I am working with three friends to start a homeschool co-op this fall. I purchased your book and read over your website. I can see we may need your services in the near future. For now, however, I just have one question that I couldn’t seem to find an answer to in your material.
I would like to apply for non-profit status with my state and the IRS. However, fees are discouraging right now. If we are charging parents to drop off for instruction 2 days a week and all that money is going right back into rent, materials, etc and no profit is made, can we just start doing that before we apply and then “save” money to apply for non-profit?
And then if the answer is yes, what are we until then for tax purposes? Do we have to file taxes just as a business and just show $0 profit and $0 taxes owed?
Lynne D in PA
Yes, you can organize and operate as a nonprofit for a while and save up some money to apply for tax exempt status.
The IRS expects nonprofit organizations to apply within 27 months of formation. If you file for nonprofit corporation status in your state, then the day you become incorporated is the date of formation. It is sort of like the organization’s official birth date.
The IRS will grant you tax exempt status from the date you incorporate. It “back dates” your tax exempt status.
You should not consider yourselves as a for-profit business if you are organized (meaning have a board and bylaws) and operate (no profit motive, no one pocketing the profits) as a nonprofit. You can call yourself an “unincorporated nonprofit.” That has a nice, official ring to it!
You do not need to file a business tax return.
So, the bottom line is that you can start and run your co-op for about a year, maybe close to two years, and then apply for tax exempt status with the IRS. I recommend getting nonprofit incorporation from PA first, maybe about 6-12 months before you apply to the IRS.
After you incorporate, I strongly recommend you start filing the annual Form 990N with the IRS. It’s a simple 8-question online form. Start filing the Form 990N even before you file for 501(c)(3) tax exempt status.
You can call the IRS Customer Account Services at 1-877-829-5500 and be added to their database so you can begin filing the Form 990Ns. It typically takes 6 weeks to be added to the IRS database.
I hope that helps!
Carol Topp, CPA