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Zachary
Zachary, Attorney
Category: Legal
Satisfied Customers: 3814
Experience:  Lead trial/International commercial attorney licensed 11 yrs
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Hi, I am completing Form 1023 for IRS approval of my nonprofit

Resolved Question:

Hi,

I am completing Form 1023 for IRS approval of my nonprofit called SCHOOL, Inc. SCHOOL provides yoga, meditation and mindfulness classes to underserved children in public schools, namely within Los Angeles County.

SCHOOL also provides scholarships for schoolteachers and independent contractors to take the SCHOOL Teacher Training course to include calming techniques within classrooms for focus and improved learning.

Within Form 1023, I need to detail facets of the scholarships. Is it OK to state that applicants apply for the SCHOOL teacher training and if accepted by me, the lead teacher facilitating the training, they then receive a certificate to bring with them to the training course? No money will actually change hands. The SCHOOL accounting records will of course show the amount of scholarships given to specific individuals. The scholarship amount is 5% less than fair market value for a Kids Yoga Teacher Training course. The scholarship will apply towards the lead teacher professional teaching fees plus expenses incurred to hold the training course, such as space rental, utilities, etc...

Thank you,
Kelly
Submitted: 1 year ago.
Category: Legal
Expert:  Zachary replied 1 year ago.
Hi,

Thank you for your question.

Your proposal is ok, but it needs a LOT more detail to pass muster under the 501c3 requirements. You need to have a document which provides the criteria and standards under which you will judge the applications for scholarships. IRS needs to be able to tell that you are not acting arbitrarily when you grant the scholarships.

Other than the needed detail, the procedure sounds ok.

-ZDN
Customer: replied 1 year ago.

Yes, I there are questions on the form that ask for the criteria for accepting applicants. I was trying to summarize my question.


 


I need more advice than what you have provided.

Expert:  Zachary replied 1 year ago.
Ok.

Well, lets talk more about it.

The first thing I recommend is that in the application itself, you want to refer to attached exhibits. The exhibits will contain the specifics of the scholarship criteria, the procedures by which applications can be made, the procedures by which the school accepts the applications, the procedures by which the applications are examined under the standards (i.e, time frames and descriptions of the actions taken by you).

You also need to have polices written regarding the payment of the professional fees you are stating. The main goal being that the professional fee is not extraordinary in terms of what other yoga instructors are paid. You would also need to demonstrate that there is no actual profit being made by the school itself.

What other information can I tell you about?

-ZDN
Customer: replied 1 year ago.

Thank you.


 


I am aware of the exhibits or attachments required of the form. I have written attachments for each section that calls for descriptions and policies.


 


With the scholarship section, Schedule H, I want to ensure that I am providing valid and complete information about the scholarships. Because I am the CEO and lead teacher, and I will determine acceptance of scholarship, I am seeking advice on specific detail/wording the IRS requires for approval. The scholarship process is insular but I feel, legitimate.


 


Thank you for the detail in your last response. Can you give an example of a policy for payment of professional fees? As it stands now, I would write a check to myself for teaching services. The invoice would include the classes taught (days, times, attendees) for a certain periods of time. Do I need to have the Board review each check, approve each check or simply review financial activity on a quarterly basis?


 


To demonstrate that no profit is made, do provide a sample of funds allocated to individuals for scholarship, list expenses, amount paid to me and any remaining balance kept in the bank account for future expenses?


 


Thank you.


 

Expert:  Zachary replied 1 year ago.
An example of a policy statement would be:

"School Inc shall pay professional teaching fees for all instructors providing services for school.

The amount of professional teaching fees paid shall be at _______ per class. All professional instructors providing services for the Company shall invoice the Company every two weeks. The Company shall pay all invoices on a bi-weekly basis.

The professional teaching fee rate shall be reviewed on a yearly basis by the board of directors to ensure that it is in keeping with the market rates paid for instructor services in the locality where the services are rendered."

In regard to the second part of your question, a policy document which provides a method by which the income would be allocated and lists anticipated expenses should be stated separately.

Customer: replied 1 year ago.

Thank you.


 


There is a section for financial data within the form that I've completed. Is it sufficient to simply state in this section of the form that no profit is made along with including the detail we've been discussing? This is to clarify your comment, "You would also need to demonstrate that there is no actual profit being made by the school itself."


 

Expert:  Zachary replied 1 year ago.
What section are you referring to specifically?
Customer: replied 1 year ago.

Part IX - A. Statement of Revenues and Expenses


Part IX - B. Balance Sheet


 


I have an attachment of itemized expenses for program services (teaching services provided by me and independent contractors).


 

Expert:  Zachary replied 1 year ago.
Hi,

In this section, you need to go through and give a specific figure for each line item. If you have operated prior to this, then you need to list your actual figures from your business. If you have not operated before this, then you need to give a good faith projection on each line item. These just need to be numbers that you believe will be the case (in the case that you have not had prior operations).

-ZDN
Customer: replied 1 year ago.

Yes, I know.


 


Can you clarify the following question asked in my prior email,


 


Is it sufficient to simply state in this section of the form (Schedule H) that "no profit is made" along with including the detail we've been discussing? This is to clarify your comment, "You would also need to demonstrate that there is no actual profit being made by the school itself."

Expert:  Zachary replied 1 year ago.
Schedule H? I am not familiar with any part of Schedule H to which this would be a sufficient response. Demonstrating that the school will not be making a profit means that you have procedures and practices in place that deal with the money that is received by the school.
Zachary, Attorney
Category: Legal
Satisfied Customers: 3814
Experience: Lead trial/International commercial attorney licensed 11 yrs
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