US Nonprofits Risk Losing Tax Status over Israel Criticism

Correction: A previous version of this article incorrectly stated that HR 9495 was stalled in the Senate; the bill died without action in the Senate in 2024. 

In recent months, murmurs in the nonprofit world have turned into alarms largely stemming from fears that their nonprofit status could be stripped away for certain types of speech or activities. This stems in part from the US House of Representatives passing HR 9495, a bill that would empower the Treasury Department to eliminate the tax-exempt status of any nonprofit it deems to be supporting terrorism. Passed through the House in November, the bill expired in the Senate last year.

[T]he line between permissible advocacy and prohibited political activity is often blurred.

Earlier in 2024, news outlets reported on nonprofits potentially losing their tax-exempt status without due process as a result of the bill. Others argued the bill would give nonprofits more power to fight back than under current law.

Aside from HR 9495, nonprofits also face potential backlash around using “controversial” language, as NPQ reported in February 2025. This, of course, is a direct attack on diversity, equity, and inclusion (DEI) that many nonprofits uplift—and are now being targeted for doing so.

Regardless of where one stands on the specific issues or how one might feel about potential government reprisal, US nonprofits have again found themselves at the center of a contentious debate over free speech, political influence, and the limits of advocacy.

The Legal Framework: Tax-Exempt Status and Political Activity

In the United States, nonprofits enjoy tax-exempt status under section 501c3 of the Internal Revenue Code, allowing them to operate without paying federal income taxes. In exchange, nonprofits are prohibited from engaging in partisan political activities or endorsing candidates for public office.

But the line between permissible advocacy and prohibited political activity is often blurred, particularly when it comes to contentious international issues like the Israel-Palestine conflict.

The IRS guidelines state that 501c3 organizations may engage in advocacy on issues of public concern, provided such activities are not “substantial” in relation to their overall operations. Yet, the interpretation of “substantial” is subjective, leaving nonprofits vulnerable to scrutiny. Critics argue that this ambiguity has been weaponized to silence dissent, particularly when it comes to criticism of Israel.

In a recent podcast, Lara Friedman, president of the Foundation for Middle East Peace discussed how the weaponization of anti-Semitism to silence criticism of Israel has become a dangerous trend that undermines both free speech and the fight against real anti-Semitism.

Friedman, like others in the nonprofit community, were sounding the alarm well into the first Trump administration, reporting at that time that the State Department was weaponizing anti-Semitism and delegitimizing human rights groups.

Political Pressure and the Role of Lobbying Groups

The influence of pro-Israel lobbying groups in the United States is well-documented. Organizations like the American Israel Public Affairs Committee (AIPAC) and the Anti-Defamation League (ADL) wield significant political clout, shaping legislation and public opinion. These groups have been instrumental in pushing for laws and policies that penalize criticism of Israel, often conflating such criticism with anti-Semitism.

And this is where nonprofits, especially those critical of US foreign policy, Israel’s growing political power through lobbying, or both, are caught. Nonprofits that challenge Israel’s actions in the occupied territories or advocate for Palestinian rights often find themselves labeled as anti-Semitic, leading to investigations, funding cuts, and threats to their tax-exempt status. It’s caused many nonprofits to remain silent, and therefore seemingly complicit. This chilling effect has far-reaching consequences for free speech and the ability of nonprofits to fulfill their missions.

Taken further, the culture developing around creating policies to strip nonprofits of their tax-exempt status (or their nonprofit label overall) is set up to target nonprofits specifically and sends chills through the entire sector.

Executive Actions Under the Trump Administration

In a February 6 memorandum, “Advancing United States Interests When Funding Nongovernmental Organizations,” Trump points to the US government’s support of nonprofits whose missions extend beyond the United States, and as others have pointed out, claims nonprofits are “engaged in actions that actively undermine the security, prosperity and safety of the American people.”

Meanwhile, in a previous executive order, “Reevaluating and Realigning United States Foreign Aid,” Trump’s aim is to limit future funding to organizations that have causes that don’t align with his domestic policies. These executive actions reveal an overarching strategy to curb criticism by restricting resources to politically disfavored groups.

Nonprofits must now navigate a stringent set of criteria just to operate. Even if they manage to meet these requirements—imposed arbitrarily by the Trump administration—they may still face intense scrutiny from those already skeptical of their intentions. Those critical of Israel would be especially vulnerable.

Regardless of one’s personal stance on their views, singling out these organizations for their position undermines the foundation of a free and open society—one where every person and institution has the right to express their beliefs. Even more troubling, when the state targets a specific group, it risks violating the Establishment Clause in any other context or effectively endorsing one viewpoint over others—a clear breach of the Constitution.

That nonprofits are already being targeted in this way could be an indication that the Trump administration is setting its sights on Gaza, planning for its post-conflict status as a major international development program. To do this effectively, silencing or draining the resources from otherwise vocal critics of the plan to reinvent Gaza would be a key component to see any such project to fruition. Some of this is already beginning to take shape.

Earlier this month, The Trump administration sent an ultimatum to Columbia University, threatening to end a portion of its federal funding unless the school makes specific changes to student discipline standards and other university policies. The letter establishes the state’s clear motive to interfere in the inner workings of a nongovernmental organization based solely on political activity.

In more recent developments, Trump is demanding colleges deliver names and identities of protesters on college campuses or face funding cuts.

“All federal funding will STOP for any College, School or University that allows illegal protests,” Trump wrote on social media. “Agitators will be imprisoned/or permanently sent back to the country from which they came. American students will be permanently expelled or, depending on the crime, arrested. NO MASKS!”

Broader Implications for Activism and Democracy

The pressure on nonprofits to avoid supporting Palestine or criticizing Israel has broader implications for activism, democracy, and human rights. By silencing dissent, these efforts undermine the role of nonprofits as watchdogs and advocates for marginalized communities. They also raise questions about the limits of free speech in a democracy.

The threat of losing tax-exempt status has a chilling effect on many nonprofits, discouraging them from engaging in advocacy on controversial issues. This not only limits the scope of their work but also deprives the public of diverse perspectives on critical issues.

Take American Muslims for Palestine, a nonprofit advocating for Palestinian rights, which has been repeatedly targeted by pro-Israel groups. In 2017, during the first Trump administration, the Internal Revenue Service launched an investigation into AMP’s tax-exempt status following complaints from the Lawfare Project, a legal advocacy group that supports Israel. While AMP retained its status, the investigation drained resources and created a climate of fear.

But knowing [nonprofits] have worked with less in the past…signals that the sector’s leaders, workers, and activists are up to the challenge.

This dynamic is not limited to the United States. Nonprofits in Europe, Canada, and other regions have also faced backlash for their advocacy on the Israel-Palestine conflict. In the UK, for example, several charities have been investigated for alleged ties to Palestinian militant groups. In Germany, the government has banned demonstrations in support of Palestinian rights, citing concerns about anti-Semitism.

These developments highlight the global reach of the campaign to silence criticism of Israel and the challenges faced by nonprofits in navigating this complex landscape. And when there is silence, when illiberal regimes take control of the narratives and use it to coerce organizations, democracy weakens, and authoritarianism takes hold.

Navigating the Future

These challenges underscore the tension between advocacy and accountability in a democratic society. While tax-exempt status is a privilege that comes with certain restrictions, the weaponization of these restrictions to silence dissent threatens the very foundations of free speech and democracy.

Nonprofits continue to navigate this fraught landscape. But knowing they have worked with less in the past and have organized to emerge where they are now, signals that the sector’s leaders, workers, and activists are up to the challenge.

To navigate these challenges, organizations must clearly define their advocacy activities within IRS guidelines and meticulously document their compliance to mitigate vulnerabilities to politically motivated scrutiny. Nonprofit coalitions can enhance advocacy protections through collective defense strategies and transparent public education efforts.

Organizations should actively participate in shaping public discourse around legitimate advocacy, clearly distinguishing between anti-Semitism and legitimate critique of government policies and actions. Leveraging legal protections, such as First Amendment rights and judicial oversight, can serve as safeguards against unjustified governmental pressure.

The current environment poses significant threats to nonprofits’ freedoms and effectiveness, particularly for those advocating around contentious issues like the Israel-Palestine conflict. The intersection of governmental actions, lobbying influences, and legislative ambiguity demands vigilant, strategic responses from nonprofits determined to preserve their advocacy roles. Protecting these rights is not just about safeguarding nonprofits—it is crucial for maintaining democracy, free speech, and a genuinely pluralistic society.