New Group Exemption Rules, Donor Disclosure Requirements, and Audit Readiness

For Virginia’s approximately 53,000 registered nonprofit organizations, 2026 has brought a wave of regulatory changes that demand immediate attention. From the IRS’s long-awaited overhaul of group exemption rules to stricter donor disclosure requirements and the expansion of state-level charitable solicitation enforcement, nonprofit leaders must now navigate a more complex compliance environment than ever before.

This guide provides a comprehensive overview of the key changes affecting Virginia nonprofits in 2026, with practical steps for maintaining compliance, protecting tax-exempt status, and ensuring audit readiness.

The Group Exemption Overhaul: Revenue Procedure 2026-8

A Forty-Year Gap Finally Closed

On January 20, 2026, the IRS reopened its group exemption program with the release of Revenue Procedure 2026-8, ending a multi-year suspension on new group exemption applications . The new guidance replaces rules dating back to 1980 and materially changes how group exemptions are obtained, maintained, and monitored .

A group exemption allows a tax-exempt central organization to obtain IRS recognition of exempt status for multiple affiliated subordinate organizations under a single group exemption letter, eliminating the need for each subordinate to apply individually . The IRS suspended acceptance of new applications in 2020 while undertaking a broader review of the program, citing concerns that the decades-old rules no longer reflected modern nonprofit operations or provided sufficient guardrails for oversight and accountability .

Key Changes Under Revenue Procedure 2026-8

The new guidance imposes significant structural, governance, and reporting requirements on central organizations and their subordinates :

Minimum Size Requirements
A central organization must have at least five subordinate organizations to obtain a new group exemption, though the exemption may continue so long as at least one subordinate remains .

Single Group Exemption Letter
Each central organization may maintain only one group exemption letter, requiring organizations with multiple historical group rulings to evaluate consolidation during the transition period .

Uniform Purpose Statement
Subordinate organizations sharing the same purpose must adopt a uniform purpose statement, even though complete uniformity of governing documents is not required .

Supervision and Control
Central organizations must demonstrate general supervision or control over subordinates, which may be established through written agreements governing activities or operations . The IRS will apply a facts-and-circumstances analysis and will not permit reliance on intermediate tiers to establish supervision .

Annual Reporting
Central organizations must file Supplemental Group Ruling Information (SGRI) annually to report changes in subordinate organizations and to add or remove subordinates .

Compliance Deadlines

Organizations holding group exemption letters in effect as of January 20, 2026, must complete required updates and filings by January 22, 2027 . Failure to file SGRI or failure to exercise adequate supervision or control may result in termination of the group exemption . If more than half of a group’s subordinates are automatically revoked, the IRS may terminate the group exemption entirely .

Practical Steps for Virginia Nonprofits

Organizations with existing group exemptions should take immediate action :

Inventory all subordinate organizations to confirm the group meets minimum size requirements
Confirm consistent Section 501(c) classification across all subordinates
Document supervision and control arrangements through written agreements
Evaluate consolidation of multiple group exemption letters
Prepare for enhanced annual reporting well in advance of the January 2027 deadline

Virginia’s many large nonprofit networks and associations—including faith-based denominations and statewide advocacy organizations—should begin this process immediately.

Donor Disclosure and Written Acknowledgment Requirements

The Importance of Proper Documentation

For nonprofit organizations in Virginia and DC, donor disclosure is not just a best practice—it is a legal requirement with significant consequences for noncompliance. The IRS requires organizations to provide written disclosure statements to donors in specific circumstances, and failure to comply can result in penalties .

Quid Pro Quo Contributions

When a donor receives goods or services in exchange for a contribution, the organization must provide a written disclosure statement . This statement must inform the donor that the deductible amount is limited to the excess of the contribution over the fair market value of the goods or services provided .

For example, if a donor contributes $150 and receives a cookbook valued at $25, the disclosure statement must state that the deductible amount is limited to $125 .

Penalties for Noncompliance: Organizations may be fined $10 per contribution, up to $5,000 per fundraising event or mailing, for failing to provide a written disclosure statement at the time of solicitation or upon receiving the contribution .

Exceptions to the Disclosure Rule

Not every contribution requires a disclosure statement :

Insubstantial tokens: Goods or services that are so small they do not need to be documented separately (e.g., items bearing the organization’s logo that cost $10.40 or less, adjusted for inflation)
Annually recurring membership benefits: Rights or privileges provided as membership benefits do not need documentation if the payment is $75 or less
Intangible religious benefits: These do not need to be documented

Non-Quid Pro Quo Acknowledgments

Even when no goods or services are provided in return for a contribution, donors cannot claim a tax deduction for any contribution of $250 or more without a written acknowledgment from the organization .

The acknowledgment must include :

The name of the organization and date of the contribution
The cash contribution amount
A description (but not value) of any noncash contributions
A statement that no goods or services were provided in return for the contribution (if applicable)
A statement that goods or services consisted entirely of intangible religious benefits (if applicable)

Organizations should send acknowledgments to donors no later than January 31 of the year following the donation .

Virginia-Specific Requirements

Virginia’s charitable solicitation law includes specific disclosure requirements for solicitations. Organizations must include a statement in solicitation materials informing donors that financial information is available from the Virginia Department of Agriculture and Consumer Services (VDACS) .

Professional solicitors operating in Virginia must make specific disclosures during oral solicitations, including identifying themselves by their real name, stating affirmatively that they are a “paid solicitor,” and disclosing the name of the charitable organization they represent .

Charitable Solicitation Registration: Virginia and DC Requirements

Virginia Registration Requirements

All charitable organizations that intend to solicit contributions within Virginia, or have funds solicited on their behalf, must register with the Office of Charitable and Regulatory Programs (OCRP) prior to any solicitation, unless exempt under the Virginia Solicitation of Contributions Law .

Registration Fees :

Form 100 (Exempt Charitable/Civic Organization): $10.00 initial fee
Form 102 (Charitable Organization): $100.00 initial fee, with annual renewal fees based on financial information
Form 103 (Professional Fundraising Counsel): $100.00 initial and annual fee
Form 104 (Professional Solicitor): $500.00 initial and annual fee, with a $250.00 late fee

Important: Missing the renewal deadline without an extension leads to an organization being lapsed, requiring it to file an initial registration rather than a renewal .

Fairfax County Additional Requirements

Fairfax County requires charitable and civic organizations that solicit donations in the county to obtain a license from the Regulation and Licensing Branch prior to soliciting, unless they have registered with VDACS . Organizations registered with VDACS should provide a copy of their VDACS registration letter to the county to receive an exemption from the county license requirement .

DC Registration Requirements

For organizations operating in Washington DC, charitable solicitation registration is handled through the Department of Licensing and Consumer Protection (DLCP) . Most organizations with annual fundraising exceeding $25,000, or those using professional solicitors, must register .

DC License Fees :

$99 for a 2-year license
$198 for a 4-year license

The license must be renewed every two or four years, depending on the length selected, by the end of the month prior to the registration month .

DC Tax Exemption: A Separate Requirement

Federal Status Is Not Enough

One of the most important compliance considerations for nonprofits operating in Washington DC is that federal 501(c)(3) status does NOT automatically grant DC tax exemption . Organizations must file Form FR-164 (Application for Exemption) separately with the DC Office of Tax and Revenue .

DC Tax Exemption Requirements

To obtain DC tax exemption, organizations must :

File Form FR-164 with the DC Office of Tax and Revenue at MyTax.DC.Gov
Include a copy of the IRS Determination Letter showing 501(c)(3) status
Include a copy of business registration (FR-500)

Processing takes approximately 30-60 days . Until DC approval is received, organizations may technically be liable for DC taxes .

Five-Year Renewal Requirement

DC tax exemption is valid for 5 years and must be renewed . OTR sends renewal notices at 180 days and 30 days before expiration . Non-renewal results in immediate loss of DC tax-exempt status .

DC Biennial Report

DC nonprofits must also file a Two-Year Report with the Department of Licensing and Consumer Protection . The first report is due April 1 in the calendar year after registration, with subsequent reports due biennially by April 1 . The filing fee is $80**, with a **$50 late fee for delinquent filings .

Audit Readiness: Preparing for IRS Scrutiny

Increased IRS Attention on Nonprofits

Nonprofits are facing heightened attention from the IRS, driven by data analytics and targeted campaigns . Common triggers for audits include :

Discrepancies in Form 990 filings
High fundraising expenses
Unrelated business income that lacks proper allocation support
Complex transactions and political activities

How the IRS Selects Organizations for Review

Returns filed by exempt organizations are selected for review for a variety of reasons :

Information on a filed return appears inconsistent or incomplete
The IRS receives a complaint from the public or a regulatory agency
The Exempt Organizations Division participates in an IRS-wide examination initiative
Related returns are selected for audit when they involve issues with other taxpayers
Document matching programs identify discrepancies between reported information and payor data
A claim for refund or request for abatement requires further review

Proactive Compliance Measures

Organizations should prioritize the following actions to reduce audit risk and ensure audit readiness :

Regular Reviews of Form 990: Ensure accuracy and consistency in filings
Test Unrelated Business Income Positions: Verify proper allocation and documentation
Update Compensation Policies: Use independent comparability data for adjustments
Clear Gift Acceptance Policies: Maintain transparency and adherence to guidelines
Document Lobbying Activities: Keep detailed records and ensure compliance with regulations
Conduct Mock Audits: Identify and address potential vulnerabilities before an actual audit

During an Audit

If your organization is selected for an audit, the process typically begins with an Information Document Request (IDR) that outlines the scope and deadlines . This is followed by a scoping conference to identify issues and logistics . Fieldwork involves interviews and document reviews, leading to proposed adjustments if necessary .

Key steps during an audit :

Centralize Communications: Designate a single point of contact for efficiency
Organize Responses to IDRs: Provide well-documented and clear responses
Prepare Interview Witnesses: Ensure they are ready and informed
Consider Strategic Resolution Pathways: Utilize options like Fast Track Settlement when beneficial

IRS Technical Guides for Exempt Organizations

The IRS has published a series of Technical Guides (TGs) that replace corresponding Audit Technique Guides (ATGs) . These guides provide comprehensive, issue-specific guidance for IRS examiners and offer valuable insight for nonprofits seeking to understand what the IRS looks for during examinations.

Key Technical Guides include :

TG 3-8: Inurement and Private Benefit – Addresses impermissible conduct that can disqualify an organization from exemption
TG 3-10: Disqualifying and Non-Exempt Activities – Trade or Business Activities – Covers unrelated business income issues
TG 3-13: Fundraising Activities – Addresses fundraising compliance requirements

Virginia Sales and Use Tax Exemption Requirements

Maintaining Your Exemption

For nonprofit organizations seeking to maintain or obtain Virginia sales and use tax exemption, the requirements remain stringent :

Federal Exemption: The organization must be exempt from federal income taxation under §§ 501(c)(3), 501(c)(4), or 501(c)(19)
VDACS Compliance: Proof of compliance with Virginia’s charitable solicitation law
Administrative Cost Limit: Annual administrative costs must not exceed 40% of annual gross revenue
Financial Review Threshold: Organizations with gross annual revenue of at least $750,000 must provide a financial review performed by an independent CPA
Audit Threshold: Virginia Tax may require a full financial audit for organizations with gross annual revenue of at least $1.5 million

Occasional Sale Exemption

Virginia law provides an occasional sale exemption for nonprofit organizations that are not regularly engaged in selling tangible personal property . Such organizations are not required to register as a dealer and collect tax on their sales provided they make sales on three or fewer separate occasions within the calendar year .

However, sales made at fairs, flea markets, festivals, and carnivals are not considered occasional sales .

Misuse of Exemption Certificates

Any misuse of exemption certificates is subject to penalties prescribed in § 58.1-623.1 of the Code of Virginia, which include a penalty of up to $1,000 or suspension of the use of the exemption for a period of at least one year . In all cases, the person misusing an exemption certificate will be liable for the unpaid tax and interest .

Form 990 Filing Requirements and Deadlines

Filing Deadline

Form 990 is due on the 15th day of the 5th month after the close of the organization’s tax year . For calendar-year organizations (ending December 31), the initial due date is May 15, with a six-month extension available to November 15 .

Extension Requests

Organizations may request a single automatic six-month extension by filing Form 8868 before the original due date . No explanation is required . However, this is an extension to file—not an extension of time to pay any tax owed .

Filing Deadlines by Fiscal Year End

Fiscal Year End	Initial Due Date	Extended Due Date
December 31	May 15	November 15
June 30	November 15	May 15 (following year)
September 30	February 15	August 15
March 31	August 15	February 15 (following year)

Source:

How Nova Tax & Accounting Services Can Help

At Nova Tax & Accounting Services, we specialize in helping Virginia and DC nonprofits navigate the complex and evolving compliance landscape. Our team provides:

Form 990 preparation and compliance
Independent financial statement audits, reviews, and compilations
Group exemption compliance and SGRI reporting support
Charitable solicitation registration assistance for Virginia and DC
Donor disclosure documentation and policy development
Internal controls assessment and governance consulting
Pre-audit readiness assessments to identify and address vulnerabilities

Our CPAs understand the unique challenges facing mission-driven organizations. We help you maintain tax-exempt status, satisfy funding requirements, and demonstrate transparency to donors and regulators.

For more information, visit https://novataxservices.com/ or schedule a free consultation.

Additional Resources

For more detailed information on nonprofit compliance requirements, consult these official resources: