NON-PROFIT AND TAX-EXEMPT ORGANIZATIONS “Big Beautiful Bill” Brought Huge Changes Ranging From Good to Bad to Ugly President Trump signed a massive budget bill in July that contains many significant changes for non-profits and tax-exempt organizations. The new law majorly expands certain excise taxes, makes sweeping cuts to Medicaid, and brings a mixed bag of changes related to charitable giving. Big Court Wins for Religious Organizations, Certain Massachusetts Non-Profits A pivotal Supreme Court ruling in June provides a clearer path for religious organizations to secure certain tax exemptions without altering their religious practices. In addition, a federal district court’s decision in August gave Massachusetts non-profit universities and healthcare providers significant relief from costly wage lawsuits. PREDICTIONS FOR 2026 Continued Scrutiny of DEI Programs
Changes in Eligibility for Key Public-Service Benefits and Programs The administration has proposed narrowing Public Service Loan Forgiveness (PSLF) program eligibility to exclude organizations or employees engaged in activities deemed “political” or “ideological.” This could potentially affect advocacy-oriented non-profits that were previously eligible and ultimately lead to higher turnover. PSLF made non-profit work financially feasible for some employees – without it, non-profits will need to rely on other motivating factors when seeking to attract, engage and retain talent. Non-profits can communicate their value proposition to prospective and current employees by emphasizing mission-driven work, competitive total rewards (including flexibility), clear growth opportunities, and a healthy, inclusive organizational culture. Strong leadership, burnout prevention, and responsive hiring and feedback practices will further strengthen long-term employee commitment. Rising Regulatory and Tax-Exempt Compliance Pressure Governance and Compensation Scrutiny Expect heightened attention to executive and board compensation, conflicts of interest, self-dealing, and governance best practices, as funders and regulators increasingly view non-profits through a “business-like” lens. Expanded Reporting and Transparency Rules New or stricter rules may emerge – especially for larger non-profits or those with large endowments – related to topics such as public board diversity data, compensation disclosures, and conflict-of-interest policies. (Illinois already requires certain non-profits to report board demographic data.) Appropriate Classifications of Activities Will Be Critical Mission-driven non-profits that engage in advocacy or public policy work (particularly with federal grants) will see increased regulatory oversight and investigations on “influencing legislation” vs. “charitable activities”
2025 IN REVIEW
Trump Administration Put Targets on Non-Profits Deemed to Support “Political Violence” A September national security presidential memorandum (NSPM-7) directs federal agencies to develop a “comprehensive national strategy” to investigate, prosecute and disrupt entities and individuals engaged in what the memo characterizes as “organized political violence” or domestic terrorism. Among other things, NSPM-7 explicitly directs the IRS Commissioner to “ensure that no tax-exempt entities are directly or indirectly financing political violence or domestic terrorism,” and states that such organizations (and “their employees and officers”) may be referred to the DOJ for investigation and possible prosecution.
under the administration’s funding reviews – especially non-profits perceived as opposing the administration’s priorities (such as non-profits focused on supporting immigration, climate/environmental causes, DEI, or social justice). NSPM-7 Enforcement Risks Non-profits with controversial or high-profile donor networks, especially those engaged in areas such as civil rights, immigration, climate, or activism, may face heightened compliance risk due to NSPM-7.
Erin Gibson Allen Pittsburgh Of Counsel, Co-Chair
Melissa A. Dials Cleveland Partner, Co-Chair
For non-profits that rely on federal grants or contracts, DEI efforts will continue to face scrutiny. Because non- profits often market their DEI credentials to funders and donors, they will continue to face challenging trade-offs
when funding expectations and regulatory risk diverge. But with careful planning and legally sound practices, non-profits can continue advancing DEI practices that are both effective and legally compliant.
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