Off to Home Educators Assoc of Virginia (HEAV) Convention

June 10, 2009

For the next few days I will be at the Home Educators Assoc of Virginia (HEAV) Convention in Richmond, VA.

They have a pretty busy schedule for me. I’ll be giving workshops on:

  • Budget Is a Dirty Word: Money Management for Those Who Hate to Manage Money
  • Wanna Be a WAHM? The Pitfalls and Possibilities of Being a Work at Home Mom
  • Small Business for Teenagers
  • Is Your Homeschool Group Ready for the Next Step? Becoming a 501c3 Tax-Exempt Organization
  • How to Start and Manage a Homeschool Organization: Boards, Budgets, and Bylaws

(see full descriptions of the workshops here and get the handouts here)

I’ll also be attending the homeschool leaders lunch and I am serving on a Q&A panel for leaders. I hope to meet some of you.

If you’ll be at HEAV, come by my booth #237 or to a workshop and say hello!

Carol Topp, CPA


Does new IRS 990N apply?

April 21, 2009
Hi Carol,
Thanks so much for all your help in getting our Christian Homeschool Network up and running.  Things are going well so far. My husband brought a card he saw at the post office and handed it to me thinking it might apply to our group. The same basic info is on this web site:
http://www.irs.gov/charities/article/0,,id=169250,00.html
It is about a new filing requirement for small tax exempt organizations.Does this apply to us? I was unsure if this was just for 501 C 3 organizations.
Thanks, Carol
Sharon W

Sharon,
The new IRS ePostcard (Form 990N) notification is for 501c3 organizations. The IRS is trying to clean up its database by using this short electronic postcard. They hope to find any “dead” nonprofits that are no longer in operation. They are also looking for small nonprofits that have “grown up” to the $25,000 gross revenues per year and should be filing a 990EZ or 990 Form annually.  The ePostcard is a way for small nonprofits to acknowledge that they are still under the $25,000 annual revenue threshold for filing the 990.

Your organization has not yet applied for 501c3 status, so you do not have to file the ePostcard yet.

I recommend that you consider 501c3 status ASAP.  The IRS expects nonprofits to file for 501c3 tax exempt status with in 27 months of formation (incorporation as a nonprofit).  Your nonprofit incorporation date was May 27, 2008, so you have until August 2010 to apply.  Otherwise, the IRS requests an explanation of why tax exempt status was not filed earlier and tax exemption is granted to the date of filing, not back to the date of formation.  This could mean that a nonprofit might owe back income tax for the period that they were not tax exempt.

If your gross revenues stay under $5,000 a year, you are granted an exception from filing the paperwork for 501c3 status. If gross revenues get to be over $5,000 a year, your group should file for 501c3 tax exempt status or pay corporate income tax on any surplus (i.e. profit).

In a nutshell, a small nonprofit has three choices:
1. Stay under $5,000 gross revenues per year
2. File for 501c3 tax exempt status
3. Pay corporate income tax on any annual surplus.

I hope that helps,

Carol Topp, CPA


Government Intrusion and 501c3 Tax Exempt Status

February 19, 2009

Michele in Colorado e-mailed me with an excellent question on government intrusion into 501c3 organizations:

Hi Carol,

I am part of a homeschool group in Canon City, CO.  We are trying to figure out what we are to do financially next year.  We do not have a non -profit status and most people in our group do not want to organize that much.  Some of the people in our group have had some experiences with 5013C status that the government has made them open their group up to individuals that they would not normally allow in their group because they are a government entity (like permitting someone not in our faith to teach a class).

Thank you so much for your help to the homeschool community and for whatever answers you can give us.

Sincerely,
Michelle P

Michelle,
Good for you in wanting to make sure that you are doing things properly in your homeschool group.

Your people are mistaken. Receiving 501c3 tax exempt status does NOT make your organization a government entity; it simply means that you are exempt from paying income tax on your profit and donors can make tax-deductible contributions.  It’s a tax status.  501c3 status does NOT mean you  must open up your group. No way!  We still have religious freedom in American and freedom to assemble.  Someone is greatly misinformed.  You are certainly free to choose your members and choose who teaches a class. Does a Catholic school have to allow non-Catholics teach their classes?  Of course not!

bsa_emblemsvgThe Boy Scouts won a very important Supreme Court case in 2000 allowing them to exclude homos*xual men from being Boy Scout leaders. Read about it here. Your group is free to exclude certain people from membership. It’s a basic American right called freedom of assembly.

God Bless America!

Carol Topp, CPA


How do homeschool groups identify their status as a public charity?

February 10, 2009
A homeschool group in MO is applying for 501c3 tax exempt status and had a question.

Hello Carol
I am working with Crossroads Christian Connection in MO. We need to complete our 1023 (Note: He means IRS Form 1023 Application for 501 Tax Exempt Status) . The question I have is on Part X Public Charity Status. We are a small homeschooling group of about 45 families with revenue of less then $5,000 per year, on line 5, I need to know how home-school groups identify their status as a public charity.
Do you have samples of other groups that have filed the 1023?
Thanks

Greg S


Greg,

Homeschool groups are usually classified as 509(a)(2) organizations because more than 1/3 of their income comes from membership fees or “activities related to the exempt function” (box 5h).

Form 1023’s are public information so you should be able to request a copy from any other 501c3 organization. You can use the IRS website to find homeschool organizations with 501c3 status. (Go to http://www.irs.gov/charities/index.html and click on Search for Charities on the right column). Guidestar.org also posts Form 1023’s for charities.

I provide a review service for the Form 1023. From my website:


Buying Peace of Mind
A review of forms you have prepared yourself. Save money by doing much of the work yourself. I will review Forms 1023 or Annual Form 990 and offer my opinion and advice. Cost: $100 per form. Time: 1-2 weeks.


I’m doing a review right now for a homeschool group in KY. I just sent them two and a half pages of corrections or omissions they had made on their Form 1023 as well as suggestions on how to phrase their Part III Narrative to help the IRS understand their mission. Please contact me if you’d like me to review your application before you mail it to the IRS. I’d be happy to help.

Carol Topp, CPA


Group over the $5K limit. What to do?

February 1, 2009

Hi Carol,

tn_texas2b I’m part of a homeschool organization that is considered an Unincorporated Non-Profit Association in the state of TX which by Texas law can not take in more than $5000. What should we do?

Thank you,

Sandy in TX

Dear Sandy,

I visited the State of Texas website to read about the Unincorporated Non-Profit Association laws. I could not find any restriction on the amount of money your organization can make.

I think I understand where you got the $5,000 threshold. The IRS does state in the instructions to Form 1023 (Application for Recognition of Exemption under 501c3) that:

The following organizations are excepted from the exemption application requirement: Churches, their integrated auxiliaries, and conventions or associations of churches; and an organization that is not a private foundation and the gross receipts of which in each taxable year are normally not more than $5,000.

So as long as your organization stays very small, you are tax exempt. If you make more than $5,000 gross revenues in a year, you need to file the Form 1023 to remain tax exempt with the IRS. So this is really an IRS/federal tax requirement, not a Texas requirement.

So you have several years over the $5,000 threshold. Your group has three choices:

  1. file the 1023 and become tax exempt
  2. pay taxes
  3. restructure your groups to stay under the $5,000 income limit.

Any of the options are workable. There are costs and benefits to all three options. Without knowing a lot more about your group, I cannot tell you which option is best for you.

Your group is not unique. Like many homeschool groups, you are finding that your organization is growing and doing more for homeschooling families. That’s wonderful, but then you can run into road blocks like the $5,000 income limits.

Carol Topp, CPA


Can a co-op refund fees to members?

November 23, 2008
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


What to do with a surplus of cash?

November 17, 2008

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