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

Giving Scholarships or Discounts in Your Homeschool Group

Does your homeschool group give discounts, scholarships or benevolent gifts?

What’s the difference and how should they be operated?

Homeschool CPA, Carol Topp, offers advice and tips on offering help for needy members in this short podcast episode (15minutes).

 

 

I mentioned my book

Money Management in a Homeschool Organization

  • Does your homeschool group manage their money well?
  • Do you have a budget and know where the money is spent?
  • Do you know how to prevent fraud?

This 115 page book will help you to open a checking account, establish a budget, prevent mistakes and fraud, use software to keep the books, prepare a financial statement and hire workers. Sample forms and examples of financial statements in clear English are provided.

 

Carol Topp, CPA

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Homeschool group wishes to grant college scholarships

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Carol,

Our 501(c)(3) non-profit homeschool support organization would like to award a $1000 college scholarship to a graduating senior in our chapter of the Eta Sigma Alpha home school national honor society. The criteria for receiving the scholarship is the student must be a member of our homeschool honor society chapter and be a graduating senior that will be attending college in the fall. The students will be judged on their accomplishments in areas of scholarship, character, service, and leadership.

The plan is that I would donate the $1000 to our 501(c)(3)non-profit home school support organization, which would in turn award the scholarship to a student in our honor society chapter. The scholarship winner would be determined by an independent panel of judges. I would not be one of the judges and I have no children involved in the program.

Are there any hoops we need to jump through to accomplish this?

Janis H in Texas

Janice,
You’re to be commended for establishing a scholarship fund and already having good policies in place.

You should look at your organization’s original application for 501c3 status (Form 1023) to see if included Schedule H Scholarships. If your organization included Schedule H, you’re all set. Award away! 🙂

If you did not file a Schedule H, then you’ll need to notify the IRS that you are adding a new activity.

According to this IRS webpage, you report changes and additions in your activities on Form 990 or 990EZ.
https://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Reporting-Changes-to-IRS

It would be a very good idea to look at the Form 1023 Schedule H (scroll down to page 28) and it’s instructions. From the questions the IRS asks, you get a very good idea of how they think a scholarship fund should be set up. It sounds as if your organization already has in place many of the IRS’s recommendations. Include a paragraph outlining your policies based on Schedule H questions when fling Form 990 or 990EZ.

If your organization does not typically file Form 990 or 990EZ because you are eligible to file the online e-postcard Form 990N (Annual gross revenues less than $50,000), you should file the longer 990EZ for the year you launch the scholarship program.

I hope that helps.

Carol Topp, CPA