The IRS has issued Notice 2026-36, providing guidance on significant changes to IRC Section 4960 enacted by the One Big Beautiful Bill Act. 

Section 4960 imposes an 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.

The OBBBA, enacted July 4, 2025, significantly expanded the definition of "covered employee." Previously, only an ATEO's five highest-compensated employees were covered. For taxable years beginning after December 31, 2025, anycurrent or former employee of an ATEO (going back to 2017) is now a covered employee — dramatically broadening the scope of the excise tax.

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).

Treasury and IRS intend to issue proposed regulations that will remove references to the "five highest-compensated employees" and make conforming changes. The proposed rules are expected to retain limited hours and nonexempt fundsexceptions (which allow certain employees of related non-ATEO organizations to be excluded), but will drop the old limited services exception, since it was only relevant under the prior "top five" framework.

Until the forthcoming proposed regulations are issued, ATEOs may rely on the IRS's interpretation described in this notice, including the limited hours and nonexempt funds exceptions. A worked example in the notice walks through how these rules apply to three hypothetical employees.

The Treasury Department and the IRS request comments regarding all issues raised by this notice, in particular: (1) any changes that are needed or appropriate to adapt the current limited hours and nonexempt funds exceptions to the new definition of covered employee under the OBBBA and the appropriateness of applying these exceptions to officers of the ATEO, and (2) any other issues that should be addressed in the forthcoming proposed regulations.

Written comments are due by August 4, 2026, and can be submitted via regulations.gov (docket IRS-2026-0233) or by mail to the IRS in Washington, DC.

Nonprofits that receive US federal funding should take note: The Office of Management and Budget (OMB) has officially released proposed updates to the Uniform Guidance, the rules governing federal award administration. Published in the Federal Register, the changes are open for public comment until July 13, 2026.

The proposed revisions are expected to be far-reaching. According to OMB, the updates aim to reduce waste and misuse of taxpayer funds, strengthen accountability for award recipients, and eliminate activities OMB deems unlawfully discriminatory.

These changes follow a series of moves in 2025 and early 2026 targeting DEI-related grant provisions and improper federal payments — and grantees should review the proposed rule carefully.

In a recent press release, the U.S. Department of the Treasury announced that the Internal Revenue Service (IRS) is developing proposed updates to Form 990 reporting requirements that would provide greater clarity around government grants and contracts, fiscal sponsorship arrangements, and organizational control over funds and activities. The proposed changes are intended to improve both regulatory oversight and public understanding of how tax-exempt organizations receive, manage, and deploy public and tax-advantaged resources.

The Department of Treasury and the IRS confirmed that any proposed changes will be released for public comment prior to implementation. Officials emphasized that stakeholder feedback will play a key role in shaping the final requirements, with careful consideration given to administrative feasibility, proportionality, and reporting burden.

The proposed changes could expand disclosure requirements within Form 990, particularly for organizations that receive government funding or operate under fiscal sponsorship models. Treasury representatives noted that the initiative is designed to promote accountability and transparency, reinforcing that tax-exempt status carries with it an expectation of public trust and scrutiny.

If adopted, the potential changes would mark the most significant update to Form 990 since its major redesign for the 2008 filing year. That overhaul substantially expanded the core form and introduced additional schedules to capture detailed information related to governance, executive compensation, fundraising practices, and program activities. The 2008 revisions reshaped how the IRS evaluates nonprofit compliance and required many organizations to enhance their internal reporting systems.

Nonprofit organizations—particularly those receiving government grants, holding government contracts, or participating in fiscal sponsorship arrangements—are encouraged to monitor developments closely and consider engaging in the public comment process once formal proposals are issued.

The full press release is available here on the Treasury website.

The IRS just released the 2026 version of Form W-4 which determines how federal income tax is withheld from an employee’s paycheck. The updated form reflects new federal tax legislation and is designed to improve withholding accuracy.

The 2026 version of Form W-4 includes:

Employers should begin using the new 2026 W-4 for all new hires and any employee updates and encourage current employees to review their withholdings.  

The 2026 Form W-4 can be downloaded on the IRS here.

On April 6, 2026, the Internal Revenue Service expanded its online Business Tax Account (BTA) portal to include tax-exempt organizations. For nonprofits accustomed to paper-heavy processes and long wait times for phone support, this update marks a meaningful improvement.

The Business Tax Account is a secure, centralized online platform designed to help eligible users manage federal tax obligations more efficiently. Instead of calling the IRS or waiting for mailed responses, authorized representatives can log in and complete a variety of routine tasks directly. While the platform has been available to certain business entities—such as sole proprietors and corporations—tax-exempt organizations are a newer addition.

To establish access, the IRS requires a designated official (DO) to register on behalf of the organization. This individual must be authorized to act in a leadership role, such as an Executive Director, President, CEO, CFO, Treasurer, or Secretary. Board chairs and trustees may also qualify. Once registered, the DO can grant access to additional users with varying permission levels, allowing organizations to align the platform with their internal controls and operational structure.

With access to the Business Tax Account, organizations can:

• Review tax balances, make payments, and track payment history
• Access and download certain IRS notices electronically
• View available transcripts, including payroll and income records
• Request tax compliance checks
• Confirm the organization’s legal name and address on file with the IRS

Tax-exempt organizations should consider setting up their Business Tax Account sooner rather than later. As the IRS continues to enhance the platform, early adoption ensures your organization is positioned to take advantage of new features as they are introduced. In an environment where timely and accurate compliance is critical—for grant applications, government contracts, and overall governance—the BTA can serve as a valuable resource.

To get started, visit the IRS Business Tax Account page at https://www.irs.gov/businesses/business-tax-account. 

If enacted, these changes would reach far beyond paperwork. Nonprofits, state and local governments, tribal entities, and others that depend on federal financial assistance—whether through grants, cooperative agreements, loans, or direct appropriations—could face new and serious challenges. The ripple effects could disrupt essential services that communities depend on every day, including housing, healthcare, education, food access, disaster recovery, and more.

At the heart of the proposal is a new set of required certifications. Organizations seeking or receiving federal funding would have to attest—under penalty of civil and criminal law—that they comply with a series of provisions tied to recent federal directives. These include interpretations of diversity, equity, and inclusion (DEI) policies, as well as language related to undocumented immigration and terrorism. While intended to align with executive branch guidance, these requirements raise significant concerns for the nonprofit sector.

One of the most pressing issues is uncertainty. The proposed rules are complex and, in many cases, unclear—leaving organizations unsure of what compliance actually looks like. This ambiguity creates real risk. Nonprofits could find themselves vulnerable to audits, investigations, or legal challenges, even when acting in good faith. Defending against such claims would demand substantial time, money, and staff capacity—resources that are already stretched thin.

Faced with unclear expectations and heightened legal exposure, some organizations may ultimately decide the risk is too great to continue pursuing federal funding. And when nonprofits step back, it’s not just the organizations that feel the impact—it’s the communities they serve.

In the end, these proposed changes could have unintended consequences, weakening the very support systems millions of people rely on. Because of this, ANAFP was a signer of a national letter led by the National Council of Nonprofits and Legal Defense Fund opposing the proposed changes.

During the course of the past year, there has been rapid growth in the number of US-based nonprofits that are seeking to establish offices or entities abroad. Canada, the Netherlands, and the United Kingdom are three standout counties that have seen a surge in demand to register sister organizations. According to DEVEX, this trend is driven by many nonprofits in an effort to secure their operations against an unpredictable political and regulatory environment in the US under the current administration, characterized by threats of funding cuts, investigations, and restrictions on tax-exempt status.

Key details regarding this trend include:

• Surge in International Registration: Legal firms in the U.K. and Canada have reported a fivefold to tenfold increase in inquiries from U.S. nonprofits looking to establish overseas entities.
• Preventative Measures: Many organizations, including those in the global development and human rights sectors, are acting to safeguard their funds and programming, with some considering moving their money out of the United States.
• Targeted Sectors: Nonprofits involved in climate change, social justice, immigration, and those that receive federal funding are particularly focused on this expansion, as they perceive a high risk of being targeted by potential executive orders or funding restrictions.
• "Refuge" from Regulatory Pressure: This effort is described as a strategy to create "shelter" abroad, often establishing foreign arms as independent legal entities to continue operations even if U.S.-based operations face federal hurdles. 

According to a recent Reuters article, this preemptive shift follows reports of a broad crackdown on "progressive" nonprofits, including potential initiatives to revoke tax exemptions for environmental groups and restrict funding for DEI (Diversity, Equity, and Inclusion) projects. 

Representative Nathaniel Moran (R-TX) recently introduced HR7799 to amend the Internal Revenue Code of 1986 to provide that 501(c)3 organizations are liable for the use of funding provided as a fiscal sponsor.  The "Stop Proxy Organizations Nurturing Subversive Operations and Riots ("SPONSOR") Act" is a proposed a proposed federal bill targeting protest activity by expanding civil and criminal liability to fiscal sponsors. It specifically targets 501(c)(3) organizations supporting groups engaged in protests that block commercial, transport, or energy infrastructure. The bill essentially makes fiscal sponsors liable for "covered activities' conducted by groups they support, even if the sponsor only provides administrative support or grants. 

The SPONSOR Act is similar to the Nonprofit "Killer" Bill (H.R. 9495/S. 3554) that was re-introduced on Dec. 17, 2025, which allows the Treasury Department to revoke the tax-exempt status of organizations deemed to support terrorism, which critics fear could be used to penalize organizations supporting protest movements. 

Both bills face opposition from civil liberties groups, who argue they could be used to silence dissent by creating high financial and legal risks for organizations that support advocacy. 

A lawsuit was recently filed by Philip Peterson, a 63-year old resident of Kansas, against the sponsor organization that administers his family's donor-advised fund (DAF) for failure to make charitable donations to nonprofits based on his recommendations. 

This lawsuit showcases one of the biggest risk with donating through a DAF -- the ability to only "advise" sponsoring organizations on how to disburse funds. This is because sponsor organizations, unlike private foundations, are not legally required to distribute funds as recommended by the actual donor. Although most sponsor organizations do adhere to the donor's requests, because this is not legally required, some donors are noticing that DAFs come with limitations that they may not be aware of when they decide to pursue this donation vehicle.

With DAFs quickly gaining in popularity due to the immediate tax deduction provided to the donor, individuals and nonprofits should carefully consider the risks and limitations associated with DAFs. In addition, nonprofits are learning that accounting for DAFs also come with their own set of requirements. 

The U.S. General Services Administration (GSA), which administers the System for Award Management (SAM), has proposed revising the certification requirements for recipients of federal financial assistance. The change would align SAM certifications with updated executive branch guidance, including Executive Order 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”) and a July 2025 Department of Justice (DOJ) memorandum addressing unlawful discrimination.

Currently, entities certify general compliance with federal anti-discrimination laws when registering or renewing in SAM. The proposed amendment would add more specific certification language, potentially requiring recipients to affirm they are not engaged in practices identified as impermissible under the DOJ’s updated interpretation of federal law—even where courts have not definitively resolved those interpretations. Certifications would likely be deemed material to payment decisions.

Although aspects of the DEI Executive Order have been challenged in court, recent Supreme Court precedent has limited the scope of nationwide injunctions, allowing much of the policy implementation to proceed.

Public comments on the proposal are open through March 30, 2026.