Year-end 2025 tax updates for not-for-profit organizations
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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.
