A Shifting Enforcement Landscape The Internal Revenue Service is undergoing a significant transformation in 2026. While the agency grapples with workforce reductions and leadership turnover, it is simultaneously sharpening its focus on specific areas of non-compliance . For businesses and individuals, understanding these shifting priorities is essential for effective tax planning and risk management. This article examines the current audit trends, common triggers, and practical strategies for staying compliant. We will explore how the IRS is using data analytics and specialized guides to identify potential issues, and what you can do to prepare. The Rise of Valuation Audits One of the most notable trends in 2026 is the IRS’s renewed focus on valuation issues, particularly in charitable donations and tax credit claims . Tax practitioners have observed a rise in new audits centered on how assets are valued, not just in non-cash donations but also in energy projects that qualify for investment tax credits. According to tax attorney Daniel Strickland, “It all comes back to issues that the IRS is identifying in valuation – maybe we’ll call it aggressive valuation” . This focus follows the agency’s continued crackdown on syndicated conservation easement shelters, a strategy where partnerships take large charitable deductions for donated land. For taxpayers, this means that any transaction involving significant valuation estimates—whether donating art, medical devices, or claiming energy credits—faces heightened scrutiny. Proper documentation and independent appraisals are more critical than ever. Understanding IRS Audit Technique Guides (ATGs) The IRS develops Audit Technique Guides (ATGs) and Technical Guides (TGs) to train its examiners on specific industries and issues . While these guides are designed for IRS employees, they offer valuable insight for taxpayers and practitioners. For exempt organizations, the IRS has published guides covering topics like: Public charities Private foundations Inurement and private benefit Unrelated business income Foundation classification These guides explain specialized business practices, explore common issues, and provide relevant legal authority. For nonprofits in Virginia and DC, reviewing the applicable guides can help identify areas of risk before an audit occurs. Similarly, the Capitalization of Tangible Property Audit Technique Guide provides detailed guidance on how the IRS examines depreciation, cost segregation studies, and property improvement rules . Businesses making significant capital investments should be familiar with these rules to ensure proper treatment. Common Audit Triggers Based on IRS priorities and practitioner observations, certain red flags are more likely to draw attention in 2026: For Individuals: Large charitable deductions with questionable valuations Significant investment income with complex structuring Inconsistencies between reported income and lifestyle indicators For Businesses: Aggressive valuation of assets or credits Misclassification of workers (employees vs. independent contractors) Unreported income or excessive deductions relative to industry norms Complex related-party transactions For Nonprofits: Excessive compensation to officers or insiders Private benefit or inurement issues Inaccurate reporting on Form 990 Unrelated business income that is not properly allocated The Role of Statistical Sampling in Audits The IRS uses statistical sampling techniques to conduct audits efficiently, particularly for populations of transactions . The agency’s Internal Revenue Manual (IRM) outlines detailed procedures for determining proposed population adjustments. Under these rules, the IRS generally uses a 95% confidence level and a 90% two-sided confidence interval to project sample results to the entire population . If the relative sampling error is 10% or less, the IRS may use the point estimate of the adjustment directly. This means that even if only a sample of transactions is examined, the findings can be extrapolated to the entire population. For taxpayers, this underscores the importance of maintaining accurate records for all transactions. If a sample reveals errors, the IRS can project those errors across the entire population. Preparing for an Audit Given the current environment, proactive preparation is more important than ever. 1. Maintain Robust DocumentationEvery deduction, credit, and valuation should be supported by clear, contemporaneous documentation. For non-cash donations, independent appraisals are essential. For business expenses, receipts and logs are critical. 2. Review IRS Guides for Your IndustryIf you operate in a sector with a published Audit Technique Guide, review it. These guides reveal what examiners look for and how they analyze issues . 3. Conduct Internal ReviewsPeriodically review your tax positions as if you were an auditor. Identify areas of potential risk and address them before the IRS does. 4. Work with a Qualified ProfessionalAn experienced CPA can help you navigate complex tax issues, prepare for potential scrutiny, and represent you if an audit occurs. At Nova Tax & Accounting Services , our team provides audit representation and tax resolution services for individuals, businesses, and nonprofits. Conclusion The IRS audit landscape in 2026 is defined by increased scrutiny of valuation issues, specialized enforcement priorities, and the use of sophisticated techniques like statistical sampling. While this may seem daunting, it also presents an opportunity: by understanding these trends and preparing accordingly, you can reduce your risk and ensure your tax positions are defensible. For personalized guidance on your tax situation, contact us for a consultation.
For nonprofit organizations across Virginia and Washington DC, the audit landscape has become significantly more complex in 2026. From expanded IRS enforcement directives to new group exemption rules and heightened scrutiny of Form 990 filings, mission-driven organizations face unprecedented compliance challenges. This guide explores the current environment and provides practical strategies for navigating nonprofit audits successfully. A New Era of Nonprofit Enforcement The IRS and Treasury Department have signaled a dramatic shift in how they approach tax-exempt organizations. At a recent NYU Tax Controversy Forum, Edward Killen, Commissioner of the IRS Tax Exempt and Government Entities division, emphasized the agency’s commitment to enforcement: “It’s a privilege to be tax exempt. There are rules, both in statute and regulation, so if entities are not abiding by those rules, and there’s abuse, we want to make sure that we are positioning ourselves to identify those issues and to pursue them appropriately and timely and completely” . The IRS is taking a coordinated approach to enforcement across the agency. “What that requires is that we take a whole of compliance approach to that,” said Killen. “We are in the process of doing that and that’s what we intend to continue to do. I think that’s healthy for tax administration” . Congressional Pressure for Reform The House Ways and Means Committee has also intensified its focus on the nonprofit sector. In January 2026, Chairman Jason Smith and all Republican members of the Committee called on the IRS to overhaul its oversight of the nonprofit sector, citing the ongoing Somali fraud scandal in Minnesota as evidence of the need for serious reform . The letter to Acting IRS Commissioner Scott Bessent and IRS CEO Frank Bisignano came amid an ongoing Ways and Means Committee investigation into waste, fraud, abuse, and other illegal activity within the tax-exempt sector that has resulted in the referral of 11 nonprofit organizations to the IRS for revocation of tax-exempt status . Investigations Targeting Major Organizations According to a New York Post report, Treasury Secretary Scott Bessent and the IRS are developing a blueprint to cancel the tax-exempt status of certain left-leaning nonprofits and conduct comprehensive tax audits . Organizations under investigation reportedly include George Soros’s Open Society Foundations, the Southern Poverty Law Center, and the Council on American-Islamic Relations . If nonprofit tax-exempt status is revoked, the standard federal corporate tax rate of 21% would apply, along with retroactive collection of unpaid taxes and penalties . The New York Post explained that applying the 21% tax rate to the three organizations would result in total tax liabilities of $165 million based on 2024 figures. Of this amount, the Soros Foundation would owe $163.6 million in taxes, accounting for 99% of the total . Form 990: The First Line of IRS Scrutiny The IRS can initiate an audit of your nonprofit organization for any number of reasons. But one of the most common is a red flag sent up by your annual filing of Form 990 . Understanding the seven key areas of Form 990 audit scrutiny can help your organization reduce audit risk. 1. Incomplete or Inconsistent Information Missing schedules, blank boxes, or unsigned forms aren’t just risky because they draw IRS attention. The agency considers incomplete returns to be unfiled returns, which could result in costly penalties . Organizations also need to watch for inconsistent reporting of revenues or expenses between different sections of their form, or between their form and other publicly available information. 2. Unreasonable Compensation The IRS will notice excessive compensation paid to officers, directors, and high-ranking employees. They’ll also take note if compensation is too low. The compensation you list should be in line with benchmarks for similar positions at comparable organizations and appropriate for your budget . 3. Excess Benefit Transactions These transactions occur where an organization provides economic benefit—directly or indirectly—to or for a “disqualified person” who was in a position to exercise substantial influence over the organization over the past five years, and the value of the benefit exceeds the value of the consideration the organization receives. Unreasonable compensation is one example. Such transactions can lead to audits and costly intermediate sanctions . 4. Unrelated Business Income (UBI) It’s perfectly legal, and often advisable, to have UBI. But it’s important to accurately report the income and related expenses and, if the gross UBI is $1,000 or more, include Form 990-T. In addition, while there’s no official threshold, UBI shouldn’t account for too much of your overall revenue . 5. Foreign Grant Activity U.S. nonprofits are allowed to operate overseas, including providing grant funds to foreign organizations. The IRS keeps a close eye on such activities, though, due to concerns about nonprofits being controlled by foreign entities that are outside its jurisdiction and funds being used for noncharitable purposes. It’s especially interested in foreign bank accounts and foreign organization grants . 6. Fundraising Discrepancies The IRS expects to see some correlation between fundraising expenses and income. It can seem off, for example, if an event raises significant funds with barely any corresponding expenses. That can be explained by a major donation, but it might prove harder to explain if you incur substantial expenses for an event or campaign that generates little to no income . 7. Diverted Assets Organizations are required to disclose embezzlement or fraud if the gross value of all illegally diverted assets uncovered during the tax year exceeds 5% of gross receipts, 5% of total assets, or $250,000. If you report that you’ve been the victim of a fraudulent diversion but don’t provide a detailed explanation on Schedule O, you can count on hearing from the IRS. Describe the nature of the diversion, the dollar amounts and/or other property involved, corrective actions taken, and any other pertinent circumstances . Charitable Donation Audits on the Rise The IRS has renewed its focus on auditing charitable donations with inflated asset values, ranging from art to medical devices . Tax attorney Daniel Strickland noted that the agency’s audit activity is centering on how assets are being valued, not only in non-cash donations but also in energy projects that qualify
For retirees with significant traditional IRA balances and unclaimed Social Security benefits, the intersection of Roth conversions, Medicare IRMAA, and estate planning presents both opportunities and challenges. As one potential client noted, they need “someone at your firm personally handles Roth conversion/RMD/Medicare IRMAA planning for clients in this situation.” This guide addresses the specific planning needs of high-net-worth retirees in Virginia. Understanding Roth Conversions A Roth conversion involves moving funds from a traditional IRA to a Roth IRA, paying ordinary income tax on the converted amount. The benefit? Once in the Roth, the money grows tax-free and can be withdrawn tax-free in retirement. For retirees with $1.8 million in traditional IRAs, the question is not whether to convert—but how much and when. The Optimal Conversion Strategy The optimal conversion strategy depends on three factors: current tax bracket, expected future tax bracket, and the impact on Medicare premiums. For most retirees, the ideal approach is to fill the 12% federal tax bracket each year during the conversion window (after retirement but before RMDs begin). For a single filer in 2026, that means converting enough to bring taxable income to the top of the 12% bracket, which is $48,475 . However, the Medicare IRMAA threshold creates an additional consideration. Going even $1 over the first IRMAA tier ($109,000 for single filers, $218,000 for married filers) can trigger an additional premium of approximately $888 per person per year . This means conversions must be carefully calibrated to avoid crossing the IRMAA cliff while maximizing tax bracket utilization. Tax-Free Growth and Estate Planning The long-term benefit of Roth conversions extends beyond the retiree’s lifetime. Roth IRAs are not subject to RMDs during the owner’s lifetime, and heirs can inherit Roth IRAs tax-free—provided they follow the 10-year distribution rule for non-spouse beneficiaries . For retirees concerned about the tax impact on heirs, Roth conversions can substantially increase after-tax wealth passed to the next generation. Medicare IRMAA: The Hidden Tax on Retirement Income IRMAA is an income-based surcharge added to Medicare Part B (medical insurance) and Medicare Part D (prescription drug coverage) premiums . The surcharge applies when modified adjusted gross income (MAGI) exceeds certain thresholds. For 2026, the thresholds are: Filing Status First Tier Threshold Single $109,000 Married Filing Jointly $218,000 For 2026, there are five surcharge tiers. The surcharges range from $1,148 to $6,936 per person per year for Part B and Part D combined . The highest tier begins at $500,000 for single filers or $750,000 for married filing jointly . The Two-Year Lookback IRMAA for a given year is generally based on your MAGI from two years before . This means income decisions made in 2026 will affect Medicare premiums in 2028 . For retirees planning Roth conversions, this timing creates a planning window: conversions can be scheduled in years when income is below IRMAA thresholds, or the tax impact of crossing a threshold can be weighed against the long-term benefits of the conversion. The Widow’s Trap When a spouse dies, the surviving spouse files as Single, where IRMAA brackets are roughly half the married filing jointly thresholds. A couple comfortably in Tier 1 as MFJ filers can suddenly land in Tier 3 as a single filer with no actual change in income . This is a critical consideration for estate planning, as the tax impact on the surviving spouse can be significant. Virginia Tax Considerations for Retirees For Virginia residents, the tax treatment of retirement income has three key elements: Social Security Exemption Social Security benefits are fully exempt from Virginia income tax . This means the portion of Social Security that is taxable federally is subtracted on the Virginia return, effectively eliminating state tax on Social Security benefits. Age Deduction Phase-Out The Virginia age deduction provides up to $12,000 per person for taxpayers aged 65 and older . However, the deduction is reduced dollar-for-dollar by adjusted federal AGI above $50,000 for single filers and $75,000 for married filers . This creates a “cliff” effect similar to IRMAA: managing income around these thresholds can preserve thousands of dollars of deduction. Pension and IRA Taxation Most other retirement income—including pensions, 401(k) distributions, and IRA withdrawals—is taxable at Virginia’s graduated rates, which top out at 5.75% . Roth distributions that are tax-free federally remain tax-free in Virginia . Rental Property Tax Strategies For retirees with rental properties, depreciation is a powerful tool for reducing taxable income. A cost segregation study can accelerate depreciation deductions, potentially saving tens of thousands of dollars in a single year . Under the OBBBA, 100% bonus depreciation has been restored for qualified property placed in service after January 19, 2025 . Rental Property Example For a residential rental property with a $800,000 purchase price, the annual depreciation without a cost segregation study would be approximately $23,636 (based on a 27.5-year recovery period) . With a cost segregation study, 20-40% of the building value could be reclassified as 5-7 year property, creating significantly larger deductions in the early years of ownership. How We Can Help Developing a Roth conversion and IRMAA management strategy requires specialized expertise. At Nova Tax & Accounting Services , we work with clients to develop personalized strategies that integrate Roth conversions, IRMAA management, and Virginia tax planning. Our approach includes evaluating conversion scenarios and projecting lifetime tax savings, managing income to stay below IRMAA thresholds while maximizing conversion benefits, planning for the Virginia age deduction phase-out, coordinating with estate planning attorneys to optimize wealth transfer, and monitoring two-year lookback timing. Schedule your free consultation today to discuss your retirement tax planning needs.