On September 25, the Trump administration issued a presidential memorandum instructing the IRS to ensure that tax-exempt organizations are not connected to “political violence” or “domestic terrorism.” The directive also tasks the IRS with referring alleged violators to the Department of Justice.
This announcement coincided with reports of an investigation into the Open Society Foundations, raising immediate concerns within the nonprofit sector about potential politicization of tax-exempt oversight.
Legislative Context: Expanding Treasury’s Authority
This is part of a broader trend. Over the past year, several legislative proposals have aimed to expand the Treasury’s power to revoke the tax-exempt status of organizations accused of supporting terrorism.
- A House bill passed late last year would have allowed Treasury to unilaterally strip an organization’s status based on allegations alone. The Senate did not act on the measure.
- A similar provision appeared in early drafts of the “One Big Beautiful Bill” (P.L. 119-21) but was ultimately removed after strong opposition from the nonprofit sector.
- Lawmakers and advocates have warned that such authority without due process could expose organizations to politically motivated targeting.
The nonprofit sector’s independence is critical. Any expansion of unilateral enforcement power raises constitutional, operational, and governance concerns.
The Legal Challenge of “Domestic Terrorism”
Unlike foreign terrorism, there is no standalone federal criminal charge for domestic terrorism.
- While 18 U.S.C. § 2331 and 6 U.S.C. § 101(18) provide definitions, there is no statute authorizing federal prosecutors to charge individuals or groups with domestic terrorism.
- The federal government does not maintain a public list of domestic terrorist organizations, due in part to First Amendment protections.
- Mere association with an ideological group, even controversial ones, is not a crime.
This lack of legal clarity makes enforcement complex and potentially subjective, increasing the risk of selective application.
Practical Implications for Nonprofits
For nonprofits—especially advocacy, education, and policy organizations—this memo signals a heightened enforcement environment. While no laws have changed yet, the tone and focus of federal oversight can shift organizational risk.
Key steps nonprofits should consider now:
- Strengthen compliance frameworks to ensure governance, documentation, and programmatic activities are mission-aligned and clearly supported.
- Maintain transparency in funding, partnerships, and communications.
- Monitor legislative and regulatory developments closely to understand how these policies evolve.
- Engage legal and tax counsel early if your activities could attract scrutiny.
Final Thought
The nonprofit sector thrives when it operates with independence, transparency, and accountability. This latest memo is a reminder that good governance and proactive compliance are not optional. They are essential risk management tools.
📌 Disclaimer: This content is for informational purposes only and should not be considered legal or tax advice. Organizations should consult qualified legal or tax professionals regarding their specific situation.
