The nonprofit world should brace itself for a very challenging 2025, including potentially multiple proposals by the Republican-controlled Congress to change laws governing the sector. If some or all of these are enacted, they will significantly impact key parts of the nonprofit world, including foundations and higher education.
Based on campaign rhetoric and conservative commentary, here’s a rundown of five reforms to prepare for in the coming year.
Nonprofit charitable status. On November 21, the House passed the Stop Terror-Financing and Tax Penalties on American Hostages Act. The measure would give the Treasury Department broad powers to strip nonprofits of their charitable status if it deems they support terrorist groups. All but one Republican and 15 Democrats voted for the legislation despite opposition from many leading nonprofit trade associations concerned that the legislation would allow President-elect Donald Trump to target any civil society group he doesn’t like.
The Senate will reintroduce the measure next year, when it’s likely to pass with moderate Democrats joining the new Republican majority. If the Treasury department and the Internal Revenue Service take an aggressive approach to enforcing the provisions, U.S. nonprofits working abroad could face especially significant consequences. Currently, the Exempt Organizations section of the IRS has neither the will nor the staff to make that happen. But groups providing humanitarian support in places like the Middle East should prepare for potential threats.
Foreign funding. In a previous column, I noted that the issue of putting new limits on foreign funders has gained traction following congressional investigations over financial support for pro-Palestinian campus protests. Prominent foreign donors have also attracted particular attention because of their multi-million-dollar contributions to left-leaning groups such as the Sixteen Thirty Fund, administered by philanthropy consulting firm Arabella Advisors.
Most immediately, the sector can expect both federal and state legislation focused on preventing foreign support for ballot initiatives and other referenda on issues such as climate policy. Nine states have already enacted bans on foreign funding.
Higher education. Concerns about antisemitism and free speech on campuses have led to growing demands for reform from conservatives and others. Two Republican-led House committees have investigated campus unrest linked to anti-Israel groups as well as the sources of funding for these protests. The Republican platform for 2024 promises to “deport pro-Hamas radicals” and make “our campuses safe and patriotic again.”
Vice President-elect JD Vance has led the charge, vowing to reduce university endowments through aggressive taxation. One bill he introduced last year in the Senate would place a 35 percent tax on university wealth.
A tax on university endowments is likely, as is legislation aimed at limiting federal funding to those institutions that do not control campus demonstrations, appear to tolerate antisemitism, and impose limits on free speech. Given that some Democrats have been equally critical, tough restrictions on academia may be forthcoming and will require universities to think carefully about how they manage their campuses, their public image, and their relations with Congress.
Election-adjacent activities. Conservatives believe that tax loopholes have allowed millions in charitable dollars to be used directly by nonprofits or through 501(c)(4) groups to influence elections.
Congressional concern over such activities has been growing for years, including a significant focus on organizations such as Arabella that use 501(c)(3) and (c)(4) groups, as well as conventional political action committees, to influence elections through voter registration and mobilization.
During the 2024 campaign, conservative commentators frequently focused on the role of nonprofits in politics, including calling for an outright prohibition on voter registration activities funded through tax-deductible contributions. Elon Musk, citing a CNN report, has also urged strong action against these organizations and their funders.
Similar concerns have been voiced on the left, albeit with a different tone. This summer, Robert Kuttner, co-editor of the American Prospect, wrote a powerful essay warning Democrats that their reliance on nonprofits and philanthropy “to target, register, and mobilize voters” was flawed. He predicted that Republicans would attack this arrangement with new laws and regulations once they regain political power.
The challenge is to find a politically viable way of doing that. Religious institutions of all types and political outlooks regularly invite politicians to attend services. For secular organizations, the boundary between urging everyone to do their civic duty, as the League of Women Voters has done for years, and targeting specific cities and congressional districts for intensive voter registration and mobilization is blurry at best.
Past restrictions on foundation support for voter registration required organizations to operate in more than five states and in more than one election cycle. Arabella and other charitable intermediaries have legal ways to move money between donors, including foundations, and groups on the ground.
At a minimum, one simple step would be an absolute ban on transfers from 501(c)(3)s to (c)(4) organizations. This would be a simple, politically feasible step given the attention paid to this issue in congressional hearings. In doing so, a good deal of tax-subsidized giving would have to operate under the more stringent rules applied to (c)(3)s.
Big Philanthropy. Vance and other leaders on the right have been frequent critics of the Ford and Gates Foundations, George Soros, and other big grant makers and donors.
As a Senate candidate Vance called for dismantling the Ford and Gates Foundations. His proposal was real enough that the Philanthropy Roundtable, the voice of conservative philanthropy, denounced the populist threat to foundations posed by Vance.
While his threat is unlikely to be acted on, two different approaches to curbing the size and influence of these donors are possible.
Howard Husock, a senior fellow at the American Enterprise Institute, has proposed an increase in the excise tax foundations pay on their income, from the current 1.39 percent to 20 percent.
An additional step would raise the distribution rate — the amount foundations must give away — from 5 percent to 10 percent, or higher. While this wouldn’t change the recipients of foundation wealth, higher taxes and higher distribution requirements would potentially reduce the size and influence of big philanthropy. It could also attract support from many grant seekers as well as some politicians on the left, such as Senators Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts, who have pushed for more generosity from foundations.
Additional Targets
Other proposals likely to emerge in the coming months include new requirements for nonprofit hospitals, restrictions on the use of donor-advised funds, and expanding the deduction for charitable giving.
On their own, each of these will face fierce opposition. The nonprofit sector has an effective set of lobbying groups that know how to use local interests and organizations such as community foundations to thwart reform efforts.
More likely, these ideas could be folded into the renewal of the Tax Cuts and Jobs Act of 2017, Trump’s signature tax bill during his last administration. Combining proposals for charitable reform with tax relief, including retention of the increased standard deduction, which is seen as benefiting the middle class, will make it much more difficult for the nonprofit sector to oppose change.
The Tax Reform Act of 1969 was passed using a similar strategy. It contained new restrictions on foundations and on the political activities of nonprofits that were controversial and viewed by some as segregationist. Nonetheless, most liberal senators voted for the legislation because they found it hard to oppose two other elements of the bill — increased tax deductions and an alternative minimum tax on the wealthy.
There will be alarm and fear in the months ahead over the prospect of change. However, a major reform of the charitable world is long overdue. Expect the new administration and Congress to be fully committed to that goal.
