After President Trump claimed last week that many nonprofits have “abused” their tax-exempt status, organizations are braced for White House moves that may represent the administration’s most direct action against nonprofits to date.
Experts are urging charities not to panic, noting the legal safeguards and review process that protect groups. But leaders of some charities say such assurances offer cold comfort given that Trump has sidestepped legal precedent many times before.
Rumors have circulated for more than a week that as early as Tuesday — Earth Day — the administration may seek to revoke tax-exempt status at climate organizations and possibly others. Bloomberg reported on Thursday that White House officials are preparing executive orders to remove tax-exempt status from charities seen as standing in the way of Trump’s push for more oil and coal production.
The president fueled those rumors last week when he hinted that many charities could face the same revocation of tax-exempt status that he’s holding over the head of Harvard in the administration’s battle with the Ivy League institution.
“Tax exempt status — I mean, it’s a privilege. It’s really a privilege, and it’s been abused by a lot more than Harvard,” Trump said. “We’ll be making some statements. It’s a big deal.”
Tax and legal experts noted that the process for revoking tax-exempt status is typically long, drawn out, and often not finalized for years.
“The idea of revoking an institution’s tax-exempt status tomorrow makes no sense under the law as we know it,” said Philip Hackney, a University of Pittsburgh law professor who specializes in nonprofit issues.
Jeffrey Tenenbaum, a lawyer who counsels nonprofits, outlined the procedure in a recent post on his firm’s website. The Internal Revenue Service typically begins the process with an examination, or audit. If that leads to a proposed revocation of tax-exempt status, the charity still has ample opportunities to appeal — initially to the IRS directly and later, if tax-exempt status was revoked, through the federal court system.
A lawyer who previously worked at the Internal Revenue Service and asked not to be named because of his connections to Harvard said any attempt to revoke tax-exempt status at Harvard would take years — and almost certainly would remain unresolved before Trump’s term ends in January 2029.
Trump’s threats are intended to instill fear, the source said. The president won’t actually pursue revocation, given the legal hurdles.
“I think the game plan is Trump continues to threaten and wreak as much economic violence as he can without having to go after the tax exemption,” this person said.
It took six years for an IRS effort against Bob Jones University over racially discriminatory admissions policies to result in revocation in 1976.
On Monday, Harvard reiterated that it was in for a long fight with the president. It filed a federal lawsuit against the Trump administration, which has said it would freeze more than $2.2 billion in grants and contracts if the university did not comply with demands that include dismantling its diversity, equity, and inclusion programs.
In a statement, Harvard President Alan Garber said the administration’s actions — including the threatened revocation of the university’s tax-exempt status — “have stark real-life consequences for patients, students, faculty, staff, researchers, and the standing of American higher education in the world.”
Next Up: Congress?
Congress, which sets the laws by which groups receive tax exemptions, is looking at changes that could also roil the nonprofit sector. Republican lawmakers may seek to tax charities with “business-like” revenue, such as hospitals and credit unions, because lawmakers will need new sources of revenue to offset the costs of extending the federal tax cuts passed in 2017, most of which expire this year.
Potentially, both the administration and Congress could act this year to strip the exemption from charities — a one-two punch that Tenenbaum calls “the biggest threat to nonprofit organizations that I’ve seen in my lifetime.”
“It’s getting people scared,” he said. “It’s creating a lot of misinformation.”
Tenenbaum is trying to calm clients by sharing his experiences from a long legal career in which he’s defended 75 charities undergoing IRS audits or appeals.
“I’ve been through this many times,” he said. “The administration doesn’t have the authority to take away one’s exempt status with the stroke of a pen.”
But some of Tenenbaum’s clients are pushing back against his reassurances even when they understand the legal protections. They foresee Trump moving ahead to strip status with little regard for the law.
“Some people are concerned that the administration might not follow the legally prescribed process for revocation,” Tenenbaum said. “That’s a legitimate concern.”
A Unified Defense
On Friday, more than 5,000 people joined a conference call organized by the American Civil Liberties Union, Public Citizen, and other charities to discuss the anticipated threats and to coordinate a response.
“There were lots of fears about what the administration could do — and of course many of those things would be illegal if the administration did them,” said Aaron Dorfman, CEO of the National Committee for Responsive Philanthropy, who was on the call. “It doesn’t mean they won’t do them.”
But Dorfman said he’s starting to see a coordinated response to match what many view as the administration’s aggressive assault on nonprofits.
“Harvard choosing to stand up to the bully was an encouraging action that has emboldened others to also stand up to the bullying, should it come their direction,” he said.
Based on conversations he’s had with several foundation CEOs, Dorfman said he’s also confident that “dozens and dozens” of funders will increase their spending rate to address the threats — supporting both legal challenges to administration actions and grassroots organizing.
The John D. and Catherine T. MacArthur Foundation announced in February that it would increase spending to address Trump cuts in federal funding. Last week, a coalition of organizing charities said it had already raised $5.2 million from private foundations toward a $20 million fund to support the rule of law and defend civil society.
Kieran Suckling, executive director of the Center for Biological Diversity, said simply fighting in court won’t be enough. Nonprofits and their supporters need to coordinate and speak out against the administration’s actions.
“It’s a total success for Trump if all the actions get struck down by the court but he has bullied and intimidated the funders to stop donating to environmental causes,” Suckling said. “If you’re not fighting it, you’re allowing our nation to veer into a fascist state.”
