On August 19, 2026, the Internal Revenue Service announced the establishment of an Office of Conservation Easements . This new office recognizes the important role conservation and historic preservation easements can play, as well as the specialized tax, valuation, contractual, and procedural issues they present . What Is a Conservation Easement? A conservation easement is a voluntary legal agreement between a landowner and a qualified organization that permanently limits uses of the land to protect its conservation values. Landowners who donate a conservation easement to a qualified organization may be eligible for a federal income tax deduction. The IRS has long scrutinized conservation easement transactions due to concerns about overvaluation and tax avoidance. The establishment of the Office of Conservation Easements represents a significant shift in how the agency will administer and enforce conservation easement tax rules. Why the IRS Created This Office The IRS’s experience administering conservation easement initiatives, together with engagement with taxpayers, has shown that standardized, unsolicited settlement letters on a rolling basis, each with a fixed response period, are not well suited to the full range of conservation easement cases . Partnership agreements, insurance arrangements, procedural posture, and other circumstances may differ materially and affect when and how taxpayers evaluate settlement . The Office will centralize technical expertise and coordinate policy, enforcement, and case-resolution strategy across the IRS and with the Office of Chief Counsel . It will support engagement with taxpayers, practitioners, conservation and historic preservation organizations, and other stakeholders . The Office will also work with Treasury to evaluate administrative and legislative options that advance Congress’s conservation and historic preservation objectives, promote consistent tax administration, and strengthen valuation integrity . Changes to the Settlement Process As part of this transition, the IRS will conclude the current uniform settlement initiative effective August 19, 2026, and will not issue any additional uniform settlement letters under the prior program . Any deadlines for accepting previously issued offers are withdrawn, though prior elections to participate in the settlement framework will remain in effect and will be processed in accordance with their terms . Taxpayers with pending cases may continue to request settlement under the prior framework through their assigned IRS examination or Chief Counsel representative. If the case remains eligible, the IRS will issue a new offer on the same standardized terms . Individual cases may continue to be resolved on different terms where warranted by the hazards of litigation . The IRS emphasized that this transition does not signal a new or more favorable standardized offer, but rather ends issuance of uniform offers and deadlines . Impact on Virginia Landowners and Nonprofits Virginia has a long history of land conservation, with numerous land trusts, conservancies, and nonprofit organizations working to protect the Commonwealth’s natural and historic resources. The establishment of a dedicated IRS office focused on conservation easements has significant implications for: Landowners: Those considering donating a conservation easement should be aware that the IRS is centralizing its expertise and may increase scrutiny of conservation easement transactions. Working with qualified appraisers and legal counsel is essential. Nonprofit Land Trusts: Organizations that hold conservation easements should ensure their documentation, monitoring, and enforcement practices meet IRS expectations. The Office’s coordination with Treasury may lead to new administrative or legislative proposals affecting the conservation easement deduction. Tax Professionals: CPAs and tax advisors who work with conservation easement transactions should stay current on the Office’s guidance and policies. The shift from a uniform settlement initiative to case-by-case resolution may affect how disputes are resolved. Virginia-Specific Considerations Virginia has one of the most active conservation easement programs in the country. The Virginia Department of Conservation and Recreation administers the Virginia Land Preservation Tax Credit program, which provides state tax credits for conservation easement donations. Landowners considering a conservation easement should consider both federal and Virginia tax implications. Under Virginia law, the real and personal property of organizations classified for religious, charitable, patriotic, historical, benevolent, cultural, or public park and playground purposes is exempt from taxation . Conservation easements held by qualifying organizations may qualify for property tax benefits at the local level. What to Do Next If you are considering a conservation easement or have a pending case, the IRS advises that taxpayers should continue working directly with their assigned representatives on case-specific matters and settlement requests . Once operational, the Office of Conservation Easements will provide central coordination and a channel for general inquiries, with additional contact information to be announced separately . At Nova Tax & Accounting Services , our expert tax solutions team can help Virginia landowners and nonprofits navigate conservation easement tax issues. We also provide accounting and bookkeeping services to help organizations manage their financial records and maintain compliance with IRS requirements. Schedule your free consultation today to discuss your conservation easement needs.
The U.S. Department of the Treasury announced on April 23, 2026, that the Internal Revenue Service plans to revise Form 990 for the first time in nearly two decades . This marks the most significant change to the annual information return filed by tax-exempt organizations since the last major redesign in 2008 . For Virginia nonprofits, understanding these proposed changes is essential for maintaining compliance and protecting their tax-exempt status. Why Form 990 Is Being Revised The Treasury Department’s announcement cited several objectives for the revision, including improved transparency, strengthened tax administration, and clearer reporting on certain activities . Treasury Secretary Scott Bessent emphasized that the purpose of these proposed changes is to prevent “fraud, abuse, and extremist activity,” stating that “[p]ublic money and tax-exempt status demand public accountability” . Treasury Assistant Secretary and Acting IRS Chief Counsel Ken Kies similarly noted that “[i]f an organization receives public funds or tax-deductible donations, it should be prepared to show who controls the money and where it goes” . The proposed changes reflect the current atmosphere of increased scrutiny of tax-exempt organizations, particularly relating to fraud and potential links to “terrorism activities” as defined by the current administration and under federal law . Three Key Areas of Change 1. Government Grants and Contracts Currently, government grants are reported separately from other types of contributions on Form 990, but there is no requirement to show how specific governmental funds are spent . The proposed changes would require organizations to report not only the receipt of government grants and contracts, but also how those funds are specifically used . This would add a new layer of accountability and public transparency around governmental funding . Organizations that receive substantial funding from federal, state, or local government sources may need to provide clearer, more detailed reporting on the sources and uses of government funding. 2. Fiscal Sponsorship Arrangements Fiscal sponsorship arrangements are another area of concern identified by the Treasury Department . Tax-exempt organizations are often approached by individuals or groups who want to conduct a charitable activity but don’t have the means or long-term goals that warrant creating a new tax-exempt organization . Existing organizations may choose to sponsor these activities. Currently, there is no required reporting for fiscal sponsorship arrangements on Form 990 . Proposed reporting changes would require disclosure of who is operating the project, who controls the funds, and how the funds are used . Treasury raised concerns that some organizations may use fiscal sponsorship arrangements to obscure the source of funds and how funds are being used . 3. Increased Scrutiny of 501(c)(3) Organizations The proposed changes specifically target 501(c)(3) organizations, particularly those that receive government grants, have government contracts, or participate in fiscal sponsorship arrangements . The IRS expects that these changes will impact all tax-exempt organizations required to file Form 990 . Timeline for Implementation It is difficult to predict how long the revision process may take . Any major changes would need to go through the formal notice-and-comment rule-making procedures under the Administrative Procedures Act . Treasury has stated that it expects to publish proposed regulations and provide an opportunity for public comment before any revisions are finalized . The last major redesign of Form 990 took place in 2008 . At that time, an initial draft of the proposed regulations was released for public comment on June 14, 2007, with a 90-day comment period, and the final revisions were not released until the summer of 2008, with a 3-year phase-in period . If the changes do go through a notice-and-comment period, we expect it will be several years before the changes to Form 990 are finalized and implemented. How Virginia Nonprofits Can Prepare In light of this increased scrutiny, organizations, particularly 501(c)(3) organizations with government grants and contracts, should take proactive steps : 1. Review Public Disclosures: Examine publicly available information regarding your organization, including what is reported on your Form 990, regarding funding, spending, programs, and activities to ensure that what is documented is consistent with the organization’s stated purpose . 2. Ensure Consistency: Confirm that the exempt purposes stated on your annual return are consistent with your organization’s actual activities . 3. Document Fiscal Sponsorships: If your organization serves as a fiscal sponsor, ensure that all reporting regarding sponsorships and sponsored entities is consistent and accurate . 4. Track Government Funds: Review how government grants and contracts are tracked, so your organization can clearly demonstrate the source, purpose, and use of public funds . 5. Enhance Internal Reporting: Enhance internal reporting processes to support potential new disclosures on how specific government funds are spent and allocated across programs and activities . 6. Strengthen Oversight: Strengthen board oversight, internal controls, and fund stewardship procedures to address heightened scrutiny around transparency, accountability, and misuse of charitable assets . 7. Assess Systems: Assess whether current accounting and compliance systems can support more detailed reporting requirements . At Nova Tax & Accounting Services , our Form 990 preparation service and assurance and compliance services can help Virginia nonprofits prepare for these upcoming changes. Schedule your free consultation today to discuss your organization’s compliance needs.
One of the most common questions nonprofit leaders ask is: “Does my organization need an audit?” The answer in Virginia depends primarily on revenue thresholds, but also on grant requirements, funder expectations, and multi-state operations. Understanding these thresholds is essential for maintaining compliance with Virginia’s sales tax exemption and charitable solicitation registration. When Virginia Law Requires a Financial Review or Audit Virginia law does not require every nonprofit to obtain audited or reviewed financial statements. However, revenue thresholds matter, particularly when applying for or maintaining certain state tax exemptions . The Virginia thresholds are: Under $750,000 in annual gross revenue: No state-mandated review or audit is required (though funders or grantors may still require one) $750,000 or more in annual gross revenue: A financial review performed by an independent CPA is required $1.5 million or more in annual gross revenue: Virginia may require a full independent audit in lieu of a review These revenue thresholds are based on gross annual revenue and apply to fiscal years beginning on or after October 1, 2024. According to Virginia Tax, an organization with gross annual revenue of at least $750,000 in the previous year must provide a financial review performed by an independent Certified Public Accountant. Virginia Tax may require an organization with gross annual revenue of at least $1.5 million in the previous year to provide a financial audit performed by an independent CPA in lieu of a financial review . What Is a Financial Review vs. an Audit? The difference between a review and an audit is significant in terms of both cost and the level of assurance provided. Financial Review (also called a “review engagement”): An independent CPA performs analytical procedures (reviewing trends and ratios) and makes inquiries of management. The conclusion states that nothing came to the accountant’s attention suggesting the financial statements are materially misstated. A review provides limited assurance and is less expensive than an audit. Financial Audit: An independent CPA performs detailed testing, confirms information with third parties (banks, customers, vendors), and assesses internal controls. The CPA issues an opinion stating whether the financial statements are presented fairly, in all material respects, in conformity with GAAP. An audit provides reasonable assurance and is the highest level of financial scrutiny. Why Nonprofits Must Care About These Thresholds Failing to meet applicable financial reporting requirements can jeopardize a nonprofit’s compliance with Virginia tax exemption and charitable registration rules. Additionally, the Virginia sales tax exemption requires organizations to maintain administrative costs (salaries, fundraising, overhead) at no more than 40% of gross annual revenue. When gross annual revenue exceeds $750,000, the organization must undergo a financial statement review by an independent CPA to verify administrative costs remain under 40%. A 2021 ruling from the Virginia Tax Commissioner confirmed that the Department is authorized to require a financial audit performed by an independent certified public accountant for organizations with gross revenues exceeding $1 million . In that case, a nonprofit that submitted only a financial review was denied renewal of its exemption because its gross annual revenue exceeded $1 million in the previous year . Legislative Updates to Audit Thresholds Virginia has made adjustments to its audit thresholds in recent years. House Bill 464 (2024) increased from $1 million to $1.5 million the minimum threshold for gross revenue of a nonprofit entity that allows the Department of Taxation to require such entity to provide a financial audit before receiving a federal income tax exemption . The bill also requires that, beginning January 1, 2025, and every five years after that date, the $2 million threshold be adjusted according to the Consumer Price Index for food and beverages for the previous five-year period . VDACS Charitable Solicitation Registration Requirements The Virginia Department of Agriculture and Consumer Services (VDACS) has its own financial reporting requirements for charitable solicitation registration . Organizations with income under $25,000 may file a certified treasurer’s report containing a balance sheet and income and expense statement instead of an audit or IRS Form 990 . For all organizations with prior financial history, VDACS requires a copy of the completed IRS Form 990, 990-PF, or 990-EZ for the past fiscal year, with all schedules as required by the IRS (except Schedule B), and with all attachments as filed with the IRS . If the annual income of the organization qualifies the organization to file Form 990-N with the IRS, a certified treasurer’s report for the past fiscal year is acceptable . What an Audit Program Looks Like The audit program will vary with the type of nonprofit, its volume of income, and the complexity of its operations. The audit team should develop a written plan for each account balance or class of transaction selected for examination . Below are three areas of emphasis to include in the audit program. 1. The Proper Authorization of Activities and Expenditures The budget and the board of directors’ minutes are the usual source of verification of a nonprofit’s activities. Committee chairs are generally required to authorize any expenses from their budget funds. Employees often document their own timesheets and expense records, with a second party reviewing these documents each month . Additionally, the corporate charter and bylaws should be reviewed to determine that all activities comply, that the designated individuals are performing their proper functions, and that these functions are properly assigned to programs, management and fundraising . 2. Determination of the Physical Existence of Assets Verification of bank balances and current bank signatures, an actual count of securities owned, and a count of merchandise are procedures that help the audit team determine the physical existence of assets. An examination of deeds and tax assessments is another procedure applicable when real property is owned by a nonprofit. Securing appraisals of donated property might be appropriate in the case of unusual donations. All of these records — such as monthly bank statements, brokerage statements, deeds and donation forms — should be available to the audit team . 3. Ascertaining That Returns and Reports Are Filed in a Timely Fashion A nonprofit has the same obligation to file tax returns and corporate reports as a for-profit organization.