Nonprofit organizations are worried the Internal Revenue Service and the Treasury Department will take away their tax-exempt status and even sue or prosecute them amid proposed changes in the Form 990 and the recent charges filed against a prominent advocacy group.
Last week, the Treasury Department announced that the
"The trust that nonprofits have in communities has been built over decades grounded in a clear understanding that nonprofits exist to serve the public, not political interests," said Diane Yentel, president and CEO of the National Council of Nonprofits, during a media briefing Thursday. "Today, that foundation is being tested. The administration is changing longstanding legal and operational norms, crossing red lines, and we're seeing the impact every day. The ongoing impact of funding cuts and attempted illegal actions by the administration is affecting nonprofits' ability to plan, retain staff and deliver essential services. When nonprofits are forced to shift their time and resources toward navigating uncertainty, it means fewer resources are going directly to communities."
She noted that the Trump administration has proposed changes to the federal grantmaking system through the System for Award Management that would significantly expand certification requirements and introduce new compliance standards for nonprofits that receive federal funding.
"Accountability is important, of course, but unclear or overly broad requirements create new risks for nonprofits, forcing them to certify compliance with standards that aren't well defined and could potentially expose them to penalties or loss of funding based on subjective interpretation," said Yentel.
Her group is trying to mobilize the nonprofit community to oppose the changes to the SAM grantmaking system, persuading over 1,200 organizations to sign a public letter and submit over 20,000 public comments. However, she noted that the Trump administration is indicating that it intends to still move forward.
"Taken together, all of these actions raise serious concerns that the Tax Code and federal funding systems are being used in ways that go well beyond oversight and instead are creating pressure or consequences tied to an organization's work or their perceived viewpoints," said Yentel. "Nonprofits across the country need clarity, consistency and stability so they can focus on what matters most, which is serving people. In response to all of these threats and actions, the nonprofit sector is doing what it always does, coming together to meet the moment."
Her organization now has four active lawsuits filed against the administration, and she noted those are the first lawsuits that the National Council of Nonprofits has filed in its 35-year history.
Sen. Ron Wyden, D-Oregon, the ranking Democrat on the Senate Finance Committee, blasted the administration and congressional Republicans during the media briefing. "Donald Trump and his administration are the biggest threat to free speech in modern American history, and the reality is that nonprofits are especially vulnerable right now," said Wyden. "That's because the president makes you an enemy of the people. The Thought Police run the Department of Justice, and they've become so extreme, they're even going after the Southern Poverty Law Center. We all remember they're the group that took down the KKK, and it's pretty obvious that they'll use every tool to go after those they feel aren't falling in line."
He noted that two financial firms that administer donor-advised funds, Fidelity and Vanguard, are
"That's so troubling, and the Trump actions are already having serious effects," said Wyden. "On the Finance Committee, we have jurisdiction of course over taxes, and we've got a special interest in how the IRS figures into this. Trump has threatened to strip universities and charities of their nonprofit status if they defy him or support progressive causes. For a lot of these people, we're talking about losing a tax exemption, which really is a death sentence for these organizations."
He pointed to the Republicans who complained over a decade ago about the
"The Finance Committee spent several years working on a bipartisan investigation of the IRS targeting scandal," said Wyden. "What we found is the IRS didn't single out any conservative groups or Tea Party groups at all. They used the same methodology, the same approach for tackling the issues, to look at all kinds of groups that applied for nonprofit status."
Accounting Today asked the panel about the IRS's recent Whistleblower Alert requesting information from whistleblowers about tax-exempt organizations.
"I have not seen the whistleblower alert, but the general idea of asking whistleblowers for potential fraud at tax-exempt organizations in the current environment we are in, after [former Attorney General] Pam Bondi issued the domestic terrorism memo, gives me concern," said Phil Hackney, a law professor at the University of Pittsburgh who worked for five years at the IRS Office of the Chief Counsel on tax-exempt issues. "I think this has the potential to cause more chilling rather than accomplish the type of oversight that is important in the nonprofit space. I encourage good oversight of nonprofit organizations. I encourage whistleblowers. The current environment makes me concerned about the intentions of what's happening there."
"I would say that nonprofits are fully transparent, among the most transparent sectors of the U.S. economy," said Yentel. "And of course, we always support policies that keep and build public trust. We oppose fraud in any industry, whether it's in government, in the private sector or in the nonprofit sector. And if there is fraud found, it should be rooted out, and people should be held accountable. This type of request for further whistleblower statements has to be looked at as part of a pattern from the administration of mischaracterizing the work of nonprofit organizations, of putting out executive orders falsely suggesting that nonprofit organizations should be investigated for domestic terrorism. It has to be viewed in the pattern of the Department of Justice requesting and requiring federal agencies to send lists of nonprofits and other organizations to be further investigated. It has to be considered in the pattern of the congressional committees and the administration having, by my count, at this point, over 300 active investigations into nonprofit organizations. It's clearly a pattern of mischaracterizing and at times vilifying the work of nonprofit organizations."
They were asked by another reporter about changes in the Form 990. "The Treasury Department's plan to revise the 990 to require new reporting on government funding does raise concerns for nonprofits," said Yentel. "The administration is claiming that these changes are needed to detect misconduct, yet they're offering no evidence to justify imposing new requirements on organizations that already operate with very strong transparency and oversight. Any new requirements must be narrowly tailored and grounded in a clear need, not assumptions, so that they're not diverting time and resources away from serving communities."
Hackney noted that when the IRS seeks to revoke a charity's exempt status, there is usually a defined process. "It begins with an audit," he said. "If the IRS finds cause, it issues a proposed revocation letter, stating its basis and giving the organization 30 days to appeal internally to the IRS Office of Appeals. If that appeal fails, a final revocation is issued. At that point, Congress, by statute, provides the organization the right to challenge the revocation in federal court. The statutory right to judicial review is real and meaningful, so there are genuine protections. But reporters should ask, how solid is the foundation they rest upon? The procedural steps before the court stage, the audit procedures, the proposed revocation letter, derive largely from IRS regulations and internal guidance, not from statutes Congress enacted. Regulations can be changed by the same executive branch now threatening to use the IRS as a political weapon. The statutory anchor, the right to go to court, remains, but what protects organizations before they get there is more fragile than most people assume."
