After a hiatus of more than five years, the Internal Revenue Service released Revenue Procedure 2026-8 (RP 2026-8) on January 20, 2026, setting forth new guidance and requirements for group exemptions . The new rules add significant compliance requirements for nonprofits with chapter and affiliate networks. What Is a Group Exemption? An IRS group exemption allows a tax-exempt “central organization” to establish tax-exempt status for its affiliated “subordinate” organizations without the subordinate organizations having to apply individually for IRS recognition of exempt status . The IRS maintains more than 4,000 group exemptions providing exemption to more than 400,000 subordinate organizations . New Requirements for Central Organizations Under the new rules, a central organization must : Have at least five subordinate organizations to obtain a group exemption Maintain at least one subordinate at all times Maintain only one group exemption letter (transition relief applies to existing letters) New Definitions for Affiliation, Supervision, and Control RP 2026-8 introduces new definitions for key terms : 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; and annually transmit written information to, or educate, the subordinate organization about requirements to maintain tax-exempt status . A central organization may satisfy the first requirement by obtaining a copy of a subordinate organization’s Form 990 or 990-EZ—but Form 990-N does not satisfy the requirement . Control exists if the central organization appoints a majority of voting directors or officers, or there is a majority overlap of directors or officers, or there is a written agreement evidencing control . New Requirements for Subordinate Organizations To qualify as a subordinate organization, organizations must now satisfy : A uniform purpose statement requirement—all subordinate organizations that share the same purpose must have a uniform purpose statement in their governing instruments Authorization for inclusion—each subordinate must authorize, in writing and signed by an officer, the central organization to include it in the group exemption and to remove it with or without cause 501(c)(4) subordinates must submit Form 8976, Notice of Intent to Operate Under Section 501(c)(4) Prohibited Subordinate Types The following organizations are not eligible to be included in a group exemption : Organizations organized in a foreign country Private foundations Type III supporting organizations (previously eligible) Organizations whose exemptions have been automatically revoked for failure to file Form 990 Certain nonprofit health insurance organizations Special Rules for Churches Multiple sections in the new revenue procedure address churches specifically . A church may meet the “affiliated” requirement if a subordinate organization shares common religious bonds or convictions with the central organization . The revenue procedure provides a specific illustration for churches with subordinate organizations that are churches, schools, and hospitals, walking through how the supervision or control requirement may be met for each type . 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 . Preexisting subordinate organizations are grandfathered from the uniform purpose statement requirement, the prohibition against including Type III supporting organizations, and the authorization requirement . Annual Reporting and Filing Deadlines The final revenue procedure also incorporates new requirements for annual group exemption information update filings . Central organizations must submit Supplemental Group Ruling Information (SGRI) at least annually, reporting changes in subordinate organizations . The annual update must be filed electronically once the IRS issues guidance for electronic submission . Practical Steps for Affected Organizations Central organizations should take immediate steps to : Inventory all subordinate organizations Confirm consistent Section 501(c) classification Document supervision and control arrangements Prepare for enhanced annual reporting before the January 2027 deadline Develop or update uniform purpose statements for subordinates sharing the same purpose Obtain written authorization from each subordinate for inclusion and removal At Nova Tax & Accounting Services , we help nonprofit organizations navigate these new group exemption requirements. Our assurance and compliance services include guidance on maintaining group exemption letters. Schedule your free consultation to discuss your organization’s compliance needs.
The One, Big, Beautiful Bill (OBBB) enacted in 2025 significantly expanded the application of the excise tax on excess compensation paid by tax-exempt organizations. On June 5, 2026, the Department of the Treasury and the Internal Revenue Service issued Notice 2026-36 announcing intent to issue proposed regulations addressing this expanded tax . For nonprofit organizations in Virginia and across the country, understanding these changes is essential for compliance and governance. What Has Changed Previously, the excise tax on excess compensation applied only to the five highest-compensated employees of an applicable tax-exempt organization (ATEO) for the tax year . Under the OBBB, the tax may now apply to any employee with compensation exceeding $1 million in a tax year or receiving an excess parachute payment . Expanded Definition of Covered Employee Notice 2026-36 clarifies that the amended definition of covered employee, which will be addressed in forthcoming proposed regulations, includes two categories : Any individual who was an employee of an ATEO in any tax year beginning after December 31, 2016, and on or before December 31, 2025, if the individual was a covered employee for the tax year under prior law; and Any individual who is an employee of an ATEO in any tax year beginning after December 31, 2025 (unless a covered employee exception applies). Important Exceptions The notice also sets out important exceptions for individuals who provide volunteer services to tax-exempt organizations that could otherwise be impacted by the OBBB changes . Specifically, it allows ATEOs and their related organizations to rely on the limited hours and nonexempt funds exceptions to the post-OBBB definition of covered employee until further guidance is issued . What Nonprofits Should Do Now Treasury and the IRS anticipate that forthcoming proposed regulations will include covered employee exceptions for limited hours and nonexempt funds . The proposed regulations are not expected to apply to tax years beginning before the issuance of final regulations. Organizations should review their compensation practices and identify any employees who may be affected by the expanded definition. Comments on all aspects of Notice 2026-36 and any other issues that should be addressed in the forthcoming proposed regulations are due by August 4, 2026 . IRS Chief Executive Officer Frank J. Bisignano stated: “The new law strengthens the accountability of tax-exempt organizations by expanding tax compliance requirements for certain organizations paying excessive compensation and excess parachute payments to their executives” . For more information, see the IRS One, Big, Beautiful Bill Provisions . At Nova Tax & Accounting Services , our Form 990 preparation and nonprofit compliance services help organizations navigate these new requirements. Schedule your free consultation to discuss how these changes affect your organization.
A financial audit provides independent, objective assurance that an organization’s financial statements are accurate and comply with Generally Accepted Accounting Principles (GAAP). For nonprofits in Ashburn and across Northern Virginia, regular audits build donor confidence, satisfy grant requirements, and demonstrate accountability to stakeholders. Why Nonprofits Need Financial Audits Many nonprofits are required to have financial audits based on their size, funding sources, or governance requirements. Audits provide: Credibility with donors and grantors – Major donors and foundations often request audited financial statements before making significant gifts Compliance with grant requirements – Federal grants often require Single Audits (Uniform Guidance) for organizations expending $1 million or more in federal awards Board oversight – Independent audits help boards fulfill their fiduciary responsibilities Fraud detection – Audits examine internal controls and can identify weaknesses or irregularities The Audit Process A financial audit involves an independent CPA examining an organization’s financial records, internal controls, and compliance with applicable laws and regulations. The auditor issues an opinion on whether the financial statements are presented fairly, in all material respects, in conformity with GAAP. The audit opinion can be: Unmodified (clean) – The financial statements are presented fairly Qualified – Except for specific issues, the financial statements are presented fairly Adverse – The financial statements are NOT presented fairly Disclaimer – The auditor could not complete the audit Single Audits for Federal Grant Recipients Nonprofits that expend $1 million or more in federal awards during a fiscal year are required to undergo a Single Audit (also called a Uniform Guidance audit). This examines internal controls over federal programs and tests compliance with specific grant requirements. Preparing for a Financial Audit Organizations can prepare for their audit by: Maintaining clean, up-to-date books throughout the year Documenting all internal controls and policies Reconciling all bank and investment accounts monthly Retaining supporting documentation for all transactions Conducting a pre-audit self-assessment Choosing an Audit Firm When selecting a CPA firm to conduct your nonprofit audit, consider: Experience with nonprofits – Nonprofit accounting has unique requirements (fund accounting, restricted net assets) Familiarity with your size – Small and large nonprofits have different audit needs Understanding of grant compliance – If you receive federal funds, ensure the firm has Single Audit experience At Nova Tax & Accounting Services , our audit and assurance services are tailored specifically for nonprofit organizations. We help you prepare for audits and maintain financial transparency. Schedule your free consultation to discuss your audit needs.