The IRS is operating with fewer resources than it had in previous years, but it is not reducing enforcement across the board. According to analysis from tax controversy practitioners, the agency is shifting priorities toward areas it considers high-risk, and tax-exempt organizations are among the targets . The reasons are both political and practical. The administration has expressed a desire to revoke the tax-exempt status of certain organizations, and because tax-exempt entities have historically faced fewer examinations than other types of organizations, they are likely to see a significant change . At the same time, the IRS is relying more heavily on data analytics and artificial intelligence to identify compliance risks, which means organizations that appear inconsistent on paper may draw attention even without a traditional audit trigger . For Virginia nonprofits, the practical question is not whether scrutiny will increase, but whether the organization is prepared to demonstrate compliance when asked. The Most Common Risk Areas Based on IRS priorities and recent enforcement patterns, nonprofit risk areas include: Governance and Form 990 consistency. The IRS compares what an organization reports on its exemption application with what it reports on annual returns. Inconsistencies in mission description, program activities, or governance disclosures can prompt inquiries. Executive compensation. The expanded excise tax under IRC Section 4960 now applies to any employee with compensation exceeding $1 million, not just the five highest-compensated employees. Organizations with deferred compensation or severance arrangements should review those arrangements before the IRS does. Unrelated business income. Income from activities not substantially related to the exempt purpose must be reported on Form 990-T. Failure to identify and report UBI is a common finding. Political activity and lobbying. Organizations that engage in advocacy should document how activities stay within permitted limits. A Practical Readiness Plan The first step is a document review. Gather the exemption application, the last three years of Form 990 filings, board minutes, the conflict of interest policy, and any written agreements with insiders. Review them for consistency. If the mission statement on the exemption application differs from the program description on the most recent Form 990, revise the disclosure or document the reason for the change. The second step is a compensation review. Identify any employee or former employee whose compensation in any year since 2017 exceeded $1 million. Confirm that the organization has documentation supporting the reasonableness of that compensation, including comparable data and board approval. The third step is a governance check. Confirm that the organization has a written conflict of interest policy, that officers and directors complete annual disclosures, and that the board reviews the Form 990 before filing. The fourth step is documentation of internal controls. The IRS does not require a specific format, but organizations should be able to explain who authorizes expenses, who records transactions, who reconciles bank accounts, and how the board oversees financial reporting. When to Seek Professional Guidance If the organization has received an IRS notice, has unfiled returns, or has compensation arrangements that may trigger Section 4960, professional guidance is warranted. A CPA can review the filings, identify exposure, and represent the organization before the IRS if an examination begins. Nova Tax & Accounting Services provides Form 990 preparation, nonprofit audit and assurance services, and IRS representation for tax-exempt organizations across Virginia and Washington DC. For more information, visit https://novataxservices.com/ or schedule a free consultation. 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.
An audit inquiry letter from Virginia Tax is not a bill. It is a request for information and an invitation to explain. The distinction matters, because the response you provide in the first thirty days often determines whether the audit closes with no change, a small adjustment, or an escalating dispute. Virginia Tax conducts many examinations by phone or letter, without a field visit . The agency’s stated process is to identify the nature of the discrepancy, invite you to provide additional information or explain your position, give you a deadline, and provide the name and contact information of the examiner handling your case . If you do not respond, or cannot demonstrate that the proposed change is incorrect, Virginia Tax will issue a bill for tax, penalty, and interest. This guide explains how to respond effectively. Step One: Read the Letter Carefully and Identify the Issue Virginia Tax letters typically identify the specific return, the item or items under review, and the proposed change. The most common issues in recent rulings involve sole proprietorship Schedule C audits and the documentation supporting business expenses . Do not respond until you understand what is being questioned. If the letter references a specific line item, pull the return and the supporting records for that item. If the letter is vague, call the examiner using the contact information provided and ask for clarification. Step Two: Gather Documentation Before the Deadline Virginia Tax expects documentation by the stated due date. If you need more time, request an extension before the deadline, not after . Extensions are routinely granted when requested in advance. The documentation required depends on the issue. For Schedule C audits, the examiner will want receipts, invoices, bank statements, and any other records that substantiate the expenses claimed. For sales tax audits, the examiner will want sales records, exemption certificates, and purchase documentation. Organize the records by issue. Do not send a box of receipts. Provide a cover letter that identifies each document and explains how it supports your position. Step Three: Respond in Writing Virginia Tax does not require a formal legal brief, but a written response creates a record and forces clarity. The response should: Identify the letter and the examiner by name State your position on each issue Reference the supporting documentation by attachment number or description Request a meeting or call if the issue cannot be resolved by correspondence If you disagree with the proposed change, say so directly and explain why. The examiner is required to provide a clear, non-technical explanation of any changes made during the audit . If the explanation is unclear, ask for it in writing. Step Four: Know Your Rights The Virginia Taxpayer Bill of Rights guarantees specific protections during an audit . You have the right to be informed of the audit process and appeal rights, to have the audit conducted at a reasonable time and completed in a timely manner, and to receive an explanation of any changes. You also have the right to appeal if you disagree with the findings. The appeal process is separate from the audit process and should be evaluated carefully before the deadline passes. Step Five: Consider Professional Representation A CPA with experience in Virginia Tax audits can respond on your behalf, communicate with the examiner directly, and present the documentation in a format that addresses the examiner’s concerns efficiently. This is particularly valuable when the audit involves multiple issues, significant dollar amounts, or records that are incomplete or disorganized. Nova Tax & Accounting Services represents businesses and nonprofits in Virginia Tax audits and disputes. Our CPAs understand the documentation requirements, the examiner’s perspective, and the appeal process. For more information, visit https://novataxservices.com/ or schedule a free consultation.
A Long-Awaited Fix for IRA Errors For years, retirement account owners who discovered errors in their Individual Retirement Accounts faced a frustrating reality. The IRS had a correction program for employer-sponsored retirement plans—the Employee Plans Compliance Resolution System (EPCRS)—but no equivalent for IRAs. Mistakes involving rollover timing, contribution limits, or required minimum distributions often required costly private letter ruling requests or left taxpayers without a clear path to resolution. That changed on October 22, 2026. The Department of the Treasury and the Internal Revenue Service issued two revenue procedures: one updating the correction program for employee retirement plans, and one establishing a new correction program for Individual Retirement Accounts . This guide explains what the new program covers, who can use it, and what it means for IRA owners and their advisors. The IRA Compliance Resolution System (ICRS) The new program is called the IRA Compliance Resolution System (ICRS), established under Revenue Procedure 2026-33 . It was enacted as part of the SECURE 2.0 Act of 2022, which directed the Treasury and IRS to create a correction mechanism for IRAs modeled on the existing employee plan program. IRS Chief Executive Officer Frank J. Bisignano stated: “Hard working Americans will benefit from these procedures because they simplify and speed up how errors with certain retirement plans and IRAs can get corrected when there is a simple problem. These procedures are part of our effort to make complying with the nation’s tax laws easier and less burdensome for taxpayers” . What ICRS Covers The new system permits IRA custodians and IRA owners to request correction of certain eligible inadvertent failures caused by service-provider errors . This is a significant expansion of relief. Previously, an IRA owner who discovered an error had limited options: self-correct if the error qualified under existing guidance, or file a private letter ruling request at significant cost. ICRS provides a structured, administrative process for correcting errors without the expense and uncertainty of a private letter ruling. The 60-Day Rollover Waiver One of the most practical features of ICRS is its handling of the 60-day rollover rule. Under current law, a distribution from an IRA or retirement plan must be rolled over to another IRA or plan within 60 days to avoid taxation. Missing that deadline generally makes the distribution taxable. Currently, requests to waive the 60-day requirement must be submitted as private letter ruling requests. Under ICRS, these requests will be transitioned to the new correction program over the course of 2027 and 2028 . This change should make relief more accessible and less expensive for taxpayers who miss the deadline due to service-provider errors or other qualifying circumstances. Existing Waiver Procedures Remain Importantly, existing automatic waiver and self-certification procedures remain available at no cost for taxpayers who meet the requirements under Revenue Procedures 2020-46, 2016-47, and 2003-16 . IRA owners who qualify for these existing procedures do not need to use ICRS. The Updated Employee Plans Program (EPCRS) Alongside the new IRA program, the IRS issued Revenue Procedure 2026-34, which expands the Employee Plans Compliance Resolution System and replaces the prior guidance under Revenue Procedure 2021-30 . EPCRS includes three components: the Self-Correction Program, the Voluntary Correction Program, and the Audit Closing Agreement Program. Together, these programs allow sponsors of qualified plans, Section 403(b) plans, SEP arrangements, and SIMPLE IRA plans to make corrections and continue providing retirement benefits on a tax-favored basis. The updated procedure restructures and expands the existing program, reflecting the IRS’s ongoing effort to streamline correction processes for retirement plan sponsors. Effective Dates and Transition The new EPCRS procedure is effective immediately, as of October 22, 2026 . The ICRS procedure is effective May 1, 2027 . This staggered effective date gives IRA custodians and owners time to understand the new process before it becomes available. Treasury and the IRS have invited comments on both programs, and each revenue procedure identifies issues on which comments are particularly requested, along with submission instructions and comment deadlines . What This Means for IRA Owners For IRA owners who discover errors in their accounts, the new ICRS program creates a clearer path to resolution. The key points to understand: Service-provider errors are eligible. If an error resulted from a custodian’s mistake—incorrect processing, misapplied contributions, or administrative failures—ICRS may provide relief. Self-correction remains available for qualifying errors. The existing self-certification procedures for waiver of the 60-day rollover rule remain in place at no cost. The private letter ruling path is being phased out for rollover waivers. Over 2027 and 2028, requests for 60-day rollover waivers will transition from private letter rulings to ICRS. The program takes effect May 1, 2027. IRA owners and custodians should mark this date and prepare for the transition. How Nova Tax & Accounting Services Can Help Nova Tax & Accounting Services helps individuals and families manage retirement accounts, including IRA distributions, rollovers, and required minimum distributions. Our CPAs stay current with IRS guidance and can help you understand your options when errors occur. For more information, visit https://novataxservices.com/ or schedule a free consultation. Additional Resources Revenue Procedure 2026-33 (ICRS) Revenue Procedure 2026-34 (EPCRS) IRS News Release IR-2026-126 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.