February 24, 2026
Not-for-profit leaders find themselves facing a familiar challenge in 2026: doing more with less while navigating an increasingly complex regulatory and funding landscape.
At Clark Nuber’s 2026 Not‑for‑Profit Update, presenters from across the firm’s audit, tax, and advisory teams broke down the changes shaping the sector and what leaders should be preparing for now.
Following is a recap of the most important developments affecting not-for-profits in 2026.
Federal Funding: Uncertainty Is the New Normal
One of the clearest messages of the day: federal funding is becoming harder to manage with uncertainty being the new normal.
Grant awards are being issued later. Budget approvals are slowing down. And the predictability that many organizations once relied on has faded. For organizations depending on federal or pass-through funding, this shift is directly affecting cash flow planning, program pacing, and staffing decisions.
An added pressure is the federal government’s ongoing “Defend the Spend” efforts. Agencies are requesting more documentation at the draw-down stage, often at a level of detail that resembles Single Audit testing. While not an indication of wrongdoing, it places additional administrative strain on finance teams already stretched thin.
What leaders can do now:
- Build cash reserves where possible
- Strengthen documentation and internal controls
- Prepare teams for more frequent and detailed federal inquiries
Single Audit: Threshold Changes, Extensions, and More Oversight
Changes in the Single Audit landscape may mean some not-for-profits fall below audit thresholds for the first time. However, presenters were clear: exemption from the audit requirement does not mean exemption from federal compliance rules. Agencies maintain full authority to review costs at any time.
Other updates include:
- Revised major program thresholds that may reduce the number of audited programs or result in a change in what Federal programs have been audited historically
- Stricter reporting expectations when auditors cannot quantify questioned costs
- The return of Single Audit extensions, but only when tied to meaningful operational disruptions
The Financial Management Risk Reduction Act will also bring new national studies on audit quality, potentially increasing oversight of both auditors and grantees as early as 2027. On the bright side, increases to procurement thresholds – micro-purchase and simplified acquisition threshold – were introduced in the Fall of 2025.
Finally, the AICPA’s overhaul of its Single Audit Guide could lead to larger samples, deeper testing, and more robust assessments starting in late 2026.
GAAP and Accounting Updates: Limited Changes, Real Impact
While sweeping accounting reforms are not on the horizon, several meaningful updates will affect not-for-profits in the coming year.
Cryptocurrency contributions received and held must now be recorded at fair value, with gains and losses flowing through net assets. We are observing that most organizations accepting donations of cryptocurrencies are liquidating them immediate. Any organizations holding those assets are strongly encouraged to have policies and controls specifically built for cryptocurrency management.
Credit loss guidance is also easing, allowing simplified methods for short-term receivables. This is an efficient shift for not-for-profits that typically collect these assets quickly.
Federal Tax Developments: Compensation, Endowments, and Donor Incentives
Recent federal legislation (OBBBA) has brought several significant shifts.
Excess Compensation Tax (Section 4960) Expands Dramatically
This tax no longer applies only to an organization’s five highest-paid employees. It now covers all employees, includes related entities, and eliminates certain volunteer exceptions. Because the $1 million threshold is not indexed to inflation, more organizations will be captured by this rule each year.
Higher Education Faces New Tiered Endowment Taxes
Colleges and universities with more than 3,000 tuition-paying students are now subject to excise tax rates up to 8% on net investment income. Presenters noted this model could expand to other institution types over time.
Charitable Giving Rules Are Changing Donor Behavior
New IRS rules introduce:
- A 0.5% income floor before any charitable deduction applies
- A reduced 35% maximum tax benefit for itemized deductions
- New strategic considerations around timing and type of gifts
- A forthcoming (2027) scholarship contribution credit for K-12 programs, capped at $1,700 per donor
These changes will influence how donors plan and how not-for-profits should engage with them.
State & Local Tax: Washington’s Biggest Updates
A lot is changing in 2026 for Washington state and local taxes. A few of those include:
- B&O Tax Changes
- Tax Rates, New B&O Surcharge
- Non-Incidental Investment Income Subject to B&O
- Advanced Computing Surcharge
- Extension of Retail Sales Taxes to New Retail Services
- Capital Gains Tax Adjustments
- Estate Tax Changes
Washington is also considering new legislation in 2026 that may impose taxes on personal income over $1M, wealth/net worth, and business payroll expense.
Staying informed and proactive will be key to understanding how these changes may affect your tax planning and ensuring you are well-positioned for 2026 and beyond.
Sector-wide Trends: Compliance Is Becoming More Operational
Clark Nuber presenters noted several emerging themes across not-for-profit audits, including:
- Heightened scrutiny of internal controls
- Increased documentation expectations
- Rising complexity despite limited GAAP changes
- Growing disconnect between finance and program teams on grant compliance
The takeaway: compliance is no longer just an accounting issue—it’s an organizational discipline.
Not-for-profits that align their finance, program, and administrative functions will be better positioned to manage grant requirements, avoid findings, and respond to the expanding oversight environment.
Final Thoughts
While the not-for-profit sector isn’t facing dramatic accounting upheaval, it is navigating a more demanding—and in many cases, less predictable—regulatory environment. Today’s update reinforced the need for:
- Stronger internal controls
- Better documentation
- Cross‑department coordination
- Strategic planning around tax and funding shifts
The environment for 2026 and 2027 will require executive leadership to be proactive, informed, and prepared to adapt continuously.
If you’d like more information on how to prepare your not-for-profit organization for these changes, please reach out to us. To stay up to date on more industry changes, subscribe to our newsletters and check out our upcoming events.
© Clark Nuber PS, 2026. All rights reserved.
