Every year the IRS Tax Exempt division releases a list of areas and issues they plan to focus on for audits and investigations. The IRS Tax Exempt division calls it their Program Letter. The Exempt Division is the branch of the IRS that grants 501c tax exempt status to nonprofit organizations.
The Charity Law blog discussed the IRS Tax Exempt work plan for 2019.
I found the list of things the IRS considers “the highest known priority and emerging risks” to be interesting, especially these two issues that affect homeschool programs, both nonprofit and for-profit:
- Previous for-profit: focus on organizations formerly operated as for-profit entities prior to their conversion to IRC Section 501(c)(3) organizations.
- Worker classification (misclassified workers): determine whether misclassified workers result in incorrectly treating employees as independent contractors.
So if you are converting a for-profit homeschool business to a nonprofit organization, be prepared for some extra questioning and scrutiny from the IRS. You’ll have to file the longer Form 1023 to apply for 501c3 tax exempt status and explain in your Narrative why you are converting to nonprofit status. You will not be eligible for using the shorter IRS Form 1023-EZ.
My book, The IRS and Your Homeschool Organization explains how to apply for 501c3 tax exempt status.
Additionally, if you are treating your homeschool program teachers or tutors as Independent Contractors, be prepared for the IRS to keep an eye on you and they may open an investigation into your worker classification.
My book Paying Workers in a Homeschool Organization will be a big help to you in paying workers.
Additionally, the IRS is hiring approximately 40 new revenue agents to process determination applications. Is that good news? More IRS revenue agents should mean both faster processing and increased audits and investigations! Both good and bad, in my opinion.
Carol Topp, CPA