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Tennessee requires charitable organizations that solicit contributions within the state to register and provide annual financial information to the Tennessee Secretary of State, Division of Charitable Solicitations and Gaming.

For organizations with larger financial operations, that annual reporting obligation may include an independent financial statement audit. A registered charitable organization that received more than $1 million in qualifying gross revenue during its most recently completed fiscal year generally must submit audited financial statements prepared by an independent Certified Public Accountant (CPA). (Tenn. Code Ann. § 48-101-506(b)(2)(A))

However, Tennessee’s calculation is more specific than simply taking total revenue from the organization’s financial statements or IRS Form 990. When determining whether the audit threshold has been exceeded, the statute excludes grants from government agencies and private foundations designated by the IRS as Section 501(c)(3) organizations. (Tenn. Code Ann. § 48-101-506(b)(2)(B))

• Government agencies
• Private foundations recognized by the IRS as tax-exempt under Section 501(c)(3)

That exclusion can significantly affect whether an organization must obtain an audit specifically for Tennessee charitable registration purposes.

Whether your nonprofit serves Nashville, Memphis, Knoxville, Chattanooga, Clarksville, Franklin, Murfreesboro, Johnson City, or communities throughout Tennessee, reviewing the correct revenue categories before year-end can help prevent an incomplete or delayed renewal filing.

Tennessee Audit Requirements at a Glance

Tennessee’s current statute requires an audit when qualifying gross revenue is in excess of $1 million after applying the specified government-agency and private-foundation grant exclusions. (Tenn. Code Ann. § 48-101-506(b)(2))

Quick Answer

A Tennessee charitable organization that received more than $1 million in qualifying gross revenue during its most recently completed fiscal year generally must submit audited financial statements prepared by an independent CPA. (Tenn. Code Ann. § 48-101-506(b)(2)(A))

For this calculation, Tennessee excludes grants received from government agencies and private foundations designated by the IRS as Section 501(c)(3) organizations. The audit accompanies the organization’s annual charitable registration filing with the Tennessee Secretary of State. (Tenn. Code Ann. § 48-101-506(b)(2)(B))

When Does Tennessee Require a Nonprofit Audit?

Tennessee Code Annotated § 48-101-506 requires the annual report of a charitable organization receiving in excess of $1 million in gross revenue to include audited GAAP financial statements examined by an independent CPA, together with the applicable IRS forms. (Tenn. Code Ann. § 48-101-506(b)(2)(A))

1. Audited financial statements prepared in accordance with generally accepted accounting principles
2. An examination by an independent CPA for the purpose of expressing an opinion
3. The applicable forms required to be filed with the IRS

The basic reporting structure is:

The statute says “in excess of” $1 million. Therefore, an organization reporting exactly $1 million in qualifying revenue does not cross the statutory threshold based on amount alone. (Tenn. Code Ann. § 48-101-506(b)(2)(A))

Tennessee’s Grant Exclusions

One of the most important Tennessee-specific rules is that not every source of nonprofit revenue counts toward the audit threshold.

For this particular test, Tennessee excludes grants received from:

• Federal, state, or local government agencies
• Private foundations designated by the IRS as Section 501(c)(3) organizations

These exclusions apply only when determining gross revenue for the audit-threshold test. (Tenn. Code Ann. § 48-101-506(b)(2)(B))

For example, assume a nonprofit reports:

After excluding the government and qualifying private-foundation grants, the organization may have only $900,000 of revenue counted toward Tennessee’s state audit threshold.

Although the organization reports more than $1 million in total accounting revenue, it may not be required to obtain an audit solely under Tennessee’s charitable solicitation law.

The classification of a grant should be supported by grant agreements and information about the funding organization. A nonprofit should not assume that every grant is automatically excluded.

What Revenue May Still Count?

Revenue that may remain in the Tennessee threshold calculation can include:

• Individual contributions
• Corporate donations
• Corporate sponsorship revenue
• Program-service revenue
• Membership income
• Special-event proceeds
• Fundraising revenue
• Investment income
• Sales of goods or services
• Grants from organizations that do not qualify for the statutory exclusion
• Other operating revenue

Because the statutory test differs from ordinary financial-statement presentation, organizations should prepare a separate Tennessee threshold schedule rather than relying exclusively on total revenue shown in the general ledger or Form 990.

Tennessee’s Summary of Financial Activities

A Tennessee charitable organization that has completed an accounting year generally must provide annual financial information through the state’s filing process. (Tenn. Code Ann. §§ 48-101-504(d), 48-101-506(b))

The Tennessee Secretary of State states that the filing ordinarily includes:

• A Summary of Financial Activities
• IRS Form 990, 990-EZ, or 990-N, when applicable
• Audited financial statements when qualifying revenue exceeds $1 million

The Summary of Financial Activities helps the state evaluate the organization’s financial operations and determine whether additional documentation is required.

The amounts reported through the state system should be reconciled with:

• The organization’s year-end trial balance
• Audited financial statements
• IRS Form 990
• Grant schedules
• Contribution records

Unexplained differences between these records can delay approval of the renewal.

Tennessee Charity Registration and Renewal

Charitable organizations subject to Tennessee’s solicitation law generally register and renew through the Secretary of State’s online TNCaB filing system. The online system separates initial charity registration from renewal of an existing organization. (Tennessee Secretary of State, TNCaB)

A renewal commonly requires:

• Online renewal application
• Summary of Financial Activities
• Public-disclosure copy of the applicable IRS return
• Audited financial statements when required
• Updated organizational and contact information
• Required filing fee
• Supporting explanations or documents requested by the state

Tennessee law provides for a late fee of $25 for each month, or portion of a month, that a renewal application is late, subject to the statutory aggregate cap. (Tenn. Code Ann. § 48-101-506(f))

When Is the Tennessee Renewal Due?

A Tennessee charitable organization generally must renew its registration by the last day of the sixth month following the end of its accounting year. (Tenn. Code Ann. § 48-101-506(d); Tennessee Secretary of State, Charities Guidance)

For example:

Organizations requiring an audit should work backward from the Tennessee deadline when scheduling fieldwork, drafting financial statements, preparing Form 990, and obtaining board approval.

Waiting until the sixth month after year-end to engage a CPA may not provide enough time to complete the audit and renewal.

Initial Registration for Organizations That Have Completed a Fiscal Year

An organization applying for its initial Tennessee charitable registration may also need audited financial statements if it has already completed a fiscal year and its qualifying gross revenue exceeded $1 million. (Tenn. Code Ann. §§ 48-101-504(d), 48-101-506(b)(2))

The Secretary of State’s initial registration guidance calls for:

• Audited financial statements when the threshold is exceeded
• Governing documents, such as articles of incorporation and bylaws
• Financial and organizational information required by the application

Therefore, the audit requirement is not limited to organizations renewing an existing Tennessee registration. A charity that began soliciting in Tennessee after completing a large fiscal year may need to provide the audit during its first registration.

First-Year Organizations and Quarterly Reporting

Newly registered organizations that have not completed a fiscal year may have different reporting obligations.

A newly registered charitable organization in its first year of operation must provide quarterly financial reports within 30 days after the end of each quarter. (Tenn. Code Ann. § 48-101-504(c))

Once the organization completes its first accounting year, its annual revenue and grant classifications can be evaluated to determine whether audited financial statements are required.

New organizations should distinguish between:

• Quarterly first-year reporting
• Annual Summary of Financial Activities
• IRS filing requirements
• The state financial statement audit threshold

Tennessee Charitable Registration Is Not the Same as Corporate Registration

A nonprofit may have several separate Tennessee compliance responsibilities.

These can include:

1. Maintaining the organization’s nonprofit corporate status
2. Registering to solicit charitable contributions
3. Filing the annual charitable renewal
4. Filing an IRS Form 990-series return
5. Maintaining state tax exemptions, when applicable
6. Obtaining audited financial statements when required

Filing a corporate annual report does not replace the charitable registration filing. Similarly, IRS recognition under Section 501(c)(3) does not automatically register an organization to solicit donations in Tennessee.

Preparing for a Tennessee Nonprofit Audit

An organization expecting qualifying revenue to exceed $1 million should begin planning before fiscal year-end.

Your CPA will commonly request:

• Year-end trial balance
• General ledger
• Bank reconciliations
• Contribution schedules
• Donor records
• Grant agreements
• Government grant schedules
• Private-foundation grant schedules
• Program-service revenue detail
• Special-event reports
• Accounts receivable and payable schedules
• Payroll reports
• Fixed-asset records
• Investment statements
• Debt agreements
• Board and committee minutes
• Restricted-fund activity
• Internal control documentation
• Prior-year financial statements
• Draft IRS Form 990

The organization should also prepare a schedule separating:

• Government grants
• Private-foundation grants
• Corporate grants
• Individual contributions
• Program revenue
• Other income

That schedule helps management determine whether the state threshold has been crossed and supports the amounts submitted during renewal.

Common Tennessee Compliance Problems

Using total revenue without applying the exclusions

The audit test excludes grants from government agencies and private foundations designated by the IRS as Section 501(c)(3) organizations. Simply using total revenue from the income statement may produce the wrong conclusion. (Tenn. Code Ann. § 48-101-506(b)(2)(B))

Treating every grant as a private-foundation grant

A grant from a corporation, donor-advised fund, public charity, or other organization may not fall within the statutory exclusion. Each grantor’s status should be evaluated.

Assuming the threshold begins at exactly $1 million

The Tennessee statute uses the phrase “in excess of” $1 million. The more precise trigger is therefore more than $1 million. (Tenn. Code Ann. § 48-101-506(b)(2)(A))

Forgetting the Summary of Financial Activities

Submitting Form 990 alone may not complete the Tennessee renewal. The organization generally must also complete the state’s financial activity reporting.

Filing an incomplete audit package

The complete audited financial statements ordinarily include:

• Independent auditor’s report
• Statement of financial position
• Statement of activities
• Statement of functional expenses, when applicable
• Statement of cash flows
• Notes to the financial statements
• Supplementary information, when applicable

Waiting too long to hire an auditor

Tennessee renewal is generally due by the end of the sixth month after year-end. Audit planning should begin substantially earlier. (Tenn. Code Ann. § 48-101-506(d))

Tennessee Law at a Glance

Tennessee’s charitable solicitation requirements are primarily found in Tennessee Code Annotated, Title 48, Chapter 101, Part 5.

Section 48-101-506 addresses registration renewal and annual financial reporting. It requires audited GAAP financial statements examined by an independent CPA when the organization’s qualifying gross revenue exceeds $1 million. (Tenn. Code Ann. § 48-101-506(b)(2))

The law also permits the Secretary of State to review registration filings, require complete financial information, impose late fees, and make charitable registration documents available as public records.

Because filed documents may be available for public inspection, organizations should review financial statements and registration information carefully for consistency before submission. The Tennessee renewal guide expressly notes that filings required under the charitable solicitation law are public records.

Benefits Beyond Tennessee Compliance

An independent audit can provide value beyond satisfying the Secretary of State.

Audited financial statements may help a nonprofit:

• Strengthen board oversight
• Improve internal controls
• Meet lender requirements
• Qualify for private grants
• Comply with government awards
• Improve Form 990 accuracy
• Support multistate charitable registration
• Increase donor confidence
• Identify accounting errors
• Prepare for organizational growth

An organization may also need an audit even when Tennessee’s excluded-grant calculation leaves it below the state threshold. Separate audit obligations may arise from federal funding, grant agreements, contracts, bylaws, lenders, or another state’s charitable registration law.

Why Choose ELT CPA LLC?

ELT CPA LLC provides independent financial statement audit services for nonprofit and charitable organizations operating in Tennessee.

Our team understands that Tennessee’s audit threshold cannot always be determined by looking at total revenue alone. We help organizations distinguish government and qualifying private-foundation grants from other income, reconcile the threshold calculation to the financial statements and Form 990, and organize the documentation needed for the Tennessee renewal.

Whether your nonprofit is crossing the threshold for the first time or already completes an annual audit, ELT CPA LLC can help create an efficient and well-organized engagement.

Frequently Asked Questions

What is Tennessee’s nonprofit audit threshold?

A registered charitable organization generally must submit audited financial statements when it receives more than $1 million in qualifying gross revenue during its most recently completed fiscal year. (Tenn. Code Ann. § 48-101-506(b)(2)(A))

Is the threshold exactly $1 million?

The statute says “in excess of” $1 million, meaning more than $1 million. An organization exactly at $1 million does not cross the statutory threshold based solely on amount. (Tenn. Code Ann. § 48-101-506(b)(2)(A))

Do government grants count?

No. Grants from government agencies are excluded when determining gross revenue for the Tennessee state audit threshold. (Tenn. Code Ann. § 48-101-506(b)(2)(B))

Do private-foundation grants count?

Grants from private foundations designated by the IRS as Section 501(c)(3) organizations are excluded for this calculation. The organization should verify and document the grantor’s status. (Tenn. Code Ann. § 48-101-506(b)(2)(B))

Does program-service revenue count?

Program-service revenue is not identified as one of the statutory exclusions and may therefore count toward the threshold.

Which agency regulates charitable solicitation in Tennessee?

The Tennessee Secretary of State, Division of Charitable Solicitations and Gaming administers charitable registration and renewal requirements.

What must accompany the annual filing?

An organization that has completed an accounting year generally provides a Summary of Financial Activities, its applicable IRS Form 990-series return, and audited financial statements when the revenue threshold is exceeded.

When is the Tennessee charity renewal due?

The renewal is generally due by the last day of the sixth month following the close of the organization’s accounting year. (Tenn. Code Ann. § 48-101-506(d))

Are Tennessee charity filings public?

Yes. The Secretary of State’s renewal guidance explains that registration statements, reports, and other required documents are public records available for inspection.

Can an audit still be required below the Tennessee threshold?

Yes. A grant agreement, government award, lender, board policy, organizational bylaws, or another state may independently require audited financial statements.