Virginia and Washington DC nonprofits and CPAs face a rapidly changing landscape in 2026, with significant new rules from the IRS, a major Virginia budget agreement, and critical compliance deadlines. This guide covers the most impactful developments, including the expanded executive compensation excise tax, new group exemption oversight, and the Virginia budget’s tax and regulatory changes. I. Expanded Excise Tax on Nonprofit Executive Compensation (IRC Section 4960) The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, has fundamentally altered the landscape of executive compensation for tax-exempt organizations. On June 5, 2026, the Treasury Department and IRS issued Notice 2026-36, providing crucial guidance on these changes. The New Definition of “Covered Employee” Section 4960 of the Internal Revenue Code imposes a 21% excise tax on applicable tax-exempt organizations (ATEOs) that pay a “covered employee” more than $1 million in remuneration in a taxable year, or an excess parachute payment. Previously, only an ATEO’s five highest-compensated employees were covered. For taxable years beginning after December 31, 2025, any current or former employee of an ATEO (going back to 2017) is now a covered employee — dramatically broadening the scope of the tax. This expansion is particularly significant for universities, academic medical centers, hospital systems, national charities, trade associations and similar organizations with substantial deferred-compensation programs. Critical Interpretation and Exceptions The Treasury Department and IRS interpret the effective date to mean the expanded definition applies only to taxable years beginning after December 31, 2025. The old “top five” definition still governs whether someone was a covered employee in prior years (2017–2025). The new rules drop the old “limited services” exception, since it was only relevant under the prior “top five” framework. The proposed regulations are expected to retain the “limited hours” and “nonexempt funds” exceptions, which allow certain employees of related non-ATEO organizations to be excluded. Until the forthcoming proposed regulations are issued, ATEOs may rely on the IRS’s interpretation described in this notice. A worked example in the notice walks through how these rules apply to three hypothetical employees. Action Steps for Nonprofits Review compensation practices to identify any employees who may be affected by the expanded definition Monitor guidance as the IRS has requested comments by August 4, 2026 Consider qualified retirement plan design, as benefits provided through these plans can reduce the compensation that counts toward the excise tax II. Virginia Nonprofit Group Exemptions Face New Oversight After IRS Rule Change On January 20, 2026, the IRS issued Revenue Procedure 2026-8, modernizing the group exemption program for the first time since 1980. The IRS began accepting new group exemption applications on January 20, 2026, after a moratorium that began in mid-2020. What is a Group Exemption? A group tax exemption allows a “central organization” to obtain tax-exempt status for its affiliated “subordinate” organizations without each subordinate having to apply individually to the IRS. The new guidance tightens who qualifies, what has to be documented, and how often central organizations must report back to the IRS. Key Changes in Revenue Procedure 2026-8 The new rules establish minimum size requirements for the group: at least five subordinate organizations to obtain a group exemption and at least one to maintain it. Key definitions have been clarified: Affiliation is now determined by a “facts and circumstances” standard looking at the relationship between the central and subordinate organization. General Supervision requires the central organization to annually obtain, review, and retain information on the subordinate organization’s finances, activities, and compliance with annual filing requirements. Control exists if the central organization appoints a majority of voting directors or officers, there is a majority overlap of directors or officers, or there is a written agreement evidencing control. Subordinate organizations that share the same purpose must adopt a uniform purpose statement in their governing documents. Each subordinate must sign a written authorization to be included in the group. Ineligible Subordinate Organizations Certain entities are now ineligible to be subordinates, including: Foreign organizations Private foundations Type III supporting organizations Qualified nonprofit health insurance issuers Organizations that have had their exempt status revoked and not reinstated Transition Relief and Deadlines The IRS is providing a one-year transition period (January 20, 2026, to January 22, 2027) for existing central organizations to comply with several new requirements. For Virginia’s many large nonprofit networks and associations, this is a critical deadline to act on. III. Virginia Passes Budget with New Data Center Energy Tax and Standard Deduction Increases Virginia finalized a $207 billion biennial budget on June 22, 2026, which Governor Abigail Spanberger signed into law on June 30, 2026. The budget includes significant tax policy changes. New Data Center Electricity Consumption Tax The budget introduces a first-of-its-kind electricity consumption tax on data center operators at a rate of **$0.011 per kilowatt hour (kWh)** for all electricity consumed. This tax applies from July 1, 2026 through July 1, 2028, with a cap of $600 million in annual revenue. Any amount raised above this cap will be refunded to data center operators on a pro rata basis. A notable feature is that the tax applies to self-supplied electricity from wind or solar with no exception. The tax is to be reported and remitted to the State Corporation Commission, not the Virginia Department of Revenue. Standard Deduction Increases For individual taxpayers, the budget raises Virginia’s standard deduction over the next several years. For 2026, single filers can claim $8,750 and joint filers $17,500. In 2027, these amounts will increase to $9,200 and $18,400, respectively. In 2028, they will rise again to $9,300 and $18,600. Other Tax Provisions The budget allows localities to hold referendums on a 1% sales tax increase to fund school construction. It also establishes a regulated adult-use retail cannabis market with sales starting July 1, 2027, with a 6% excise tax for the first two years, increasing to 8% in 2029, and localities able to add an additional 3.5% tax. IV. Virginia CPA License Renewals Open with New Inactive Status Policy The Virginia Board of Accountancy opened 2026 license renewals on March 1, 2026, with a deadline of June
New DC Real Property Tax Exemptions for Nonprofits The District of Columbia has enacted several pieces of legislation affecting real property tax exemptions for nonprofit organizations . D.C. Law 26-126, effective June 11, 2026, provides a real property tax exemption for the property located at 2405 First Street, NW, owned by the Mu Lambda Foundation, Inc. for its charitable and educational purposes . The exemption is effective from October 1, 2025, to September 30, 2055, provided the property continues to be used for those purposes and not commercially . Additionally, the FY2026 Budget Support legislation made several changes to nonprofit property tax exemptions . It removed the requirement that a nonprofit workforce housing project must meet certain tenant income and rent requirements within 12 months of acquisition. Instead, these requirements must now be certified on an annual basis, providing more flexibility for organizations developing affordable housing . The legislation also clarifies that nonprofit property used for solar energy generation, energy storage, or electric vehicle charging does not lose its tax-exempt status . DC Central Kitchen Tax Rebate and Community Land Trusts The FY2026 budget also expanded the tax rebate for D.C. Central Kitchen (DCCK) , a nonprofit organization fighting hunger and poverty through job training . The expanded rebate removes the $208,000 annual cap and includes its new leased space at 2121 1st Street SW, allowing the organization to expand its community services and job training programs. A fiscal analysis estimated the rebate’s total value at approximately $2.3 million through 2052 . Moreover, the budget legislation provides tax benefits to Community Land Trusts (CLTs) , which are nonprofit organizations that acquire and hold land to provide affordable housing in perpetuity . The legislation exempts CLT-owned property from real property tax, exempts property transfers to CLTs from real estate transfer and deed recordation taxes, and allows individuals with a land lease from a CLT to claim a homestead deduction . These provisions create a more favorable environment for nonprofits engaged in affordable housing development. These changes can significantly affect a nonprofit’s financial landscape, making it crucial to work with an advisor who understands the nuances of DC’s tax code. Nova Tax & Accounting Services offers expert tax solutions and consulting to help nonprofit organizations understand and maximize these opportunities. Contact us to schedule a consultation and ensure your organization takes full advantage of available tax benefits.
In a major step toward modernizing tax administration, the IRS announced on April 6, 2026, a significant expansion of its Business Tax Account (BTA) platform . This online self-service portal is now available to partnerships, federal, state, and local governments, Indian tribal governments, and tax-exempt organizations . This expansion is a key part of the agency’s ongoing service improvement effort . This move gives millions more entities secure, convenient access to their tax information, reducing the need for phone and paper interactions . IRS Chief Executive Officer Frank J. Bisignano emphasized the benefits of digital access: “By opening the Business Tax Account to partnerships, tax-exempts and other organizations, we’re giving millions more entities secure, convenient access to their tax information” . Through the BTA, eligible users can now view tax balances, make payments, download select digital notices, view eligible transcripts, request a tax compliance check, and see their business name and address on file with the IRS . This expansion is particularly beneficial for nonprofit organizations, simplifying tasks such as verifying exempt status and ensuring compliance with filing requirements. This digital shift allows for more efficient management of a nonprofit’s tax obligations, providing clarity and reducing administrative burden. New Congressional Legislation on Taxpayer Rights and Nonprofit Transparency The House Ways and Means Committee recently approved a series of bills aimed at protecting taxpayer rights and increasing transparency in the nonprofit sector . Among these, the Tax Exempt Hospital Transparency Act (H.R. 9504) is particularly noteworthy for nonprofits . This legislation mandates additional reporting requirements for large tax-exempt hospitals (those with more than 100 inpatient beds and/or more than $100 million in net patient revenue) . It requires them to disclose detailed information about the financial assistance provided, spending to address community health needs, quality improvement, nonclinical programming, and advertising costs . The bill is intended to ensure that nonprofit hospitals are fulfilling their community benefit obligations in exchange for their tax-exempt status, which was valued at $37.4 billion in 2021 alone . Other bills approved by the committee include the AI Tax Integrity Act of 2026, which directs the Treasury Secretary to establish a pilot program to use artificial intelligence (AI) to identify inaccurate tax returns, including those resulting from identity theft and fraudulent claims . The Taxpayer Advocate Participation Act authorizes the National Taxpayer Advocate to appear as amicus curiae in federal court cases related to tax law, protecting taxpayer rights in precedential issues . These developments highlight a growing focus on leveraging technology to combat fraud and ensuring that nonprofits operate with transparency and accountability. For organizations navigating these changes, staying informed is essential. Nova Tax & Accounting Services provides comprehensive audit and assurance support and Form 990 preparation to help nonprofits meet their compliance obligations.