The nonprofit world has faced a lot this year—massive federal funding cuts, claims that DEI is illegal, and smears on the entire sector. We are reeling from cancellations and clawing back of federal grants, and we’ve seen threats to investigate nonprofits, charge them criminally, and revoke their exemptions. It’s confusing enough to make us think the rules have changed. But they really haven’t.
Despite the disruption, the legal changes—so far—have been minor.
Congress has passed one major piece of legislation, which made minor tweaks to the charitable deduction rules and added a few provisions that only the wealthiest nonprofits need to know about. Other issues are being litigated, but none of them have been finalized. So, for now, you can hang tight and depend on the laws described in The Rules of the Road for Nonprofit Leaders. As things change, we will keep the book up-to-date, chapter by chapter.
One Big Beautiful Bill Act
Congress passed one major piece of legislation this year, the One Big Beautiful Bill Act. That law changed the charitable deduction rules described in Chapter 4 of our book, and it adopted some of the suggestions made in Chapter 10. Remember that, as a nonprofit leader, you should have a general idea of the charitable deduction rules, but you will always want to remind your donors to check with their tax advisors.
The 2025 One Big Beautiful Bill Act included a universal charitable deduction of $1,000 for individual taxpayers and $2,000 for married couples filing jointly. It also lowered the maximum percentage deduction that the wealthiest taxpayers can take from 37% to 35%, and it placed a floor on the deduction, so that tax itemizers can only deduct charitable donations above 0.5 percent of their adjustable gross income. These are the changes in the bill that will affect most nonprofits.
Other provisions deal with corporate charitable deductions, tax-credits for certain scholarship awards, an excise tax on wealthy colleges and universities, and a tax on organizations that pay employees more than $1 million. The One Big Beautiful Bill Act also made significant cuts to Medicaidand other safety net provisions, which will affect many nonprofits.
California Law
At the state level, California’s Assembly Bill 1318, was passed as a defensive measure to some of President Trump’s threats to the sector. It ensures California nonprofits can continue to receive state funding if the IRS revokes their exempt status for political reasons. As noted in Chapter 2 of Rules of the Road for Nonprofit Leaders, states generally follow the federal government’s lead in determining whether to accord similar tax and preferential treatment in a particular state. This new California law allows nonprofits in California to continue to receive contracts, grants and other forms of support from the state if they have tax-exempt status at either the state or federal level.
What’s Stayed the Same—that Some People Think Has Changed
You might be surprised to learn that DEI is still legal, that Harvard still has its tax exemption, and that the federal government is still providing grants to nonprofits, albeit often with caveats that will give some nonprofits pause.
1. DEI is still legal. A presidential proclamation is not enough to determine that something is illegal, and it will take years for the Supreme Court to have its say in the matter. The Court has determined that racial preferences in college admissions are unconstitutional, but we do not yet know how far that doctrine will be extended. If DEI is important to your mission, stick to it! There is no need to obey a new interpretation of the law before it becomes law. If necessary, you can find new language to describe what you are doing, but you can (and should) continue to stick to your principles.
2. Nonprofits still must refrain from endorsing candidates. Even though the Trump administration has agreed to settle a case that is challenging the prohibition against political campaign intervention, the court has not yet agreed to the settlement. If the court accepts the settlement, the Johnson Amendment (as this prohibition is usually called) will not apply when faith leaders make political statements in their houses of worship. The rule will not change for other nonprofits, and the case will inevitably be appealed. For now, the law is unchanged.
3. Nonprofits don’t lose their exemption overnight. The procedures for revoking exemption remain intact. If the nonprofit challenges the revocation, which will definitely happen if an organization is targeted for political reasons, the process will take years.
There are two exceptions to these procedures. Nonprofits that have not filed the tax information form (Form 990) for three consecutive years automatically lose their exemption. And, if an organization is designated as a terrorist organization, the IRS can suspend its exemption. Should the current administration designate a nonprofit that disagrees with its policies as a terrorist organization, the litigation will be immediate. It has not done so at this point.
I would not suggest anyone ignore threats from the Trump administration, but so far, its threats to revoke exemption or instigate a criminal investigation have been aimed at large organizations that can financially withstand an investigation. Smaller organizations are less likely to be targeted for political purposes, but if they are, they will be able to get pro bono legal help. These issues have national importance, and those who disagree with the Trump administration’s political stance are anxious to help those who would otherwise give into fear of repercussions because they could not financially survive a protracted investigation.
4. The government is still making federal grants, but you might think twice before applying for them. Rules of the Road for Nonprofits does not address federal grants, but the Trump administration has terminated so many grants and placed conditions on so many new ones, that I thought I should mention them.
If you have lost a grant, you have probably already explored your legal options. As of early November 2025, the website Just Security was tracking 515 lawsuits against the Trump administration. At least 78 of them were related to federal grants, and almost all of them are still being litigated. If your organization has lost a grant, or is about to lose a grant, it will probably be years before you see those funds—if ever.
If you are seeking a new grant or working with an existing grant, you should be aware that the funds could be revoked and spend the money carefully. If you are being asked to certify vague behavior, you may want to talk to an attorney. Some nonprofits have been able to get a temporary injunctionagainst such certifications. Others fear that they are a trap, because false representations on federal grant proposals can lead to huge liability for the nonprofit.
How to Prepare for What Might Come
It just so happens that the precepts from Rules of the Road for Nonprofit Leaders are helpful in uncertain times. Keep the mission front and center. Govern well. Complete the paperwork. Watch the finances. If you need to change course by shutting down, merging with another organization, or giving up your tax exemption, then do so.
You shouldn’t give in to the natural fear that this extreme uncertainty creates, and you don’t need to change your mission in response to this fear. As Karl Mill wrote in a recent blog post, “After all, the worst thing that can happen to your organization is not an audit. It’s not losing tax-exemption. And it’s not even having your assets frozen via an abuse of the anti-terrorism rules. The worst thing that can happen to your organization is that it abandons its mission.” [1]
Remember that. Your organization has its tax exemption because it is pursuing a legal charitable purpose. Follow that purpose, and you will be following the law. You will also be making life better for those you serve.
[1] Karl Mill, Resisting Administration Threats and the Focus on Philanthropic Freedom, Mill Law Center (Oct. 16, 2025).