Is the Tax-Exempt Status of Associations at Risk Based on Their Missions?

Associations are growing nervous because of recent comments by President Trump and others in the Administration suggesting the targeting of some organizations’ tax-exempt status based on their missions or activities.  As reported in an April 17, 2025 articl  (opens in a new tab)e  (opens in a new tab) in The Hill, for example, President Trump told reporters that some nonprofit organizations’ tax-exempt status could be removed.  The article quotes President Trump as stating that the tax-exemption of immigrant rights groups or environmental rights groups “could be” on the table.  He singled out by name a nonpartisan, nonprofit organization with 501(c)(3) status that advances ethics in government and that has been critical of President Trump.

President Trump’s remarks to reporters came in the same week that, according to a report  (opens in a new tab) by The Washington Post, the IRS’s acting general counsel received a request from the Treasury Department that the agency revoke Harvard University’s tax-exempt status, following Harvard’s public refusal of the Trump Administration’s demand that the university agree to oversight of its curriculum and faculty hiring, among other measures.  President Trump also posted on Truth Social that “Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting ‘Sickness?’ Remember, Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!”

The President and other executive branch officials are barred by statute  (opens in a new tab) from “request[ing], directly or indirectly” that the IRS audit or investigate any particular taxpayer; a White House spokesperson stated that IRS “investigations into any institution’s violations of its tax status were initiated prior to the president’s” post.  Others outside of the executive branch, however, may file complaints with the IRS about the tax-exempt status of organizations, as the American Alliance for Equal Rights (“AAER”) did on April 1, 2025, against the Gates Foundation and two other tax-exempt foundations.  AAER’s complaints alleged that the foundations have unlawfully excluded “white Americans” from benefits and opportunities based on their race and requested that the IRS open an investigation into the activities and tax-exempt status of the foundations.  Last year, AAER received a favorable ruling  (opens in a new tab) in its lawsuit against the Fearless Foundation, a nonprofit foundation that issued grants reserved for small businesses owned by Black women.  The U.S. Court of Appeals for the Eleventh Circuit held that AAER was likely to succeed in its claim that the grant contest violated the federal prohibition in 42 U.S.C. § 1981 against race discrimination in making and enforcement of contracts, even though the grants were designed to correct a manifest racial imbalance in access to capital for Black women-owned businesses.

In its complaints to the IRS, AAER cited the 1983 Supreme Court case, Bob Jones Univ. v. United States  (opens in a new tab).  In that case, the Court ruled that the IRS could revoke Bob Jones University’s 501(c)(3) tax-exempt status because the school’s prohibition against interracial dating violated “fundamental public policy” against discrimination, as expressed in Title VI of the Civil Rights Act of 1964.  The Court held that:

to warrant exemption under § 501(c)(3), an institution must fall within a category specified in that section and must demonstrably serve and be in harmony with the public interest.  The institution’s purpose must not be so at odds with the common community conscience as to undermine any public benefit that might otherwise be conferred. 

The Supreme Court cautioned, however, that “these sensitive determinations should be made only where there is no doubt that the organization’s activities violate fundamental public policy.”

The Trump Administration has taken the position in executive orders and in agency guidance that many diversity, equity, and inclusion (DEI) programs are “illegal” under Title VI and other antidiscrimination statutes and has sought to withhold federal funding related to DEI and to deter voluntary DEI programs.  This has resulted in multiple lawsuits contending that the targeting of DEI is unconstitutional and constitutes viewpoint discrimination in violation of the First Amendment.  Presumably, similar arguments could be mounted against efforts to revoke the tax-exemption status of associations, charities, or foundations based on messages or missions of those organizations that have long been regarded as lawful. 

In addition, before the IRS can revoke tax-exemption, the law requires that it provide ample notice and due process to the organization, during which period the organization would retain its tax-exemption.  A tax-exempt organization threatened with revocation can also proactively file a lawsuit in federal court to seek a declaratory judgment that it is qualified for its tax-exempt status; the IRS cannot revoke the organization’s tax-exemption while that proceeding is pending.

It remains to be seen whether and to what extent the Trump Administration will expand its targeting of tax-exempt status beyond Harvard. Based on reported statements to date, any such tactics are likely to be focused on 501(c)(3) organizations, rather than on 501(c)(6) trade associations and professional societies.  Nonetheless, associations concerned about legal liability relating from maintaining their commitment to DEI or other value-based missions or, conversely, retreating from those commitments may wish consult with legal counsel about risk management measures, including reviewing insurance policies  (opens in a new tab).