A lender says “we need audited financials.” A grantor requests “audited statements.” A board member asks whether the organization “gets audited.” The word is used generically, but in accounting, it refers to a specific level of service with specific procedures and a specific cost. Choosing the wrong level of service has consequences in both directions. Paying for an audit when a review would satisfy the lender wastes money the organization could deploy elsewhere. Providing a compilation when the grantor required an audit can cost the grant. The decision should be driven by who will use the statements and what they will do with them. The Three Levels of Assurance Audit (Highest Assurance). An independent CPA performs risk assessment, evaluates internal controls, conducts substantive testing, confirms balances with third parties, and issues an opinion on whether the financial statements are presented fairly . Audits are required for organizations expending $1 million or more in federal awards (Single Audit), for many larger loans and grant agreements, and when boards or regulators demand the highest level of assurance. Review (Limited Assurance). The CPA performs analytical procedures and inquiries of management to assess whether the financial statements are plausible and free from material misstatement, without the extensive testing required for an audit. A review is often sufficient for boards, smaller lenders, or grantors who need a comfort level but do not require a full audit. It is significantly less expensive than an audit and can typically be completed more quickly. Compilation (No Assurance). The CPA organizes financial data provided by management into formal financial statement format but performs no verification or testing. Compilations are appropriate for internal management reporting, tax preparation, and simple loan applications where no assurance is required. The Decision Framework Ask the requester what they will accept. A lender may say “audited financials” as a default but accept a review for a smaller loan. A grantor may require a Single Audit because the funding is federal. Do not assume; ask for the specific requirement in writing. Consider the cost of being wrong. If you provide a compilation when the lender required a review, the loan may be delayed or denied. If you provide a review when the grantor required an audit, the grant may be at risk. The cost of upgrading the engagement later is often higher than the cost of doing it right the first time. Think about the timeline. A compilation can be completed in days. A review can be completed in weeks. An audit typically requires four to eight weeks of fieldwork, plus planning and reporting. If the deadline is tight, the timeline may determine the level of service. When the Answer Is “None of the Above” Some organizations ask for an audit when the real issue is that the books are disorganized. An audit does not fix messy records; it identifies the problems and may result in a qualified opinion or a management letter that documents the issues. If the underlying problem is bookkeeping, a cleanup engagement followed by a compilation or review may be more appropriate than an audit. How We Determine the Right Fit We start by asking who will use the financial statements and what they require. If a lender has requested “audited financials,” we ask for the specific loan agreement language, because some lenders accept a review for smaller loans. If a grantor has imposed a requirement, we review the grant agreement to confirm whether a Single Audit, a financial statement audit, or a review is specified. We then match you with the appropriate service and provide a clear, fixed-fee quote before any work begins. Why Choose Nova Tax for Assurance Services We provide clear, plain-English explanations of what each service includes and what it does not. Our goal is to help you meet your obligations efficiently, not to sell you a more expensive engagement than necessary. We have experience with audits, reviews, and compilations for businesses, nonprofits, and government entities across the DMV. When you work with us, you get a clear timeline, a single point of contact, and a fixed fee. Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Tax laws are subject to change, and individual circumstances vary. Consult a qualified tax professional for advice regarding your specific situation.
The most common and expensive misconception in the nonprofit sector is that federal 501(c)(3) status automatically grants state tax exemption. It does not. An organization can hold an IRS determination letter and still be liable for Virginia sales tax, still be unable to legally solicit donations in the Commonwealth, and still owe DC franchise taxes. The federal government recognizes your exempt purpose. Virginia and the District of Columbia require separate applications, separate documentation, and separate renewals. Each has its own deadlines, its own fees, and its own consequences for noncompliance. This guide breaks down the specific compliance obligations for organizations operating in the DMV, so you can protect your exempt status and avoid penalties that drain resources from your mission. Virginia Charitable Solicitation: Register Before You Ask Virginia law is unambiguous. Every charitable organization that intends to solicit contributions within the Commonwealth, or have funds solicited on its behalf, must file an initial registration statement with the Office of Charitable and Regulatory Programs (OCRP) prior to any solicitation . The OCRP operates within the Virginia Department of Agriculture and Consumer Services (VDACS). The registration requirement is not optional, and the timing matters. Soliciting before registering can trigger penalties and create a compliance record that follows the organization through future renewals. The initial filing fee for Form 102 is $100 for organizations without prior financial history, and annual renewals are due 4½ months after the fiscal year ends . Renewal fees range from $30 to $325 depending on gross contributions. Certain organizations qualify for exemption using Form 100 and a $10 fee, including those raising under $5,000 annually . But the exemption must be claimed. It is not automatic. Virginia Sales and Use Tax Exemption: A Separate Application Virginia Tax administers the sales and use tax exemption for nonprofits, and the application is distinct from federal recognition. The checklist for the application includes the IRS determination letter, a mission statement, proof of VDACS registration if the organization solicits contributions, and a copy of the federal Form 990, 990-EZ, 990-PF, or 990-N . For organizations with gross annual revenue of $750,000 or more, the application must include an independent financial review performed by a CPA . Virginia Tax may require a full audit for organizations with revenue of $1.5 million or more. The exemption applies only to purchases made on or after the effective date on the certificate. It is not retroactive. Washington DC: Form FR-164 and the Five-Year Clock The District requires a separate application for tax exemption using Form FR-164, filed through MyTax.DC.gov . The application must include the IRS determination letter and the DC Certificate of Incorporation or Certificate of Registration . For sales and use tax exemption, proof of physical location in the District is also required . Common reasons for denial include failure to attach requested documents, attaching outdated or expired certificates, and submitting the wrong type of business license documentation . Once approved, DC tax exemption is valid for five years and must be renewed. Non-renewal results in immediate loss of DC tax-exempt status . Form 990: The Filing That Protects Everything Form 990 is not merely a tax return. It is the public face of your organization’s finances and governance. The IRS treats an incomplete return the same as a late return, and penalties apply . For organizations with gross receipts under $1 million, the penalty is $20 per day, up to $10,000 or 5 percent of gross receipts, whichever is less. For larger organizations, the penalty increases to $100 per day, up to $50,000 . The more serious consequence is automatic revocation. An organization that fails to file Form 990, 990-EZ, or 990-N for three consecutive years automatically loses its tax-exempt status on the filing due date of the third year . The IRS does not send additional notices before revocation. Reinstatement requires a new application and a new user fee. How We Help You Stay Compliant We begin with a compliance audit of your current registrations. We review what you have filed with the IRS, VDACS, Virginia Tax, and the DC Office of Tax and Revenue, and we identify gaps and upcoming renewal dates. We prepare the necessary filings, coordinate with your team to gather documentation, and submit applications on your behalf. Our team maintains a calendar of renewal dates for VDACS registration, Virginia sales tax exemption, and DC Form FR-164, so you receive advance notice well before a deadline approaches. Why Choose Nova Tax for Nonprofit Compliance We work exclusively with nonprofit organizations across Virginia and Washington DC. We have seen the consequences of missed deadlines and incomplete filings. We provide fixed-fee pricing for compliance engagements, so you know the cost before we begin. When a renewal deadline approaches, we notify you. When a regulation changes, we explain what it means for your organization. When an auditor or regulator asks questions, we help you respond. Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Tax laws are subject to change, and individual circumstances vary. Consult a qualified tax professional for advice regarding your specific situation.
