Article
2026 Not-for-profit essentials: Insights to guide your year ahead
Jan. 16, 2026 · Authored by Mary Antonetti, Emina Cresswell, Ashlee Lent, Qi Wen Liang, Morgan Mincy and Ryan Woods
A look at the key learnings and takeaways from our recent year‑end webinars to guide your year.
Looking ahead
As the calendar flips from December to January, not-for-profit organizations have a natural opportunity to take stock of key developments and consider what the year ahead may bring. Needless to say, keeping up with the changes across accounting, auditing and tax is essential as not-for-profits strive to stay prepared and address potential issues before they escalate.
With this in mind, Baker Tilly and Moss Adams (now, collectively, "Baker Tilly") recently hosted a pair of webinars featuring updates on these three critical areas.
Year-end 2025 accounting and audit updates for not-for-profit organizations
Key topic 1: Cybersecurity, incident response and AI risk
What not-for-profit leaders need to know: Not-for-profit leaders should view AI risk as enterprise-wide issues that demand proactive governance, not just IT controls. Leaders should also understand how AI tools are being used across the organization, what data can be put into AI tools and how those uses align with risk tolerance and regulatory requirements.
As cyber insurance coverage tightens, claims scrutiny increases, and cyber threats grow more sophisticated – often fueled by AI-enabled phishing, impersonation and ransomware, organizations must have clearly documented and tested incident response plans that define decision-making authority, communication protocols and recovery steps. Board and executives should ensure their cybersecurity posture, controls and training efforts are defensible against modern-day attacks, recognizing that preparation, governance and supporting tools are critical to minimizing disruption and reputational harm when incidents occur.
Key topic 2: Financial reporting hot topics
What not-for-profit leaders need to know: Specific accounting topics have become increasingly prevalent during times of uncertainty and have unique accounting implications that not-for-profit leaders should be aware of. First, related party transactions require more detailed disclosures and enhanced controls surrounding these transactions may be necessary, as many may be uniquely structured. Second, management’s assessment of an organization’s ability to continue as a going concern is required annually. It is important that management documents the assessment thoroughly to support conclusions, which may be affected by debt covenants, covenant violations, liquidity and availability of financial assets, or other pending risks and uncertainties. Lastly, zero-interest or below-market-rate loans are subject to unique requirements for calculating imputed interest and recognition of contribution revenue.
Key topic 3: Federal funding uncertainty and single audit considerations
What not-for-profit leaders need to know: Ongoing uncertainty in the federal funding environment has heightened compliance, reporting and operational risks for not-for-profit organizations, particularly those subject to single audit requirements. Changes in grant status, delayed guidance and evolving compliance expectations have increased the importance of thorough documentation, timely communication and ongoing monitoring throughout the year – not just at audit time.
Leaders should understand how funding uncertainty may affect budgeting, liquidity, going-concern assessments, and financial statement disclosures, as well as how auditors will evaluate compliance based on the conditions in place at the time expenditures were incurred. Proactive engagement with grantors, auditors and governance bodies can help organizations navigate complexity, maintain compliance and provide transparent disclosures that preserve stakeholder confidence in a fluid regulatory landscape.
Year-end 2025 tax updates for not-for-profit organizations
Key topic 1: IRS audit activity and compliance focus
What not-for-profit leaders need to know: The IRS continues to prioritize compliance for tax-exempt organizations, focusing on payroll taxes and worker classifications, proper reporting of fringe benefits, unrelated business income and accurate Form 990 filings, especially for smaller organizations with gross receipts under $50,000. Excise taxes on excess compensation and parachute payments under IRC 4960 remain a key focus, as well as the operations of tax-exempt hospitals and emerging name, image and likeness collectives in higher education.
Not-for-profit leaders should ensure timely and accurate filings, maintain contemporaneous documentation for tax positions and expenditures, and have clear document retention policies. When dealing with IRS notices or audits, it’s critical to respond promptly, retain proof of submission, and consider consulting tax advisors experienced in IRS controversy resolution to navigate complex issues and prevent adverse outcomes, including potential revocation of tax-exempt status.
Key topic 2: One Big Beautiful Bill Act impacts
What not-for-profit leaders need to know: The One Big Beautiful Bill (OBBBA), signed into law in July 2025, introduced several provisions affecting tax-exempt organizations, most notably expanding the scope of excise taxes on compensation and parachute payments and modifying taxes on colleges and universities’ investment income. Covered employees now include any employee earning over $1 million, broadening the pool for potential excise tax exposure, while investment income calculations for institutions account for related organizations’ assets. The bill also establishes charitable giving floors for corporations and individuals, creates a permanent above-the-line deduction for non-itemizers, and offers a non-refundable tax credit for contributions to scholarship-granting organizations, with complex compliance rules for eligibility, reporting, and fund usage.
Not-for-profit leaders need to review executive compensation structures, monitor endowment and investment calculations, update scholarship contribution policies, and ensure accurate reporting to maximize compliance and tax-planning opportunities under the new law.
Key topic 3: IRS priority guidance, state of the IRS and future considerations
What not-for-profit leaders need to know: The IRS’s 2025-2026 Priority Guidance Plan signals areas of focus for exempt organizations, including implementation of OBBBA provisions, excise tax regulations, deregulation and burden reduction, donor-advised fund rules, and updates related to affirmative action compliance for private schools and political activity rules for religious organizations. At the same time, IRS workforce reductions, including a 25% cut to tax-exempt divisions, have slowed processing, audits, and appeals, potentially causing delays and frustration for organizations.
Not-for-profit leaders should monitor guidance updates closely, plan for compliance with new rules, maintain robust recordkeeping systems, utilize taxpayer advocate services if needed, and exercise patience when interacting with IRS staff to ensure timely resolution of issues and proper adherence to evolving administrative expectations.
We're here to help
As not-for-profit organizations prepare for the year ahead, having clarity on emerging accounting, auditing and tax developments is essential to making informed, confident decisions. By staying proactive, organizations can anticipate challenges, uncover opportunities, and continue advancing their missions with resilience. As always, Baker Tilly is here to help organizations move forward with purpose.
