Nonprofit Law Prof Blog

Prosecutor Opens Investigation Into Desantis-Linked Florida Charity That Received $10 Million State Grant

The Miami Herald reports that Leon County prosecutors have opened a criminal investigation into the Hope Florida Foundation. The investigation apparently stems from concerns raised by Republican and Democratic state legislators regarding a $10 million state grant to the charity, which has been championed by Florida Governor Ron DeSantis and his wife. The focus of the concerns is the source of the funds, which was a settlement with a Medicaid contractor, and the use of the funds, which the charity appears to have regranted to other nonprofits that in turn made substantial contributions to a political committee opposing a ballot initiative that would have legalized recreational marijuana under state law.

There have also been news reports that state Department of Children and Families sent a cease and desist letter to the Orlando Sentinel relating to its investigation into the charity, allegedly for improperly coercing foster families into making negative statements about it.

Additional coverage: AP; Washington Post.

Lloyd Mayer

Indiana AG Opens Inquiries Into Private University DEI Policies

Indiana Attorney General Todd Rokita publicly announced that he has sent letters to the University of Notre Dame (my employer) and to Butler and DePauw universities regarding their DEI activities and raising the possibility that they are inconsistent with their nonprofit status under state law. From the press release about the letter to Notre Dame:

Indiana Attorney General Todd Rokita has issued a letter to the University of Notre Dame concerning the university’s diversity, equity, and inclusion (DEI) policies and practices, which potentially violate federal and state civil rights laws and the terms of the university’s nonprofit status.

Publicly available materials, including the university’s 2033 Strategic Framework, suggest that Notre Dame may treat students, prospective students, faculty, staff, and job applicants differently based on race or ethnicity; employ race in a negative manner when making admissions or hiring decisions; or utilize racial stereotyping.

Racial discrimination of any kind in educational settings violates fundamental moral and legal principles that are enshrined in state law. Attorney General Rokita said nonprofit universities that flout those principles and pursue race-based DEI initiatives may jeopardize their nonprofit status.

Coverage: IndyStar.

Lloyd Mayer

Commentary on Harvard University, Tax Exemption, and Fundamental Public Policy

The Trump Administration's attack on Harvard's tax-exempt status has rapidly generated a significant amount of commentary. Notable contributions include:

• Marie Sapirie, Harvard Has a Precedent Problem in Fight to Keep Exempt Status. It begins:

President Trump’s musings about Harvard University possibly losing its tax-exempt status for failing to adhere to public policy crystallized May 2 into what appears to be an actual plan to revoke the school’s exemption. The move highlights a long-standing problem that the IRS and Congress should have remedied long ago.

• Ellen P. Aprill, Brian D. Galle, Philip Hackney, and me, Harvard Does Have Options if It Loses Tax-Exempt Status. Abstract:

As scholars of nonprofit, tax-exempt organizations, we wish to take issue with Marie Sapirie’s recent article, Harvard Has a Precedent Problem in Fight to Keep Exempt Status. We admire and learned from her history of Bob Jones University v. United States. However, we disagree with her characterization of both the case and the avenues for judicial review available to organizations facing revocation of exemption. Bob Jones University teaches that we must distinguish “public policy” from “fundamental public policy.” As in Bob Jones University, fundamental public policy involves core values. A new presidential administration is free to establish a new public policy. But such a new public policy does not create a fundamental public policy. Finally, if the IRS fails to observe the distinction between public policy and fundamental public policy in revoking Harvard’s exemption, Harvard will have several avenues for seeking judicial review. In particular, in response to Bob Jones University's difficulty in obtaining judicial review of its revocation, Congress enacted section 7428 in 1976 in order to provide organizations facing IRS denial or revocation of exemption the ability to seek a declaratory judgment from any of several federal courts.

• Harvey P. Dale, Daniel J. Hemel, and Jill S. Manny, What Are the Real Tax Risks for Harvard?. Abstract:

In this article, the authors question claims that Harvard’s potential loss of its tax-exempt status would result in hundreds of millions of dollars in annual income tax liability and a dramatic decline in donations.

• Neal Katyal, The Law Bars Trump From Threatening Harvard’s Tax Exemption. It begins:

When Congress created the federal income tax in 1913, it excluded universities, recognizing that these institutions repay the nation in minds, not money. No U.S. president has questioned that exemption until now. President Trump on May 2 posted on Truth Social: “We are going to be taking away Harvard’s Tax Exempt Status. It’s what they deserve!”

Federal law, however, bars members of the executive branch—including the president—from influencing the Internal Revenue Service’s decision to target any particular taxpayer.

Lloyd Mayer

Unintended (?) Consequences and the Endowment Tax

Paul Caron’s Tax Prof Blog’s regular feature on Tax Policy in the Trump Administration has a long, long list of entries today, including an article from the Wall Street Journal on university reactions to the increase in the endowment tax. As described more fully last week on this Blog, the current version of the OBBB appears to amend the existing endowment tax by increasing the number of schools subject to the tax as well as raising the rates incrementally based on the size of the endowment.

Here’s the crazy thing about taxpayers – and especially sophisticated taxpayers: turns out they are sensitive to tax changes!  Who knew!?

The Wall Street Journal article (sorry - behind paywall) talked to a number of university endowment officials about what investment changes the endowments might make to minimize the increased tax liabilities under an amended tax.  Not surprisingly, endowments are considering moves out of investments that would produce net investment income, especially short term gains. The article predicts that there would be a move from those hedge funds that frequently realize gains and into private equity investments that might have more controllable/predictable sources of realized income.  At the same time, the article talks about increased liquidity needs due to tax itself and other factors (such as having to fund discontinued grants and provide more financial aid), which leads to worries about lock-up issues. And as with most sophisticated investors, endowments will now need to factor tax efficiency into the choice of investments, which may override issues such as liquidity or volatility.

If we play through what the article’s predictions actually mean, I think we can anticipate that endowments will need to chase higher returns in the locked-up portion of the portfolio to make up for the parts of their portfolios that are going to underperform in the name of liquidity. Higher levels of risk and volatility seem to be in the future if an endowment wants to keep up with inflation. Higher costs of endowment management for tax sensitivity, and of course, the tax itself, will lead to lower amounts available for distributions to students, researchers, and operations.  None of this is particularly surprising, of course, leading one to wonder if these are unintended consequences or if they are exactly the point.

When I was ADAA, I had a little caution traffic sign on my desk that read “But is this good for students?”  I would lend my sign to the authors of this bill, but that would require one to think that the good of students has anything to do with this legislation.

With exasperation, eww

And Then They Came for the Endowments, Revisited: The Section 4940 Excise Tax Revisions

Christopher Ryan did a great job last week musing on the various provisions of the House Budget Reconciliation Bill for the OBBB Act, including his thoughts on the restructuring of the excise tax on university endowments.  Now that we are all back from Law and Society and/or the Memorial Day long weekend, I want to highlight one more provision of the OBBB that goes after large endowments: changes to the Section 4940 excise tax.

By way of background, Section 4940 was passed in 1969 as part of the Chapter 42 private foundation excise taxes.  Unlike the other excise taxes passed as part of that package (such as the minimum distribution requirements of Section 4942 or the self-dealing rules of Section 4941), Section 4940 was not primarily regulatory in purpose.  Rather, Section 4940 was a straight excise tax on net investment income, designed to raise money to fund the enforcement of this new slate of excise taxes. When passed in 1969, the excise tax rate was 4%, and was lowered to 2% in 1978.  In 1985, the primary excise tax rate was set at 2% but if a foundation met certain heighted distribution requirements, it could (in some cases, subject to weird timing issues, and only after a complicated calculation…) qualify for a 1% excise tax rate.

Over time, two things became clear. First, the 1% excise tax rate reduction wasn’t particularly effective in incentivizing more distributions, in part because it was very clunky in drafting and application. Additionally, the funds brought in by the Section 4940 were more than necessary to fund enforcement of the Chapter 42 excise taxes.  And so, after many years of being included and then excluded from many a tax bill, amendments to Section 4940 were successfully enacted in 2020 to set a single, flat rate of 1.39%.  Get rid of the complicated multiple rates, lower the rate across the board, but still fulfill the basic purpose of Section 4940 – all good. 

Fast forward to today: Section 112022 (at page 101) of the OBBB (discussion at page 38 of this document) introduces a sliding scale for the excise tax rate.  While private foundations with gross assets valued at under $50.0 million (the legislation specifically says valued at the close of the tax year without reduction for liabilities) will continue to pay the 1.39% rate, larger foundations will pay more on a sliding scale, with private foundations with assets valued in excess of $5.0 billion paying a flat 10%. (Google’s AI Overview tells me that there are approximately 24 private foundations that would meet these criteria – I give no warranties about the accuracy of that information, especially given the caveat for liabilities.)

Two things struck me about this change.  First, I’ve seen no discussion linking the increase in the rate to the costs of enforcement, which was the rationale behind the rule from inception and from which the 1.39% rate at least nominally was about (as well as keeping the change revenue neutral).  Unlinking this as a general matter signals a willingness to tax this income (and charities generally) for whatever reason is deemed appropriate.  I don’t doubt that this is, at least in part, a pure revenue raiser for the rest of this one, big, expensive bill. Additionally, it feels extraordinarily punitive, demonstrating even more hostility to endowments, specifically and charity, generally.  While Big Philanthropy (including large endowments of all kinds) certainly has its issues, neither this excise tax increase nor the tax on university endowments is designed in any meaningful way to address these issues.  As with the university excise tax, it is really just a revenue raiser on the back of currently politically unpopular group, without much in the way of a meaningful tax policy justification.

With concern, eww

And Then They Came for the Endowments

If you’re anything like me, you’re worried about what the House Ways & Means Committee’s budget reconciliation billwill do to the nonprofit sector. I’ll be blogging about that this week. Today, my focus is on the sweeping changes to the endowment tax and its potential impact on affected universities.

The legislation known as the Tax Cuts and Jobs Act (TCJA) of 2017 enacted a 1.4% excise tax on private universities’ endowments with endowment assets of $500K or more per student. Although its effect was rather modest, this excise tax was unprecedented. Worse, its “cliff effect” meant that, as a proportion of the endowments it taxed, it hurt universities just over the statutory threshold worse than those well beyond it. And worse still, the incidence of this tax was likely passed on to students and their families in the form of hikes in higher education costs at affected institutions.

Now, if you’re a frequent reader of this blog, this all may be familiar to you, because I have blogged about, written scholarship on, and done press interviews about this topic this year alone. But that’s old news, and this proposal is different. The House’s budget reconciliation bill cuts much deeper.

For one, it is tiered but still keeps in place the “cliff effect.” It proposes a 1.4% excise tax for universities with endowments between $500K and $750K per “eligible student”—more on that in a moment. So, no real change there. Yet, its proposed progressive excise tax rates get steeper for universities with endowments between $750K and $1.25M per student (7%), much steeper for universities with endowments between $1.25M and $2M per student (14%) and steeper still for universities with endowments over $2M per student (21%). By my count, and with an assist from Forbes, at least 14 universities will stay in the 1.4% tranche, 14 universities will see their endowment tax liability increase 5x (7%), 10 universities get hit with a 10x endowment tax increase (14%), and 3 universities will see their endowment tax liability increase 15x (21%)—if the bill is enacted as it stands. At the highest rate, this is essentially a corporate tax on nonprofit entities.

Now it’s time to unpack the “eligible student” definition that the bill inserts. It would seem to include US citizens, permanent residents, and those present in the US for non-temporary purposes with the intent to remain. However, it seems to exclude international students on temporary visas or undocumented students. So, universities with large numbers of these latter groups of students could face a disproportionately higher effective tax rate, because it would change the denominator on which the statutory formula is based. Quite likely, it will expand the number of universities subject to the tax—in some form—in total.

It also bears noting that there is a religious exemption put into place in the proposed bill that the TCJA’s endowment tax provisions did not have. That is, religious universities with a continuous church affiliation and mission aligned with religious doctrine are exempt from the proposed tiered tax structure, reflecting a broad carve-out for religious institutions throughout the proposed legislation.

The proposed changes to the endowment tax represent an escalation in the federal scrutiny of higher education. The TCJA’s endowment tax was effective but was largely symbolic, because it only impacted the nation’s wealthiest institutions. Under this new framework, the tax takes on a redistributive—not to mention confiscatory and punitive—character. But the net effect of the new framework for the endowment tax is that it will affect more universities and tax most of those already subject to the tax at inflated rates. And just like tariffs, we know what happens next. The incidence of the tax will likely be passed onto the consumer. That means students and their families will foot the bill.

If one goal of the tax is to lower the rising costs of higher education by encouraging universities to spend more on institutional aid, this does the opposite. But more likely, it’s a tax on elite institutions for being “woke.” The problem is that it strikes at these institutions, but it hits hardest at other schools like McPherson, Berry, Earlham—all institutions that just meet the statutory threshold and can’t really afford the tax without cutting institutional aid. It’s not measured policy; it’s just bad all around.

 

Christopher J. Ryan, Jr.

Indiana University Maurer School of Law

Monday Morning Silver Linings (and the Budget Reconciliation Bill)

Yes, you read the title of this post correctly. And yes, there’s a lot to unpack about the House Ways & Means Committee’s budget reconciliation bill introduced last week. In fact, I plan to focus my posts this week on various aspects of it and its potential effects on the nonprofit sector. Almost none of it is good for the nonprofits we hold dear. But because I’m yearning for some good news, I found a sliver of hope in one of its provisions. Hear me out.

When the legislation known as the Tax Cuts and Jobs Act (TCJA) of 2017 took effect, it required taxpayers to making charitable contributions to itemize (i.e., forgo the then beefed-up standard deduction) in order to reap the tax benefits associated with these contributions. This created a massive disincentive for making charitable gifts by lower- and middle-income taxpayers. In fact, evidence suggests that this change to the Code did lead to a significant decrease in the number of taxpayers claiming the charitable deduction.

Yet, some estimates of charitable giving from 2018 to 2022 indicate that total individual giving rates remained relatively stable, and indeed have met historic highs, when compared to pre-TCJA levels. How could this be the case? Well, it’s simple really. The TCJA boosted the incentive for the wealthiest taxpayers to itemize—and to make charitable gifts to increase their itemized deductions. And they did, because the TCJA simultaneously increased the limit for deducting cash contributions to charities from 50% to 60% of AGI. In other words, the TCJA shifted the distribution of tax benefits from charitable giving by giving a larger share of these benefits to higher-income earners who itemize. Bad, bad, not good.

Recent research by colleagues at IU’s Lilly Family School of Philanthropy and the University of Notre Dame both corroborates and complicates this story. Looking at 2017 and 2018 returns, their study found that about 23 million households switched from itemizing their charitable deductions in the first year to taking the standard deduction the next year. The study notes that “[a]mong the households that had previously been itemizing but switched to taking the standard deduction in 2018, the amount they gave to charity decreased by an average of $880.” Doing the math suggests that, when aggregated, the TCJA spelled a decline of about $20 billion in charitable giving, stemming from these households alone. Worse still, the researchers estimated that $16 billion of this $20 billion is a permanent annual decrease in charitable giving caused by the TCJA and is not attributable to bunching or re-timing gifts.

So, why did I find a sliver of hope when I read through the pages of the budget reconciliation bill last week? Because it seeks to reinstate a modest charitable deduction—even for taxpayers who do not elect to itemize. It creates a “temporary deduction for non-itemizing taxpayers up to $150 for single filers ($300 for married filing jointly) for charitable cash contributions for tax years 2025 through 2028.” This is not a panacea, and it likely won’t make up for $16 billion of permanent annual charitable giving lost from the lower- and middle-income taxpayers estimated in the study I referenced earlier. But it’s a step in the right direction. And don’t worry, I’m going HAM on the rest of the budget reconciliation bill (with respect to nonprofits) later this week.

 

Christopher J. Ryan, Jr.

Indiana University Maurer School of Law

South African Bishop Thanks Episcopal Leader for Declining to Resettle White Afrikaners

On Tuesday, we blogged that the Episcopal Church was refusing to resettle white Afrikaners who had been granted refugee status by the Trump administration and had arrived in the United States. We reported that white South African religious leaders had penned a letter about the situation in which they had said:

The stated reasons for (Trump’s actions) are claims of victimisation, violence and hateful rhetoric against white people in South Africa along with legislation providing for the expropriation of land without compensation. As white South Africans in active leadership within the Christian community, representing diverse political and theological perspectives, we unanimously reject these claims.

Today, RNS is reporting that the leader of Anglican churches in South Africa has thanked the American head of the Episcopal Church for refusing to resettle these "refugees" in the United States. According to the RNS report,

In a letter sent to Episcopal Church Presiding Bishop Sean W. Rowe on Thursday (May 15), the Most Rev. Thabo Makgoba, archbishop of Cape Town and head of the Anglican Church of Southern Africa, lauded Rowe for announcing on Monday that his church would end its decades-long relationship with the U.S. government to resettle refugees. Rowe explained the decision was rooted in moral opposition to being asked to resettle white Afrikaners, especially as the U.S. refugee program has been mostly shut down since Trump took office in January.

The report continues:

In his message, Makgoba thanked Rowe for calling him ahead of the announcement and rejected the Trump administration’s arguments for accepting white Afrikaners, who the president has insisted are the target of genocide — a claim widely disputed by the South African government as well as faith leaders in the country.

“What the administration refers to as anti-white racial discrimination is nothing of the kind,” Makgoba’s letter read. “Our government implements affirmative action on the lines of that in the United States, designed not to discriminate against whites but to overcome the historic disadvantages Black South Africans have suffered.”

Makgoba argued white South Africans “remain the beneficiaries of apartheid” by “every measure of economic and social privilege,” noting that, despite the end of the apartheid regime, South Africa’s society remains deeply unequal.

“Measured by the Gini coefficient, which measures income disparity, we are the most unequal society in the world, with the majority of the poor Black, and the majority of the wealthy white,” Makgoba wrote. “While U.S. supporters of the South African group will no doubt highlight individual cases of suffering some members might have undergone, and criticize TEC for its action, we cannot agree that South Africans who have lost the privileges they enjoyed under apartheid should qualify for refugee status ahead of people fleeing war and persecution from countries such as the Democratic Republic of Congo, Sudan and Afghanistan.” 

Archbishop Makgoba is on point. I have no option but to agree wholeheartedly with his sentiments.

Vaughn E. James

 

Episcopal Church Refuses to Resettle White Afrikaners, Ends Partnership with US Government

With the arrival of white Afrikaners in the United States with refugee status, the Religion News Service (RNS) is reporting that in a striking move that ends a nearly four-decades-old relationship between the federal government and the Episcopal Church, the denomination announced on Monday (May 12) that it is terminating its partnership with the government to resettle refugees, citing moral opposition to resettling white Afrikaners from South Africa who have been classified as refugees by President Donald Trump’s administration.

According to RNS, in a letter sent to members of the church, the Most Rev. Sean W. Rowe — the presiding bishop of the Episcopal Church — said that two weeks ago the government “informed Episcopal Migration Ministries that under the terms of our federal grant, we are expected to resettle white Afrikaners from South Africa whom the U.S. government has classified as refugees.” 

This directive did not sit well with the church. According to Presiding Bishop Rowe, the request crossed a moral line for the Episcopal Church, which is part of the global Anglican Communion that boasts among its leaders the late Archbishop Desmond Tutu, a celebrated and vocal opponent of apartheid in South Africa.  

In the letter, Rowe stated:

In light of our church’s steadfast commitment to racial justice and reconciliation and our historic ties with the Anglican Church of Southern Africa, we are not able to take this step. Accordingly, we have determined that, by the end of the federal fiscal year, we will conclude our refugee resettlement grant agreements with the U.S. federal government. 

Rowe also stressed that while Episcopal Migration Ministries will seek to “wind down all federally funded services by the end of the federal fiscal year in September,” the denomination will continue to support immigrants and refugees in other ways, such as offering aid to refugees who have already been resettled.

RNS reports that the Episcopal Church's announcement

... came just as flights with Afrikaners were scheduled to arrive at Dulles International Airport outside of Washington, D.C., the first batch of entries after Trump declared via a February executive order  that the U.S. would take in “Afrikaners in South Africa who are victims of unjust racial discrimination.” The South African government has stridently denied allegations of systemic racial animus, as has a coalition of white religious leaders in the region  that includes many Anglicans. 

White South African religious leaders penned a letter about the situation in which they said:

The stated reasons for (Trump’s actions) are claims of victimisation, violence and hateful rhetoric against white people in South Africa along with legislation providing for the expropriation of land without compensation. As white South Africans in active leadership within the Christian community, representing diverse political and theological perspectives, we unanimously reject these claims.

In addition to ties with Tutu, the Episcopal Church has a long history of advocating against apartheid in South Africa. It first began altering its financial holdings in the region in 1966, and by the mid-1980s. the church voted to divest from companies doing business in South Africa.

RNS reports that:

In a statement, White House spokesperson Anna Kelly said the Episcopal Church’s decision “raises serious questions about its supposed commitment to humanitarian aid.” She argued “Afrikaners have faced unspeakable horrors” and are “no less deserving of refugee resettlement than the hundreds of thousands of others who were allowed into the United States during the past Administration.”

Kelly added: “President Trump has made it clear: refugee resettlement should be about need, not politics.”

That is an interesting statement. After all, the Trump administration has otherwise all but frozen the refugee program, with Afrikaners among the few — and possibly only — people granted entry as refugees since January, despite thousands from other countries hoping to enter the U.S. to avoid persecution and violence. Shortly after he was sworn in, Trump signed an executive order  that essentially halted the refugee program and stopped payments to organizations that assist with refugee resettlement — including, according to one group, payments for work already performed.  

Vaughn E. James  

 

 

 

NonProfitTimes: Exempt Status, Endowments and Donors Targeted in House Bill

Yesterday's NonProfitTimes reported that the U.S. House of Representatives’ Ways and Means Committee had released its budget reconciliation bill and that the bill is everything nonprofit leaders feared. According to the Times, the bill includes everything from granting the U.S. Secretary of the Treasury unilateral authority to revoke the 501(c)(3) tax-exempt status of nonprofits, to taxing foundation endowments, to adding back in a deduction for non-itemizers but at half of what it was prior to it expiring in 2022.

As should be expected, reaction in the nonprofit sector was swift. “The Nonprofit Alliance (TNPA) acknowledges the mixed impact of the House’s draft legislation on the nonprofit sector. We strongly support the proposed above-the-line charitable deduction for non-itemizers,” said Shannon McCracken, CEO, of the Nonprofit Alliance.

However, McCracken stated that she is “deeply concerned” about several provisions that could harm nonprofit operations and philanthropic capacity. According to her, “The incorporation of provisions from last year’s Nonprofit Security and Anti-Terrorism Bill (HR 9495) raises serious concerns for us and our members, many of which were part of the strong sector-wide opposition to measures that could undermine nonprofit independence.” 

Additionally, she explained that the proposed progressive excise tax structure for private foundations could significantly reduce grantmaking capacity, particularly from larger foundations that support critical community needs, and potential expansions of Unrelated Business Income Tax (UBIT) could expose more nonprofit revenue to taxation, threatening financial sustainability.

“TNPA will continue working with lawmakers to strengthen positive provisions while addressing these concerning elements. We urge policymakers to consider nonprofits’ vital role in our communities when finalizing this legislation,” she said.

The Times report continues:

Diane Yentel, CEO of the National Council of Nonprofits, condemned harmful elements of the bill. “This tax bill introduced by House Republicans is a direct assault on organizations that serve the most vulnerable Americans, stepping in to provide support in overlooked communities. Families that rely on church food pantries, veterans that depend on nonprofits for mental health services, moms and babies that receive low-cost health care, and domestic violence survivors living in shelters are all harmed when Congress denigrates nonprofits and makes their work more difficult to do,” she said via a statement.

The statement continued: “The bill hands unchecked power to (U.S. Treasury) Secretary (Scott) Bessent to punish organizations that do not fall in line with the administration’s ideology, by labeling them as terrorist-supporting groups without due process, without a third-party investigation and without public evidence — all while concealing details under the pretext of national security.”

She did applaud the inclusion of the Universal Charitable Deduction. “However, the benefits of this provision are far outweighed by the many damaging aspects of the bill,” according to Yentel.

The proposed legislation also takes aim at colleges and universities. The Times reports that:

Colleges and universities, most notably Harvard University and Columbia University, have been targeted by the Trump Administration including cancelling grants and referring to the schools’ endowments. If this element of the reconciliation bill is included in the final version, private endowments taxes will be 1.39% on foundations with $50 million or less, 2.78% for endowments of between $50 million and $250 million, 5% for endowments of $250 million and less than $5 billion, and 10% on endowments of $5 billion and more.

According to language in the draft: “The assets of any private foundation shall be determined with respect to any taxable year as being the aggregate fair market value of all assets of such private foundation, as determined as of the close of such taxable year. The preceding sentence shall be applied without reduction for any liabilities.”

The bill also proposes an excise tax based on investment income of private colleges and universities that is tied to the number of students:

• 4% in the case of an institution with a student adjusted endowment in excess of $500,000, and not in excess of $750,000;
• 7% in the case of an institution with a student adjusted endowment in excess of $750,000, and not in excess of $1.25 million;
• 14% in the case of an institution with a student adjusted endowment in excess of $1.25 million, and not in excess of $2 million, and;
• 21% in the case of an institution with a student adjusted endowment in excess of $2 million.

As regards pulling a nonprofit’s exempt status, the bill would:

• Grant the Treasury Secretary unilateral authority to revoke the 501(c)(3) tax-exempt status of nonprofits determined by the Treasury Department to provide “material support or resources” in support of terrorism.
• Nonprofits designated as a “terrorist supporting organization” then have 90 days to “cure” the designation by either demonstrating “to the satisfaction of the Secretary” that they did not, in fact, provide such support or resources or made a reasonable attempt to have that support and resources returned to their organization.
• If the Secretary rejects a nonprofit’s attempt to “cure,” the nonprofit can then appeal for a Treasury Department administrative review and then to federal court.

The bill does not explain how a nonprofit would be considered a terror supporting organization. 

Vaughn E. James

 

 

The Academy versus the Executive - Litigation roundup (updated)

As the last post highlights, universities -- their budgets, their people, their programming -- are under attack from the Executive Branch. So far, universities have not rushed to fight back. But the AAUP, professors, and other groups of academics have started to exert their muscle; in several recent, important lawsuits, these plaintiffs have stood up against the attacks on their universities.

Harvard AAUP v. DOJ (Funding Review)

On Friday, the Harvard Chapter of the American Association of University Professors filed a complaint and a motion for a temporary restraining order against Executive Branch officials, challenging the "pending investigation and review of Harvard University’s federal funds, including the threatened and imminent withdrawal or cancellation of federal funds" as in violation of the constitution (particularly the First Amendment) and the Administrative Procedure Act. As of the date of this post, the Court has not yet acted on the TRO. (A similar lawsuit was brought to challenge the restrictions on Columbia's funding.)

Bedi v. US House Committee on Education (Subpoena to Northwestern Law's Clinic)

Professors Bedi and Cohen, law professors associated with the Bluhm Legal Clinic at Northwestern Pritzker School of Law, filed this lawsuit against both US House defendants as well as Northwestern University defendants (the latter as nominal defendants). The House issued a subpoena targeted at the legal clinic, demanding details on "the function of legal clinics at Northwestern Law, including any written guidance on what constitutes appropriate work, and direction on appropriate client representation," as well as personnel files on one of Prof. Bedi. The Plaintiffs filed a motion for a temporary restraining order, and the House Committee promptly withdrew its subpoena.

AAUP v. DOJ (Ideological Deportation Policy)

AAUP and other scholarly associations filed a lawsuit challenging, on First Amendment, due process, and Administrative Procedure Act grounds, "the large-scale arrests, detentions, and deportations of noncitizen students and faculty who participate in pro-Palestinian protests and other related expression and association (the 'ideological-deportation policy')." From paragraph 4 of the complaint:

Plaintiffs are associations whose members include thousands of faculty and students at universities across the country. They commence this action because the ideological-deportation policy, and the repressive climate it has engendered, has far-reaching implications for the expressive and associational rights of their U.S. citizen members, and for Plaintiffs themselves. The policy prevents or impedes Plaintiffs’ U.S. citizen members from hearing from, and associating with, their noncitizen students and colleagues. It makes it practically impossible for them to organize with those students and colleagues and to participate in political expression alongside them. It also makes it more difficult for them to benefit from those individuals’ insights and scholarship and to collaborate with them on academic projects. Plaintiffs themselves have also been harmed because they are no longer able to learn from and engage with noncitizen members to the extent they once did, and because they have had to divert resources from other projects to address the all-too-real possibility that their noncitizen members will be arrested, imprisoned, and deported for exercising rights that the Constitution guarantees.

The plaintiffs have moved for a preliminary injunction. Plaintiffs were supported by amici briefs from a number of additional scholarly groups. The Court scheduled for oral argument on April 23. 

AAUP & Association of American Medical Colleges v. HHS (NIH Funding Cuts)

In a set of 3 consolidated cases, Plaintiffs challenged the February decision by the National Institutes for Health to reduce all indirect rates for NIH grants to 15%, well below that which many universities had previously negotiated.  The plaintiffs include several universities. The Court agreed with the Plaintiffs, and found that the 15% cap conflicted with a federal statute and was adopted without following the procedures required by the Administrative Procedure Act. This has already led to a final judgment in plaintiffs' favor, permanently enjoining the cuts. The case is now on appeal.

The impetus for these lawsuits illustrate just a fraction of the ways in which universities are being targeted at the moment, and some of the ways to fight back in court. As demonstrated by Professors Bedi and Cohen, as well the plaintiffs against NIH, fighting back can mean swift, significant victories. So far, however, with the exception of the NIH funding cut, universities have not been quick to serve as plaintiffs, even as they absorb serious injuries to their mission, their finances, and their people. Perhaps as the threats worsen, or as other plaintiffs continue to notch victories for the rule of law, universities will reconsider how much interference they are willing to tolerate, and be willing to assert their rights in court.

UPDATE: New reporting highlights just how arbitrary (really, capricious) and lawless the funding cutoffs on universities seem to be: "What if we never pay them? Wouldn't that be cool?" mused the President.

UPDATE 2: Harvard has lawyered up: "Harvard is not prepared to agree to demands that go beyond the authority of this or any other administration."

UPDATE 3: Made a chance to clarify that universities are serving as plaintiffs in the NIH funding cuts lawsuit. 

-Joseph Mead

"Huge OpenAI funding round hinges on shedding nonprofit status"

The Washington Post reports (subscription required) the time is now an issue for resolving the ongoing OpenAI dispute. As described in the article:

ChatGPT-maker OpenAI announced a massive new funding round Monday [March 31, 2025], raising $40 billion in a deal that values the artificial intelligence company at $300 billion — but there’s a catch.

OpenAI must shed its status as a nonprofit and transition itself into a fully for-profit company by the end of 2025 if it wants to unlock all of that money, a person familiar with the deal’s terms said. Japanese conglomerate SoftBank is providing $30 billion of the $40 billion funding but will cut its investment to $20 billion if OpenAI doesn’t complete the restructuring, the person said.

Lloyd Mayer

Recent Examples of the K Street Shuffle on Main Street

In 2006, Jack B. Siegal wrote a wonderfully titled Special Report for Tax Analysts: The Wild, the Innocent, and the K Street Shuffle: The Tax System's Role in Policing Interactions Between Charities and Politicians (subscription required). Since then there have been numerous examples of the behaviors he chronicled at both the federal and state level. 

In particular, recent examples from several states that otherwise are politically and geographically very different caught my eye:

• In Florida, the Tampa Bay Times published an article titled [Governor] DeSantis officials assigned $10 million to his wife’s charity. Was it legal? The funds reportedly came from a health-related settlement fund controlled by the state and went to the Hope Florida Foundation, even as funding for the Foundation and a related government initiative is apparently held up in the legislature. 

• In Massachusetts, the Boston Globe published an article titled "Ripe for corruption": Lobbyists in Mass. skirt campaign finance laws by donating to monprofits run by lawmakers (subscription required). According to the article: "It’s a well-used path. As hard as such giving can be to pin down, a Boston Globe review found that some of the state’s most influential lobbying firms and businesses with interests before the Legislature are contributing thousands to some of the state’s most powerful players on Beacon Hill."

• In Minnesota, the Minnesota Star Tribune published an article titled Minnesota Senate president sought funding for nonprofit run by legal client, and for former employer (subscription required). According to the article, "Minnesota Senate President Bobby Joe Champion advocated for a violence prevention nonprofit to receive millions of dollars in state funding in 2023, just months after he had represented the nonprofit’s founder in court in his capacity as a private attorney."

Lloyd Mayer

WSJ Goes After Nonprofit DEI Programs (Opinion) . . . and Church Retirement Plans (Article)

It is probably no surprise that the Wall Street Journal recently published an Opinion piece titled From Bob Jones to Columbia University and DEI: To cement his campus civil-rights legacy, Trump should enlist the most fearsome agency: the IRS (subscription required). The Opinion argues that a combination of congressional action - particularly the Civil Rights Act of 1991 - and the Supreme Court's recent Students for Fair Admissions decision require the IRS to update Revenue Ruling 71-447 relating to racial discrimination in schools to cover "illegal DEI measures and [to] protect students, including Jews, from illegal discriminatory harassment." It notes that doing so should lead to most affected schools renouncing their problematic activities and so generally not require actual revocation of tax-exempt status.

It may be a bit more of a surprise that the same publication, although not on the editorial page, has raised questions about the exemption from many federal laws for retirement plans maintained by church-affiliated entities, including hospitals. Titled Church Retirement Plans Sidestep Federal Oversight—and Employees Pay the Price: Pension collapses at church-affiliated hospitals and other organizations upend retirees’ plans (subscription required), it notes: "But churches and other religious organizations can opt out of the federal [Employee Retirement Income Security Act (ERISA) of 1974] system, which requires retirement plans and their sponsors to fund pensions well in advance and to set aside retirement savings in dedicated accounts. That has left hundreds of thousands of workers vulnerable." 

Lloyd Mayer

Donor Lawsuit Against NRA Survives Motion to Dismiss

As reported by Bloomberg, the class action lawsuit brought by donors against the National Rifle Association survived a motion to dismiss filed by the NRA. The case is Dell'Aquila v. NRA (M.D. Tenn. 3:19-cv-00679). On March 26, 2025, the court ruled that the plaintiffs had sufficiently alleged their various claims.

More specifically, the plaintiffs are asserting in their Third Amended Complaint claims of fraud, breach of contract, tortious interference with contract, violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), and RICO conspiracy, with the two latter claims based on alleged mail fraud, wire fraud, and money laundering.  The alleged factual basis for these claims is that the NRA solicited membership fees and donations purportedly to advance the mission of the NRA, and caused the NRA Foundation to do so as well, but that instead these organizations used a significant portion of the donated funds for unrelated purposes, including personal expenses of now former NRA President Wayne LaPierre.

Lloyd Mayer

Continuing Coverage of Trump Administration Actions & Related Litigation

It continues to be a full-time job for affected nonprofits to keep up with the Administration's actions and related litigation, but several organizations are working hard to do so either for nonprofits specifically and more generally. They include:

• National Council of Nonprofits: The Impacts of Recent Executive Orders on Nonprofits website, including a regularly updated Chart of Executive Orders (and related litigation), and checklist for Conducting a Risk Assessment for Federal Funding, an FAQs webpage, and more.

• Building Movement Project: Its FAQ: Nonprofits in the New Landscape document is regularly updated to track nonprofit-related Trump Administration actions and related litigation.

• Just Security: A legal challenges to Trump Administration actions website that is not nonprofit-specific, with summaries and links to court dockets and key documents.

• Lawfare: A Trump Administration Litigation Tracker website that is not nonprofit-specific, with summaries, statuses, and links to court dockets.

The Council on Foundations is also tracking executive branch, judicial, and legislative developments relating to nonprofits, but most of its resources are only available to its members. Various law firms and news outlets are also tracking this information, along with organizations that are tracking actions and litigation relating to particular topics, such as immigration.

UPDATE: Independent Sector just launched a website tracking federal legislation, federal and state litigation, and federal executive branch actions of interest to nonprofits.

Lloyd Mayer

Bezos Family Pledges $500 Million to UNICEF USA Child Nutrition Fund

Yesterday, we blogged about the Rockefeller Foundation's $100 million commitment to global child nutrition efforts. Hot on the heels of that announcement comes today's report in Philanthropy News Digest that UNICEF has announced a pledge totaling $500 million from Jacklyn and Miguel Bezos, in support of UNICEF USA’s Child Nutrition Fund (CNF). 

Like the Rockefeller Foundation's commitment, the Bezos' pledge was announced at the recently concluded Nutrition for Growth summit in Paris. This latest commitment from the couple includes a $250 million one-to-one challenge that builds on their original matching gift of the same amount, made in September 2024. The couple, who lead the Bezos Family Foundation, pledged to match gifts to CNF up to $500 million.

The Digest illuminates us about the work of CNF:

Led by UNICEF, CNF was established in 2023 to bolster nutrition programs in 63 priority countries, primarily in Africa and Asia, and help build resilient and sustainable national nutrition systems. During the summit, philanthropic organizations pledged to raise more than $2 billion in the coming years to combat malnutrition. Currently, the World Bank estimates that an additional $13 billion per year over the next 10 years is needed to scale nutrition interventions to address undernutrition globally. 

Commenting on the couple's gift, Miguel Bezos had this to say:

The need is so great that no one alone can meet the urgent nutrition needs of the world’s women and kids. But we want to accelerate the change and invite others to join us in donating to the CNF. We will match each dollar donated to the CNF up to $500 million. “The need is now.  But we have the solutions now too. In the CNF, we have the tools to meaningfully improve the nutrition and lives of women and children globally. We just need to band together to do it immediately.

As I said yesterday when I commented about the commitment by the Rockefeller Foundation, this is very good news. There is some good left in this world of ours.

Vaughn E. James

Rockefeller Foundation Commits $100 Million to Child Nutrition Efforts

The Rockefeller Foundation has announced a five-year, $100 million commitment to address more than a dozen countries’ efforts to expand and further develop their school meal programs.

 

According to a news story posted today on Philanthropy News Digest, the Foundation made the announcement during the 2025 Nutrition for Growth Summit (N4G), hosted by the French Ministry for Europe and Foreign Affairs. This latest funding is part of a more than $220 million global commitment to nutrition from the foundation. This includes its ‘Big Bet’ of $100 million to advance Food is Medicine solutions in the United States and more than $20 million for the Periodic Table of Food Initiative, which is providing standardized tools, data, and training to map food quality of the world’s edible biodiversity.

 

According to the Digest,

 

The new initiative, which builds on initial work in Brazil and Kenya, aims to reach 100 million children worldwide, including the United States, providing nutritious, locally, and regeneratively grown school meals. A partner of the School Meals Coalition, the Rockefeller Foundation will collaborate with organizations including the Novo Nordisk Foundation and the UN World Food Program to help strengthen the resilience of countries’ food systems, improve the nutritional quality of school meals, mobilize finance, and design procurement standards that incentivize investment in locally and regeneratively sourced foods.

 

“The world can’t stand by and let kids go hungry. We need to come together behind bold, innovative solutions like locally grown, sustainable school meals that address today's urgent needs while safeguarding against tomorrow’s urgent threats,” said Rockefeller Foundation president Rajiv J. Shah. “This announcement reflects the Rockefeller Foundation's commitment to delivering results for people in the United States and around the world by investing in solutions and working with a range of partners that can advance the food security of children, economic opportunities for farmers, businesses, and communities, and the health of our planet.”

 

I agree with Mr. Shah. I note, also, that this announcement by the Rockefeller Foundation is very refreshing news in a world where, day after day, our news is filled with stories of chaos, confusion and people's inhumane acts being thrust upon others.  

 

Vaughn E. James    

 

 

Evangelical, Catholic Groups: 1 in 12 Christians Could be Impacted by Trump Deportations

The Religion News Service (RNS) is reporting that a new report published by four prominent Catholic and evangelical organizations claims that around 1 in 12 Christians in the U.S. are vulnerable to deportation or live with a family member who could be deported by President Donald Trump’s administration, one of several data points religious leaders hope will alert Christians to the plight facing their fellow faithful.

During a call with reporters on Monday, March 31, Matthew Soerens of World Relief, one of the authors of the report, stated: “We’re sounding the alarm that all American Christians need to be aware of what’s being proposed.” Mr. Soerens spoke alongside representatives from other well-known religious organizations listed as co-authors on the report: the U.S. Conference of Catholic Bishops, the National Association of Evangelicals and the Center for the Study of Global Christianity at Gordon-Conwell Theological Seminary.

He continued: “Our prayer with this report is that American Christians will recognize that these proposed deportations, to whatever extent they ultimately become a reality, are not just a policy issue but a dynamic that will impact us, followers of Jesus who were knit together in unity under Christ.”

According to RNS,

The report, titled “One Part of the Body: The Potential Impact of Deportations on American Christian Families,” a reference to the biblical book of 1 Corinthians, serves as both a theological and data-driven refutation of the president’s campaign pledge to enact “the largest deportation in U.S. history.”  

Authors of the study said they pulled data from several sources — such as religious demographic breakdowns from Pew Research and data on immigrant populations from the immigration reform advocacy group FWD.us — to conclude that there were more than 10 million Christian immigrants in the U.S. at the end of 2024 who are now vulnerable to deportation. That number includes undocumented immigrants as well as those with legal status that could be revoked by the government — namely, asylum seekers awaiting a final court proceeding as well as people protected by programs and designations such as Temporary Protected Status, Deferred Action for Childhood Arrivals, Deferred Enforced Departure and humanitarian parole.

Vaughn E. James

The Impacts of the Recent Executive Orders on Nonprofits (National Council of Nonprofits)

For anyone having difficulty keeping up with the flurry of Executive Orders, related federal executive branch actions, and resulting litigation, the National Council of Nonprofits has a very helpful website titled The Impacts of the Recent Executive Orders on Nonprofits that it is constantly updating based on new developments. While NCN is a party in several of the lawsuits currently relating to various Executive Orders, I found the website to be a relatively unbiased and comprehensive source of information relating to these important developments.

Lloyd Mayer