Why the Threats Against Nonprofit Tax Status Are Unprecedented

Updated: 3/145/25

Correction: A previous version of this article incorrectly stated that HR 9495 had stalled in the Senate; the bill expired in the Senate last year.  

In recent months, nonprofit organizations, particularly those that have been outspoken about the ongoing genocide in Palestine, have become a target of the Donald Trump administration. This includes groups like American Muslims for Palestine, which has repeatedly been targeted by pro-Israel groups in the past. But, more recently, bipartisan legislation like HR 9495 has sought to broaden intimidation efforts against nonprofits.

Update: A provision in recent GOP-led tax legislation contains language similar to HR 9495, empowering the US Treasury Secretary to strip nonprofits of their status if deemed to be “terrorism supporting organizations.”  

While the bill died in the Senate last year, HR 9495 would have allowed the US Department of the Treasury to revoke the tax-exempt status of any nonprofit it considers to support terrorism, even if this “support” is not intentional or connected to actual violence, according to the American Civil Liberties Union.

“There’s more philanthropic funding of these organizations, there’s more public funding—at least until recently—so the number of [nonprofit] organizations has risen steadily, particularly in the last 40 to 50 years.”

Trump recently repeated his threats of removing Harvard University’s tax-exempt status for refusing to comply with his demands, which include discontinuing all diversity, equity, and inclusion (DEI) programs, offices, committees, and positions. In a letter to the university, Education Secretary Linda McMahon also echoed accusations of anti-Semitism by criticizing Harvard’s invitation to “foreign students who engage in violent behavior and show contempt for the United States.” So far, the federal government has frozen over $2.2 billion in federal grants and contracts for the university and was told by McMahon to no longer seek grants from the federal government.

Whether Trump has the legal authority to make such a threat is debatable, but the university has committed to litigate the matter in court. In a show of solidarity, dozens of faculty members at Harvard have agreed to contribute 10 percent of their salaries for up to a year to aid the institution in the legal fight against the executive.

How Did We Get Here?

As litigation ensues and nonprofit groups continue to face threats against their tax-exempt status, it is worth looking back into historical tax-exempt policies in the United States.

In 1954, Congress enacted the Johnson Amendment to codify the current version of the 501c3 tax code, which exempts organizations from corporate income taxes and also makes donations to these organizations tax-deductible. In return for this tax-exempt status, nonprofits are not allowed to conduct any type of partisan political activities.

Named after then-Senator Lyndon B. Johnson (D-TX), the amendment was introduced at when he was running for reelection. His Republican opponent was millionaire cattle rancher and oilman, Dudley T. Dougherty, who was endorsed by a conservative nonprofit group that was producing ads calling for Johnson’s defeat. In response, Johnson proposed an amendment to the federal tax code to prohibit nonprofit organizations from involvement in partisan politics and tie this requirement to their tax-exempt status. At the time, the amendment was uncontroversial and became law on August 16, 1954.

Initially, 501c3 organizations were a relatively small category, made up mostly of universities and social service agencies. Since the 1960s, however, the number of 501c3 organizations has increased substantially. A 2006 report by Bridgewater State University found that “the number of new nonprofits per year was about 20,000 in the late 1960s and thirty years later, in the 1990s, there were almost 50,000 new nonprofits created each year”. A separate report released last year by Philanthropy Roundtable found that “since 2000, the number of nonprofit organizations in the U.S. has grown by 36 percent.”

“There’s more philanthropic funding of these organizations, there’s more public funding—at least until recently—so the number of these organizations has risen steadily, particularly in the last 40 to 50 years,” said Stephen Smith, former executive director of the American Political Science Association, in an interview with NPQ.

Smith, who spent much of his career researching and writing about the nonprofit sector, noted that Harvard is not the first university at risk of losing its 501c3 status, citing Bob Jones University, a private fundamentalist Christian university in Greenville, SC. In 1983, following many years of litigation, the university had its tax-exempt status revoked by the Supreme Court because of its prohibition of interracial dating and marriage among students.

The university’s tax-exempt status was restored in 2017, after it changed its policies.

During the early years of the Ronald Reagan administration, those in the nonprofit sector were concerned about the loss of federal funding, but they did not also have to worry about attacks on their tax-exempt status.

Trump is also not the first US president to threaten to revoke a group’s tax-exempt status. Former President Richard Nixon weaponized the IRS to audit those on his “enemies list.”

What is unprecedented during this administration is the multiple threats targeting nonprofits simultaneously.

Smith noted, for instance, that during the early years of the Ronald Reagan administration, those in the nonprofit sector were concerned about the loss of federal funding, but they did not also have to worry about attacks on their tax-exempt status.

Ironically, just over 30 years after Bob Jones University’s case, Trump’s threats to revoke Harvard’s tax-exempt status are based on, among other things, Harvard maintaining its DEI policies, created to undo past harms of racial discrimination and marginalization.

As organizations fight to defend these types of policies, they are doing it in a climate where federal resources and funding are being revoked across the board, causing fear and anxiety for those within the sector.

“I don’t think there’s been any other precedent for what’s going on today,” Smith said.