:

This status is common for homeschool support groups that focus on social activities and clubs rather than on educational activities

Self declare tax exempt status

Since you have not applied for 501(c)(7) status  (you can “self declare” 501(c)(7) status and don’t have to file the paperwork), you are not in the IRS database (yet) so you will not be able to file the 990-Ns. You will need to call the IRS Customer Account Services at 1-877-829-5500 and be added to their Exempt Organization database so you can begin filing the Form 990-Ns.

It typically takes 6 weeks after you call to be added to the IRS database.

Tips when calling the IRS

Say something like this,

“We’re a brand new 501(c)(7) Social Club and we needed to get added to the IRS exempt organization database so we can start filing our 990-Ns.”

 


If you are a 501c3 Educational Organization

This status is common for tiny homeschool groups including co-ops, tutorials, youth sports, music and arts organizations that focus on educational activities.

Your organization’s total gross revenues must be less than $5,000 per year to be eligible to self declare 501(c)(3) tax exempt status.* 501(c)(7) social clubs mentioned above do not have that $5,000/year limitation. They can have gross revenues of more than $5,000/year and still self-declare tax exempt status.

Read about the difference between 501(c)(7) Social clubs and 501c3 organizations.

Since you have not applied for 501(c)(3) status, you are not in the IRS database (yet) so you will not be able to file the 990-Ns. You will need to call the IRS Customer Account Services at 1-877-829-5500 and be added to their Exempt Organization database so you can begin filing the Form 990-Ns.

Tips when calling the IRS

Say this: “We’re a small 501(c)(3) educational organization with revenues of less than $5,000 per year. We understand we can self-declare our 501(c)(3) tax exempt status. We’d like to get added to the IRS exempt organization database so we can start filing our 990-Ns.”

 

*Note that only 501(c)(3) organizations with less than $5,000 annual gross revenues can “self-declare” their tax exempt status. 501(c)(3) s with more than $5,000/year in revenues must apply for501(c)(3) status using Form 1023 or the new, shorter Form 1023-EZ.


For both  501c7 Social Clubs and 501c3 Educational Organizations

During your call with the IRS, they will ask for your EIN and organization’s name, address, and probably a contact name. Have all that ready before you call.

They may also ask what date your fiscal year ends. Many support groups operate on a calendar year, but some operate on a school year with a year end of June 30 or July 31. You get to pick it!

They may ask if you have “organizing documents.” They mean bylaws, Articles of Association (or Articles of Incorporation). So tell them if you have bylaws or Articles of Association/Articles of Incorporation. Samples can be found here.

Call the IRS early in the morning. They open at 8 am local time and you can usually get through pretty quickly of you call then. Record the date you call, the IRS employee name and their identification number.

Don’t forget to the the 990-N every year!

Be sure you go online to file the Form 990-N anytime after your fiscal year ends and before its due date which is 4 1/2 months after the end of your fiscal year.

So if you operate on a calendar year, the 990-N is due May 15. If your fiscal year ends June 30, the From 990-N is due November 15 every year. File it at IRS.gov/990n

 

Have more questions about your homeschool organization’s tax exempt status? My book, The IRS and Your Homeschool Organization would be a big help.

 

 

 

 

If your 501(c)(3) educational organization grows and has more than $5,000 in revenues per year, it’s time to officially apply for 501(c)(3) tax exempt status.

This webinar 501c3 Application for Homeschool Nonprofits will explain how to do that.

 

Carol Topp, CPA

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Inurement: a funny word the IRS doesn’t like!

The IRS uses an unusual word that most of us don’t know the meaning of: inure or inurement. Here’s how the IRS uses it in their definition of a 501(c)(3) tax exempt organization:

A section 501(c)(3) organization must not be organized or operated for the benefit of private interests, such as the creator or the creator’s family, shareholders of the organization, other designated individuals, or persons controlled directly or indirectly by such private interests. No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. A private shareholder or individual is a person having a personal and private interest in the activities of the organization. (emphasis added)

Source: https://www.irs.gov/charities-non-profits/charitable-organizations/inurement-private-benefit-charitable-organizations

What does inurement mean?

“Inurement” means “benefit.”  The IRS forbids a tax exempt organization to use its income or assets to directly or indirectly benefit an individual, a person with a close relationship with the organization or a person who is able to exercise significant control over the organization. These can be board members or donors.

Jeramie Fortenberry an attorney, gives an excellent explanation of inurement in his website article “The Inurement Prohibition & Non-Profit Organizations.”

Non-profit organizations are subject to what is known as the nondistribution constraint.  Simply stated, this means that non-profit organizations cannot distribute profits to those who control it.  The nondistribution constraint is the fundamental distinction between non-profit organizations from for-profit organizations.  (emphasis added)

Any time assets of the organization flow through to benefit the organization’s insiders, whether directly or directly, inurement is an issue.

What are some examples of inurement?

  • A nonprofit executive used the organization’s money to pay his child’s college tuition, lease a luxury car for his wife, have his kitchen remodeled, and rent a vacation house at the beach.
  • The CEO at a tax-exempt hospital used charitable assets to pay for personal items such as liquor, china, crystal, perfume, an airplane, and theater tickets.
  • A nonprofit art gallery exhibits artwork created by its members for a fee but grants board members the same service without cost.
  • The nonprofit organization’s sole activity is conducting seminars and lectures based on the program owned by its president and his for-profit company.
  • An educational organization had four board members who voted themselves free tuition to the program for their children. This benefit ranged from $2,000-$4,000 per board member per academic year.

Sources: https://www.nolo.com/legal-encyclopedia/what-is-private-inurement.html and https://boardsource.org/resources/private-benefit-private-inurement-self-dealing/ and https://www.forpurposelaw.com/the-private-benefit-rule-three-more-examples/

What happens if a nonprofit practices inurement?

I would hope inurement would never happen in a homeschool group, by Mr. Fortenbury discusses the IRS’s options against a nonprofit organization.

The inurement restriction is absolute: An organization that violates this prohibition will not qualify (or will cease to qualify) for tax exemption.

In cases involving inurement, the IRS may impose the penalties in lieu of or in addition to the revocation of tax exempt status. 

This system effectively gives the IRS two options to enforce the nondistribution constraint.  In blatant violations of the inurement prohibition, the IRS can both revoke tax exemption and impose monetary penalties under the intermediate sanction regimes. In less severe cases, the IRS may seek to correct the situation through intermediate sanctions alone.

For the full article visit: https://www.fortenberrylaw.com/inurement-prohibition-nonprofit-organizations,

 

So, please homeschool leaders, stay away from inurement (giving benefits or the assets that belongs to the nonprofit) to any insiders (those who exercise control over the organization).

We’re homeschoolers and we’re better than that.

Carol Topp, CPA