Can a co-op refund fees to members?

A homeschool co-op treasurer in South Carolina asks if she can refund supply fees to the co-op’s members:

Carol,

I am the treasurer for a mid-sized home school co-op. We currently have about 45 families. The co-op has been in existence for about 10 years and has always operated as an unincorporated organization with a checking account under the ss# of one of the board members.

Our co-op charges a set fee for each class which is passed on to the teachers (moms), and we also charge an additional supply fee if the teacher feels it is needed. I took over the books about 2 years ago and since that time we have been able to track expenses on a per class basis. We end up at the end of each year with a surplus. I am wondering if we can refund unused supply fees by class to the families who paid the fees initially. On your web site you state that surplus money should not be distributed. Does that apply in this case?

Also, I am going to talk to the board about getting a TIN for checking purposes. Do we use this same TIN to file 1099s at the end of the year?

Thanks for all of your great information!

Debi M in SC

Debi,
Since your surplus is from supply fees and not general membership or tuition fees, I don’t see a problem doing a refund. But giving refunds makes more work for you as treasurer!

The prohibition against distributing a surplus is to avoid individual benefit or what the IRS calls “private benefit or inurement”. The purpose of a nonprofit (even an unincorporated nonprofit, such as yours) is to accomplish a mission, not to accumulate a profit. Naturally, the IRS forbids a group of people from setting up a nonprofit to make a profit, and then to split the surplus at the end of the year. That would be tax avoidance and abuse of nonprofit status.

I usually encourage homeschool groups to have a small surplus for emergencies, large purchases, future expenses, or to make appreciation gifts to volunteers or the place where you meet.

It’s a good idea to get a EIN (Employer Identification number) instead of using the board member’s SSN. You would use the EIN and the Co-op’s name on any 1099MISC forms you file.

I hope that heps!

Carol Topp, CPA

Seven Vital Tools for Every Homeschool Leader

I was the guest blogger over at The Homeschool Classroom today.

My post  on “Seven Vital Tools for Every Homeschool Leader” covers the basic tools that every homeschool leader needs such as:

• A mission statement
• A policy manual
• A board
• A budget
• Insurance
• Profits (yes, nonprofits can make a profit!)
• Nonprofit incorporation

Read the explanations of each tool over at The Homeschool Classroom

Carol Topp, CPA

What to do with a surplus of cash?

A homeschool leader, Michele in Colorado, asks,

We will have less than $100 left in the check book. We have a Fed ID #. What do we do? What about next year?

You did the right thing by getting a tax ID number. I hope you also have a separate checking account in the group’s name. There isn’t really a lot to do except leave the $100 in the account to use for next year. If your group does not exist next year (or closes at some future date), donate the leftover money to a charity or another homeschool group. Or you can have a party for the entire group with the leftover money. It would not be proper to give the money back to the individual members.

If you have a lot of surplus cash, you need to investigate filing for 501c3 tax exempt status, so that your group can avoid paying income tax on your surplus.  Start by reading these articles on my website:

Do we need 501c3 status?

Are you ready for 501c3 Application?

Carol Topp, CPA

Rewarding volunteers in your homeschool organization

HomeschoolCPA has been getting quite a few questions via e-mail lately…here’s one I thought I’d share with you having to do with rewarding volunteers.

Carol,

Thank you for your web site. It is a great resource for homeschool groups.

I’m on the board of a home education association. We hold an annual conference of about 800 – 1000 and need many volunteers to help us with the event. What are some appropriate ways to thank the volunteers? Can we give them a gift (e.g. mug)? Can we give them free parking? Can we give them a dollar amount off admission for each shift they work? From one of the answers you gave in your FAQ, it appears it is OK to give discounted admission to the conference, but I just want to confirm that.

Can we give more to key volunteers (ones who are responsible for key areas of the conference and will not be able to attend sessions)? Can we give key volunteers a complete set of CDs from the conference, hotel rooms and meals while at the conference? Do we have to report this on the 990 also?

Thanks for your great help.
Dorothy K

Dorothy,
Thank you for your kind words about my website. You ask some excellent questions. As for the mugs, free parking and reduced admission: yes, yes and yes. All these are appropriate ways to thank your hard working volunteers.

As for the CD set, hotel and meals: yes, these are also appropriate ways to thank volunteers. If any of these volunteers are also board members, you should disclose these expenses paid by the organization on their behalf on Form 990 Part V-A Current Officers compensation. I’d include a note to the effect that the volunteer was given lodging and meals at the annual convention. This is not taxable income to the volunteer. Putting the information on the Form 990 is just a way of disclosing to the IRS and anyone reading your 990 that you pay expenses for volunteers. That is a completely legal, legitimate and generous thing to do!

I hope that helps! Best of success in your future efforts!

Carol L. Topp, CPA

Can my family’s homeschool be a nonprofit?

Homeschool CPA was recently asked,

I see several articles (on your website www.HomeschoolCPA.com) on setting up as a not-for-profit for homeschool organizations (e.g. homeschool co-ops), but I wonder if I could set my own family’s homeschool up as a non-profit. We’re in Texas, so we are considered a private school.
-Lauren in TX

Lauren,
You asked a good question and I’ve been asked it before in different ways. Nonprofit organizations have a lot of benefits including tax free income, discounts, and sometimes pay no sales tax!

I’m not a lawyer, nor familiar with Texas private school laws, but I’ll try to explain how I see things.

Briefly, a nonprofit organization exists to serve a group, not an individual. The IRS will not grant “recognized charity”, 501c3 tax exempt status to a group that is formed solely to benefit the founder’s family. A tax exempt organization must serve a public good. The IRS forbids private “inurement” in 501c3 tax exempt organizations. Inurement means to be beneficial or advantageous. Inurement occurs when an organization is formed or operates with an incorrect charitable purpose that allows individuals in control to profit from the organization. 501c3 organizations can lose their tax exempt status for practicing inurement.

Inurement/Private Benefit – Charitable Organizations

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.
>From the IRS website at http://www.irs.gov/charities/charitable/article/0,,id=123297,00.html

So, in short the answer is “No”, even if your state classifies a homeschool as a private school. That’s how I see it.

Carol

Now, here are my “lawyer words…”
Any tax advice contained in this communication was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.