(Photo From Deposit Photos)
Editor’s Note: This story has been updated with reactions from industry leaders.
Language that would put nonprofits’ tax-exempt status in jeopardy without due process has been deleted from the House reconciliation budget bill (H.Con.Res.14). The bill moved out of committee last night.
The House Budget Committee voted 17-16 along party lines, with Republicans voting in the majority. Four Republicans who opposed the bill in committee on Friday voted “present” last night. The bill now moves to the House Rules Committee, where changes can be offered as amendments.
House Budget Committee Chairman Jodey Arrington (R-Texas) said via a statement: “While there are still a few issues being resolved from members on and off Committee, moving forward with our Budget markup provided the clarification and catalyst we needed to keep us on track for final passage. Passing a big and beautiful bill takes time and hard work. I am confident we will get to a good place this weekend and have the votes to pass it out of Committee Sunday evening.”
The language deleted would have allowed the U.S. Secretary of the Treasury to designate a nonprofit as a terrorism supporting organization and pull its tax-exempt status. Organizations would need to litigate to get the status reinstated. The deleted verbiage would have enabled administrations to weaponize the federal government by targeting charitable organizations based on ideological grounds.
However, nonprofit advocates are warning that the language, or similar language, could be placed back into the bill. There is discussion that the section on nonprofits is being rewritten in such a way that the parliamentarian will have a difficult time removing it.
The National Council of Nonprofits and Democracy Forward have been leading the pressure campaign to have the provision removed. Other elements of the bill targeting nonprofits, such as taxing foundation asset growth, remain in the bill.
“The removal of the harmful provision giving the Trump Administration sweeping authority to strip certain nonprofits of tax-exempt status is a significant victory for nonprofit advocates, though we must remain vigilant to ensure the language doesn’t get added back into the bill on its way to enactment,” said Diane Yentel, president & CEO of the National Council of Nonprofits. “Still, the broader tax bill poses serious threats to the nonprofit sector and to the communities we serve. Remaining in the bill are provisions to increase taxes on foundation and university endowments, forcing them to divert funding away from scholarships, research, and vital community grants, and arbitrarily restricting corporate giving,” she said.
The bill would also impose new taxes on essential employee benefits offered by many nonprofits, making it harder to attract and retain the talented, mission-driven staff the sector depends on.
“These provisions don’t just burden institutions, they harm people. Students seeking an affordable education, researchers pursuing breakthroughs in diseases like Alzheimer’s and cancer, and families relying on nonprofits for housing, healthcare, and food will all be impacted. Nonprofits are not adversaries of the government, they are partners in service,” said Yentel.
The deleted provision raised significant concerns across the nonprofit sector, as it could have potentially allowed any administration current or future to target charitable organizations that do not align with White House priorities. The removal represents a meaningful step toward safeguarding the nonprofit sector from potential governmental overreach in the tax bill, according to Shannon McCracken, president and CEO of the Nonprofit Alliance.
“While we welcome this initial step, the current tax bill still places an unfair burden on America’s charitable organizations by paying for tax cuts on the backs of local charities at a cost of more than $50 billion. The legislation makes it harder to raise money from companies, foundations, and high-net worth Americans – all at a time when federal grants and contracts are being cut. This directly impacts critical community services and other essential nonprofits that rely heavily on public funding,” said McCracken.
“We urge continued vigilance, as the H.R. 9495 (from the last session on Congress) language originated in the Ways and Means Committee and could resurface at any point in the legislative process,” she said “Nonprofits must continue educating members of Congress about the value of the sector and the critical importance of maintaining independence and nonpartisanship. There remains significant work to be done to permanently protect against harmful provisions and to address other concerning measures still present in the bill.”
The Grant Professionals Association (GPA) expressed its support of the removal of harmful provisions from the budget reconciliation legislation that would have allowed the Secretary of the Treasury to unilaterally designate section 501(c)(3) nonprofits as “terrorist supporting organizations” without due process. GPA issued a statement that read, in part: “As GPA had previously communicated to members of Congress, while we support efforts to combat terrorism and protect national security, we expressed deep concerns about the potential negative impact of this provision on the ability of legitimate nonprofit organizations to effectively seek and utilize grant funding. The current regulations (2 CFR Part 200) address the risk assessment process for those applying for federal financial assistance, including grants, to ensure recipients are qualified and not excluded from receiving federal funds.” GPA also supported the call to “ensure that the ultimate budget reconciliation legislation strengthens — not weakens — charitable nonprofits and philanthropy at a time when communities are increasingly dependent on their services.”
