IRS fees will increase January 3, 2010

September 2, 2009

irs

This just released by the IRS. Fees for applying for 501c3 tax exempt status are set to increase January 3, 2010:

User fees will increase for all applications for exemption (Forms 1023, 1024, and 1028) postmarked January 3, 2010:

  • $400 for organizations whose gross receipts are $10,000 or less annually over a 4-year period
  • $850 for organizations whose gross receipts exceed $10,000 annually over a 4-year period
  • $3,000 for group exemption letters.

A complete schedule of all user fees will be published in the annual procedure released in January 2010.

Cyber Assistant, a Web-based software program designed to help 501(c)(3) applicants prepare a complete and accurate Form 1023 appplication, will become available during 2010.  Once the IRS announces the availability of Cyber Assistant, the user fees will change again:

  • $200 for organizations using Cyber Assistant (regardless of size) to prepare their Form 1023
  • $850 for all other organizations not using Cyber Assistant (regardless of size) to prepare their Form 1023.

IRS will announce when Cyber Assistant is available and the effective date of the user fee change.  Subscribe to the EO Update to automatically received an alert that Cyber Assistant is available.

http://www.irs.gov/charities/article/0,,id=212562,00.html

So get your 501c3 application (Form 1023) in before January 3rd to save $100. (The current fees are $300 or $750 depending on your gross revenues)

Cyber Assistant sounds like a good tool, but the IRS does not say when Cyber Assistant will be available in 2010, so we have no idea when the lower rate of $200 will be available.

Last time the IRS increased their fees they received a deluge of applications and had a huge backlog for months. Small, new nonprofits try to save a buck wherever they can and will try to take advantage of the lower rate.  While I am glad to see the fee will eventually be dropped to $200, I still expect to see an increase in applications before the due date.

Carol Topp, CPA


Getting an EIN (Employer Identification Number)

June 18, 2009

Hi Carol,IRS

I am new to an existing homeschool co-op in VA. This co-op is more than 12-15 years old. We do not accept donations or need to; so far we have been handling the money through someone’s personal bank account. We receive fees from students and then pay teachers and reimburse them for materials, generally we break even each year (or can if we need to). There are regular Board meetings; I do not know if they have bylaws or take minutes but I do know they have a mission statement. The bottom line is that we want to be able to have a business checking account.

Can we get an EIN in order to open a checking account in our co-op name without incorporating and without having a state or federal annual filing requirement? I seem to remember that once you get an EIN (that I think is required for a business bank account), you are on the radar screen with the IRS and will need to file some sort of return.

Thanks so much

Nancy V in VA

Nancy,

Usually the first contact a homeschool organization has with the IRS is getting an Employer Identification Number (EIN). Most banks now request an EIN when a group opens a checking account. Your group is doing things right by getting a checking account for their co-op instead of using a personal account.

On my website, www.HomeschoolCPA.com you can read my article Getting an EIN from the IRS.

Yes, you can get an EIN for banking purposes, but not have any other dealings with the IRS. You do not have to be a nonprofit corporation to obtain an EIN. If your organization does incorporate later, they will need to apply for a new EIN.

You will deal with the IRS if you become a 501(c)(3) tax exempt organization or pay workers. Since you mentioned that you are paying teachers, then you have required reporting to the IRS and to your state. You will have to pay payroll taxes (Social Security and Medicare) and file a W-2 if they are employees or file a 1099MISC if they are independent contractors. You should read this entry: “Paying co-op teachers is a sticky issue.”

Best of success to you!

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


Update on teachers as independent contractors

March 27, 2009

In Is Your Hired Teacher Really an Employee? I mentioned a homeschool group dealing with the IRS over teacher classification as an employee or independent contractor (IC).   They replied to the IRS via a letter stating their case for worker status an an Independent Contractor. They heard back from the IRS and the IRS determined that the teacher was misclassified as an independent contractor and should be reclassified as an employee.  The IRS wants $500 in back taxes (at least there are no penalties!)  The homeschool organization strongly disagrees and contacted a labor law attorney to help draft a letter back to the IRS.

Update:  The IRS issue was settled with no penalties, but then the State of Ohio audited this homeschool group and has fined them  $3,000-$4,000 a year for three years for unemployment taxes.  The State of Ohio sided with the IRS that the workers were employees and the organization should have been paying unemployment taxes on them.  Thankfully the state can only audit back for three years.

The issue brought to light that many (perhaps most) homeschool organizations that hire teachers pay them as independent contractors.  Most homeschool groups are small nonprofits without accounting staff to manage the paperwork of withholding and paying employment taxes, creating W-2s, etc.  It’s easier to deal with an IC than an employee.  But the IRS reminds us the the facts of the situation determine worker status, not the organization’s preference.

Also, most hired homeschool teachers are only teaching about one hour a week and are given a lot of freedom in how to conduct their class.  This was all true for my client, but the IRS still determined the teacher was an employee. She even signed a IC agreement three years in a row, so even a contract was not enough evidence for the IRS.

Here’s what I’m doing:

1. Telling my homeschool clients that hire teachers to carefully consider worker classification.  Having a signed IC agreement is not enough.2. Advising some of my homeschool clients to reclassify teachers as employees and start withholding federal income tax, Social Security and Medicare taxes.  These clients hire several teachers for several hours a week and exert a lot of control over what and how they teach.  One group also does teacher training and evaluations so the workers definitely look like employees.

3. Change the way my small co-op pays teachers.  The IRS letter stated , “if the worker had been an independent contractor, the parents would have directly paid the worker for the services she provided for their children.” Starting next semester we will have parents pay the hired teachers directly. See Paying teachers in a homeschool co-op to read our story

4. Trying to get out the word to homeschool leaders about the potential problems of worker misclassification and in general the employment laws regarding hiring paid teachers.

5. Encourage homeschool leaders to read the chapter on hiring workers in my ebook Money Management for Homeschool Organizations.

Please pass on this information to homeschool groups that you know hire paid teachers.  It doesn’t pay to be ignorant.

Carol Topp, CPA


The IRS’s Word on Fundraising Do’s and Don’ts

March 7, 2009

Carol,

My homeschool group does several fund raisers where we divide the proceeds to each family to reduce the parents’ tuition. We have a shoppers reward program and I track how much of a tuition credit each parent earns by using their shoppers reward card.  We also let students or parents work off some tuition by volunteering to work a shift at our city’s major league baseball stadium concessions.  The team makes a donation to our homeschool group (a 501c3 organization).  I’m having a hard time finding information on the IRS website about these types of fund raisers.

Susan in Ohio (paraphrase from a spoken conversation)

Susan,

I’m sorry you found it so difficult to find information about fundraisers like your group is running. Sometimes you have to know the correct language to use in a search. Search on the words “Booster Club” to see what the IRS has said.

Here’s a wonderful link from a lawyer, Harvey Mechanic, that volunteers to answer nonprofit questions. He gets a lot of questions about booster clubs and fund raising like this one in particular: AllExperts NonProfit Law:Booster Clubs

To see all the questions and answers go here: AllExperts NonProfit Law

irs1Mr Mechanic frequently refers readers to an IRS document titled Athletic Booster Clubs: Are They Exempt? He summarizes and edits the IRS document here: Summary of IRS Article on Booster Clubs

Here’s the full text at 14 pages: http://www.irs.gov/pub/irs-tege/eotopica93.pdf

I’ve read this document several times. It is a document that the IRS uses to train their employees. While it addresses athletic booster clubs, the principles apply to school booster clubs also, including homeschool groups that do fund raising.

Finally, Mr Mechanic answers a question about fund raising by working concessions at MLB games here: Working Concessions at MLB Games

I hope that helps. Sorry there’s not one paragraph at the IRS website to point you to! This is a collection of laws, rulings and cases over several years.

Carol Topp, CPA


Is your homeschool co-op’s hired teacher really an employee?

February 26, 2009

A homeschool nonprofit I work with called me quite frantic.  They had received a letter form the IRS.  It seems that a former teacher of one of their classes  was asking for an examination of her status as an independent contractor (using IRS Form SS-8).  She thought that she should be classified as an employee of this homeschool nonprofit.  If the IRS agrees with this worker, the homeschool organization may have to pay back taxes (Social Security and Medicare) and perhaps penalties.

Fortunately this homeschool group did many things right:

1. They had all their paid teachers sign a Independent Contractor Agreement.
2. They did not control the content of the class, nor dictate to the teacher what curriculum she must use.
3. They offered no benefits to teachers.
4. They did not train their teachers.

How about your homeschool group?  Would you pass an IRS examination?  Do your hired teachers sign an Independent Contractor agreement?  Do you avoid controlling their work as you might an employee?  Here’s a helpful brochure regarding employee or independent contractor status (IRS Pub 1779).

I’ve written about paying teachers in a homeschool co-op setting:

Paying teachers in a homeschool co-op

W-2 and tax filings for teachers

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