Understanding Why the DC Office of Tax and Revenue Conducts Audits The District of Columbia Office of Tax and Revenue (OTR) Audit Division is responsible for ensuring compliance with all District tax laws, except real property taxes. Its mission is to obtain, maintain, and achieve tax compliance through the examination of filed tax returns, identification of non-filers, and discovery of unreported tax revenue. Audits are conducted in a manner designed to provide fair, firm, and uniform treatment to all taxpayers. If your return is selected for examination, it does not necessarily mean the agency suspects wrongdoing—many audits are simply routine reviews to verify that reported information is accurate and supported by proper documentation. What to Expect During the Audit Process When an audit begins, the auditor will contact you to explain the scope of the examination, the records you may need to provide, and the method that will be used to conduct the audit. Audits may be handled through correspondence, interviews, or a combination of both. You have the right to request that the audit take place at a reasonable time and location. Throughout the process, the auditor should explain any proposed adjustments to your return and the reasons behind them. You are also entitled to receive copies of the audit work papers and written notice of your appeal rights once a determination is made. Your Rights as a DC Taxpayer Taxpayers in the District have specific rights during an audit. You may represent yourself or authorize a qualified representative—such as a CPA, enrolled agent, or attorney—to act on your behalf. If you disagree with the audit findings, you have the right to request an informal conference. These conferences are conducted by trained hearing officers who were not involved in your audit, ensuring an independent review of your position before a final determination is issued. You also have the right to request technical advice and legal opinions from the Audit Division by writing to the Office of Tax and Revenue. Resolution Options and Next Steps If the audit results in additional tax due, several resolution options may be available, including payment plans and other settlement arrangements. The Voluntary Disclosure Program allows eligible taxpayers to come forward voluntarily to report and resolve tax obligations without incurring certain penalties. For cases that cannot be resolved informally, formal appeal processes exist. Navigating a DC tax audit can be complex, but you do not have to face it alone. How Nova Tax & Accounting Can Help At Nova Tax & Accounting Services, we provide professional representation and guidance for taxpayers facing audits and disputes. Our team helps you understand your options, respond to information requests, and work toward the best possible outcome. Whether you need assistance with a DC tax audit, IRS examination, or state tax matter, our experienced CPAs are here to help. We serve taxpayers throughout Washington DC, Virginia, and Maryland. To learn more about our audit and assurance services, visit https://novataxservices.com/audit-attestation-services/ . Reference Source: DC Office of Tax and Revenue – Audit Division
The Landscape Has Changed For Virginia’s nonprofit sector—home to approximately 53,000 registered organizations—the compliance environment in 2026 is fundamentally different from anything that came before. A convergence of new federal directives, expanded IRS enforcement authority, and heightened political attention to tax-exempt organizations has created an atmosphere of unprecedented scrutiny. The signals are unmistakable. According to multiple published reports, the Trump administration has directed the IRS’s Criminal Investigation Division (IRS-CI) to focus on organizations it deems politically adversarial. The Wall Street Journal described how the IRS is being reorganized to enable easier pursuit of investigations into “left-leaning groups”. For nonprofit leaders across Virginia—from large associations in Arlington to community organizations in Richmond and faith-based networks in Hampton Roads—the message is clear: governance, compliance, and documentation now matter more than ever. This guide provides a comprehensive overview of the new scrutiny landscape, the specific compliance obligations facing Virginia nonprofits, and practical steps organizations can take to protect their tax-exempt status and continue serving their missions. The New Federal Enforcement Framework National Security Presidential Memorandum 7 (NSPM-7) The most significant development shaping the current environment is National Security Presidential Memorandum 7, issued in September 2025. This directive, which addresses “Countering Domestic Terrorism and Organized Political Violence,” has profound implications for tax-exempt organizations. On December 4, 2025, U.S. Attorney General Pam Bondi issued an internal directive implementing NSPM-7, substantially expanding the federal government’s approach to identifying, investigating, and prosecuting alleged domestic terrorism. This directive: Mandates new investigative procedures across federal agencies Broadens key definitions to include a wider range of activities Introduces enhanced enforcement mechanisms that can be applied to nonprofit organizations The implications for nonprofits are serious. As one legal analysis notes, “Together, these changes significantly elevate the risk landscape for nonprofits, donors, advocacy organizations, and other taxpayers”. Organizations must now treat their compliance, records, governance, and operations as though they could be subject to criminal exposure, reputational harm, and loss of exempt status. IRS Criminal Investigation Focus Historically, IRS-CI operated under Internal Revenue Manual 9.1.1.4(3), which explicitly prohibited opening investigations based on political affiliation. Investigations were initiated based on leads from other IRS divisions, other agencies, informants, or whistleblowers. According to reports, this is changing. The IRS is being reorganized to enable easier pursuit of investigations into organizations deemed politically adversarial. This represents “a full-scale shift in how the Internal Revenue Service handles tax-exempt organizations”. For Virginia nonprofits, the implications are particularly acute. The Eastern District of Virginia has been identified as a favored venue for federal enforcement actions, making organizations with offices in the Commonwealth potentially more vulnerable to investigation. Congressional Pressure on the IRS Congress has also intensified its oversight of the nonprofit sector. In January 2026, House Ways and Means Committee Chairman Jason Smith and all Republican members of the Committee called on the IRS to overhaul its oversight of the nonprofit sector, citing concerns about fraud and abuse. The Committee’s ongoing investigation has already resulted in the referral of multiple nonprofit organizations to the IRS for revocation of tax-exempt status. New IRS Guidance: Three Technical Guides for Exempt Organizations In June 2025, the IRS published three new Technical Guides (TGs) that replace corresponding Audit Technique Guides (ATGs). These guides provide comprehensive, issue-specific guidance for IRS examiners and offer valuable insight for nonprofits seeking to understand what the IRS looks for during examinations. TG 3-8: Inurement and Private Benefit This guide addresses the concepts of inurement and private benefit for Section 501(c)(3) organizations. Organizations exempt under Section 501(c)(3) must avoid engaging in impermissible conduct, including that which results in private benefit and inurement. An otherwise qualifying organization will be disqualified for exemption if it benefits private interests, either through inurement of its net earnings to certain “insiders,” or by primarily benefiting the interests of persons who, though not “insiders,” do not comprise a charitable class. Nonprofit leaders should review this guide to ensure their compensation practices and transactions with insiders are defensible. TG 3-27: Public Charity Foundation Classifications This guide addresses public charity foundation classifications under Sections 509(a)(1) and 509(a)(4). It covers organizations for the benefit of certain state and municipal colleges and universities, governmental units, agricultural research organizations, and organizations testing for public safety. For Virginia nonprofits that operate in partnership with public universities or government entities, this guide provides essential guidance on maintaining proper classification and avoiding unintended private foundation status. TG 70: Non-Exempt Charitable Trusts and Split-Interest Trusts This guide addresses technical information and examination techniques regarding non-exempt charitable trusts (NECTs) and split-interest trusts. These trusts are subject to certain excise taxes under Chapters 41 and 42 pursuant to Section 4947. Organizations that operate charitable trusts or split-interest arrangements should familiarize themselves with this guidance to ensure compliance with applicable excise tax provisions. Virginia-Specific Compliance Requirements Charitable Solicitation Registration Virginia law requires that every charitable organization intending to solicit contributions within the Commonwealth, or have funds solicited on its behalf, must register with the Office of Charitable and Regulatory Programs (OCRP) prior to any solicitation. The OCRP is part of the Virginia Department of Agriculture and Consumer Services (VDACS). Recent news illustrates the consequences of non-compliance. In Virginia Beach, a local nonprofit contracted by the city to solicit donations for a public park was found to be “not authorized to solicit in Virginia” because it had failed to renew its registration, which expired in November 2023. The organization was unable to legally raise funds for the project until it resolved its registration status. Virginia nonprofits should verify their registration status annually and ensure renewals are filed on time. The registration must be renewed annually within 5.5 months after the end of the organization’s fiscal year. Virginia Sales and Use Tax Exemption To qualify for Virginia’s sales and use tax exemption, a nonprofit organization must meet several requirements: The organization must be exempt from federal income taxation under §§ 501(c)(3), 501(c)(4), or 501(c)(19) Proof of compliance with Virginia’s law relating to organizations that solicit contributions Annual administrative costs (including salaries and fundraising) must not exceed 40%
The Transition from Employee to Entrepreneur Transitioning from W-2 employment to self-employment is a significant financial milestone. For a new single-member LLC owner in Virginia, the tax landscape changes dramatically—and understanding these changes is essential for avoiding surprises and maximizing your financial success. This guide is designed for someone who was a W-2 employee through May and started a business this summer, currently grossing $15,000–$20,000 per month. We will cover bookkeeping setup, estimated tax projections, and the critical decision of whether an S-corp election makes sense. Step 1: Understanding Your New Tax Obligations As a single-member LLC, you are generally treated as a disregarded entity for federal tax purposes . This means the LLC itself does not pay income tax. Instead, your business income and expenses flow through to your personal tax return (Form 1040, Schedule C). Key taxes you will owe: Federal Income Tax: Your net business profit (gross income minus expenses) is subject to federal income tax at your marginal rate. Self-Employment Tax: You must pay self-employment tax to cover Social Security and Medicare. For 2026, the self-employment tax rate is 15.3% on the first $176,100 of net earnings, and 2.9% above that . This is significantly higher than the 7.65% employee share you paid as a W-2 employee, because you now cover both the employee and employer portions. Virginia Individual Income Tax: Virginia taxes your business income at graduated rates ranging from 2% to 5.75% . There is no separate LLC-level state income tax. Step 2: Setting Up Your Bookkeeping Establishing clean bookkeeping from day one is critical. Here is what you need: 1. Separate Business Bank AccountOpen a dedicated business bank account immediately. Never commingle personal and business funds. This is essential for accurate recordkeeping, tax compliance, and liability protection. 2. Accounting SoftwareChoose a bookkeeping system that fits your needs. Options range from simple spreadsheets to robust accounting software like QuickBooks or Xero. At Nova Tax & Accounting Services , our bookkeeping services can help you establish the right system from the start. 3. Track Your ExpensesFrom day one, track every business expense. Common deductions include: Home office expenses (if you use a dedicated space) Business equipment and supplies Software subscriptions Professional services (legal, accounting) Business meals and travel Mileage or vehicle expenses 4. Startup Cost DeductionUnder Section 195, you can deduct up to **$5,000 in startup costs** in your first year, provided total startup costs are under $50,000 . This includes legal fees, market research, licenses, and other pre-opening expenses. Step 3: Projecting Your Federal and Virginia Estimated Taxes Because no employer withholds taxes from your business income, you must make quarterly estimated tax payments to both the IRS and Virginia. Federal Estimated TaxesEstimated payments are due: Q1: April 15 Q2: June 15 Q3: September 15 Q4: January 15 of the following year To calculate your payments, estimate your total tax liability (income tax + self-employment tax) and divide by four. A CPA can help you make accurate projections based on your income and deductions. Virginia Estimated TaxesFor Virginia, estimated payments are generally due: May 1 June 15 September 15 January 15 Beginning in 2026, estimated payments are required when expected Virginia income tax after withholding and credits exceeds $1,000 . Important: Virginia’s first estimated payment is due May 1, not April 15, so be sure to mark this on your calendar . Step 4: Evaluating the S-Corp Election As your business grows, you may wonder whether an S-corporation election makes sense. The primary benefit of an S-corp is potential savings on self-employment tax. How It Works:As a sole proprietor, you pay self-employment tax on your entire net profit. With an S-corp election, you become an employee of your corporation and pay yourself a reasonable salary. The remaining profit is distributed as dividends, which are not subject to self-employment tax . Example: Without S-Corp: $200,000 net profit × 15.3% = $30,600 self-employment tax With S-Corp: $100,000 salary × 15.3% = $15,300 payroll tax; remaining $100,000 is distribution, no self-employment tax. Savings: $15,300 Considerations: You must pay yourself a reasonable salary based on market data for your role S-corp compliance adds complexity: payroll processing, separate tax returns (Form 1120-S), and additional fees The savings must outweigh the additional administrative costs At Nova Tax & Accounting Services , we can model different scenarios to determine whether an S-corp election would benefit your specific situation. Step 5: Key Deadlines for 2026 Date Deadline April 15, 2026 Q1 estimated tax payment (federal) May 1, 2026 Q1 estimated tax payment (Virginia) June 15, 2026 Q2 estimated tax payment (federal) June 15, 2026 Q2 estimated tax payment (Virginia) September 15, 2026 Q3 estimated tax payment (federal & Virginia) January 15, 2027 Q4 estimated tax payment (federal & Virginia) How We Can Help At Nova Tax & Accounting Services , we specialize in helping new business owners navigate the transition from W-2 employment to self-employment. Our services include: Initial tax planning consultation to assess your situation and goals Bookkeeping setup and ongoing support Estimated tax projections for federal and Virginia S-corp evaluation and entity structuring Tax preparation and year-round planning Contact us today to schedule your consultation and take control of your tax future.