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INTRODUCTION

I am a Certified Public Accountant (CPA) and Certified Fraud Examiner (CFE).

Master’s in Forensic Studies with a Specialization in Accounting from Stevenson University, Owings Mills, MD

I worked for the US Department of Transportation, Office of Inspector General, as an Auditor in the Office of Financial and Information Systems Audits. I specialized in Single Audits.

Berkeridge Financial Services, LLC – Owner

Cheyla’s Rescue Foundation and many other tax-exempt

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What is a Not-for-Profit vs. Non-Profit?

A not-for-profit serves a specific group of members

Not a 501(c)(3)
Hobby Clubs
Unions
HOAs

A nonprofit serves the general public good

typically, a 501(c)(3)
American Red Cross
Animal Rescues
Scouting America (Boy Scouts)

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There are about 30 ways to be Tax-Exempt

IRC Section	Types of Tax-Exempt Organizations (Source: IRS)
501(c)(1)	Corporations Organized Under Act of Congress (including Federal Credit Unions)
501(c)(2)	Title Holding Corporations for Exempt Organization
501(c)(4)	Civic Leagues and Social Welfare Organizations and Local Associations of Employees
501(c)(5)	Labor, Agricultural and Horticultural Organizations
501(c)(6)	Business Leagues, etc.
501(c)(7)	Social and Recreation Clubs This is what your Ski Clubs are.

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Tax-Exempt Continued

501(c)(8)	Fraternal Beneficiary Societies
501(c)(9)	Voluntary Employees' Beneficiary Associations
501(c)(10)	Domestic Fraternal Societies
501(c)(11)	Teachers' Retirement Fund Associations
501(c)(12)	Benevolent Life Insurance Associations, Mutual Ditch or Irrigation Companies, Mutual or Cooperative Telephone Companies, or Like Organizations (if 85 percent or more of the organization's income consists of amounts collected from members for the sole purpose of meeting losses and expenses)
501(c)(13)	Cemetery Companies (owned and operated exclusively for the benefit of their members or which are not operated for profit)
501(c)(14)	State Chartered Credit Unions, Mutual Reserve Funds
501(c)(15)	Mutual Insurance Companies or Associations
501(c)(16)	Cooperative Organizations to Finance Crop Operations
501(c)(17)	Supplemental Unemployment Benefit Trusts

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Tax-Exempt Continued

501(c)(18)	Employee Funded Pension Trusts (created before June 25, 1959)
501(c)(19)	Veterans' Organizations
501(c)(21)	Black Lung Benefit Trusts
501(c)(22)	Withdrawal Liability Payment Funds
501(c)(25)	Title Holding Corporations or Trusts with Multiple Parents
501(c)(26)	State-Sponsored High-Risk Health Coverage Organizations
501(c)(27)	State-Sponsored Worker's Compensation Reinsurance Organizations
501(c)(28)	National Railroad Retirement Investment Trust (45 U.S.C. 231n(j)
501(c)(29)	Qualified Nonprofit Health Insurance Issuers
501(d)	Religious and Apostolic Associations
501(e)	Cooperative Hospital Service Organizations
501(f)	Cooperative Service Organizations of Operating Educational Organizations
501(k)	Child Care Organizations
521(a)	Farmers' Cooperative Associations

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How does an entity become tax-exempt?

File articles in the state you will be operating in. If more than one state, you will file domestic articles in your home state and foreign articles in all other states.

Obtain your EIN (Employer Identification Number). The IRS doesn’t charge for this.

For 501(c)(3), you will file either the Form 1023-EZ or the Form 1023.

The 1023-EZ is for organizations that expect gross receipts of $50,000 or less and have total assets less than $250,000. The filing cost is $275 vs. $600. The review and approval time is also quicker.

All other tax-exempt organizations will file Form 1024. The exception to this is that 501(c)(4) organizations will file Form 1024A. The cost to file is $600.

They must also file IRS Form 8976 within 60 days of filing. The cost to file is $50. The late fee is $20 per day to a maximum of $5,000.

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IRS Yearly Filing Requirements

IRS 990-N (postcard)

Can only be e-filed
Generally, has revenue less than $50,000

IRS 990-EZ

Generally, $200,000 in revenues or less
Generally, $500,000 in assets or less
I recommend doing this type of return vs the 990N.

IRS 990

Generally, over $200,000 in revenues
Generally, over $500,000 in total assets

Tax returns are due by the 15^th day of the 5^th month after your fiscal year. Calendar-year filers are due by May 15.
Failure to file for three consecutive years will result in automatic revocation of tax exemption.
To get reinstated, you must reapply for tax exemption and file all outstanding tax years.
Publication 557 Tax-Exempt Status for Your Organization, www.irs.gov/pub/irs-pdf/p557.pdf

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Yearly Filing Requirements By State

Pennsylvania

File annual report https://file.dos.pa.gov/
Due June 30
Under $100,000 in revenue, then no Audit
Can be exempt from real estate taxes
Can get sales tax exempt.

Delaware

File Annual report https://corp.delaware.gov/paytaxes/
Due March 1
No Audit requirements
Can be exempt from real estate taxes
No Sales tax

Maryland

File Annual Report/Personal Property Report - https://businessexpress.maryland.gov/
Due April 15
Initial registration and annual filing
Has audit requirements
Can be exempt from real estate taxes.
Can get sales tax exempt.

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What tax-exempt organizations are prohibited from doing?

All tax-exempt organizations cannot have
Private Inurement

The private inurement doctrine prohibits tax-exempt organizations from allowing their net earnings or assets to benefit insiders. Insiders include board members, officers, key employees, or anyone with significant control over the organization.

Examples are excess compensation, improper transactions, financial loans, and personal use of the organization’s assets

Racial or Religious discrimination, and
excessive public or nonmember business activity

More than 35% of total gross receipts (including investment income) cannot come from outside sources, and no more than 15% can come from the general public using club services or facilities.

Must have a conflict-of-interest policy.
Only 501(c)(3) organizations cannot participate in politics by supporting a candidate for political office or endorsing or opposing a law. They can do limited lobbying.

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Other Compliance Matters

Unrelated Business Income
Underreporting income and expenses
Making or receiving loans from any officer, director, trustee, or key employee
Not reporting an excess benefit transaction with an unqualified person (an unqualified person is an insider of the organization)
Filing and paying payroll taxes
Issuing 1099s to vendors and contractors

Independent contractors, service providers, or members ($600 in 2025, $2,000 in 2026, indexed for all years after 2026)

Foreign Bank and Financial Account Report (FBAR) and FINCEN Form 114
Lack of internal controls
Fraud committed by any insider could result in reputation and financial harm to the tax-exempt (Source: Association of Certified Fraud Examiners)

Nationwide average loss for a tax-exempt is 5% of revenues
Median loss $76,000 to $100,000
Corruption (44%-48%), billing fraud (30%-31%), and check/payment tampering (23%)

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