By Erin Schilling
February 3, 2025
Bloomberg Tax
Nonprofits are beginning to coordinate across the sector to convince US lawmakers that their groups are worth the price of their tax-exempt status.
Congress is hunting for revenue to offset the trillions of dollars it’s estimated to cost to extend the GOP’s 2017 tax law, which has many provisions expiring at year’s end. House
Republicans circulated a lengthy list of options this month—including eliminating nonprofit status of hospitals, expanding the endowment tax on private universities, and making scholarship and fellowship income taxable.
The suggestions come amid growing lawmaker oversight of hospitals, universities, and foreign nonprofits. That attention and need for revenue has made the possibility of new taxes in the not-for-profit sector an urgent threat, prompting new groups to form and increased efforts to fight it.
“This is the first time really in more than 50 years that associations have faced such a fight,” said Jarrod Clabaugh, a steering committee member of the new Community Impact Coalition and president of the Ohio Society of Association Professionals. “We’re very nervous about our tax-exempt status.”
Forming Defenses
The American Society of Association Executives in January formed the Community Impact Coalition with about 60 other associations and charities to lobby members of Congress about how ending nonprofit tax benefits could hurt communities. Members include the
American Heart Association and the American Institute of Certified Public Accountants.
The coalition intends to meet with lawmakers and staff on the Hill and in their districts, as well as with House and Senate tax writers. The goal is to represent the entire tax-exempt sector —from smaller associations and charities up to the behemoth hospitals and universities—in part because of a fear that once one type of nonprofit is targeted, it opens the door to taxing others, Clabaugh said.
Other groups are also forming across the sector, said Andrew Grumet, a Holland & Knight partner who advises nonprofits. © 2025 BGOV LLC All Rights Reserved Page 1 of 3
But the efforts are still in their early days. Nonprofits are coming from the holidays—their busiest giving season—and have had to contend with sweeping executive orders to freeze federal funding, which left groups scrambling to figure out how they might be affected. It’s also difficult for nonprofits to choose to lobby on behalf of tax reform rather than focus on their individual missions.
The tax-exempt sector faced a few surprising new taxes in the 2017 law, including an endowment tax for some universities, said Ruth Madrigal, KPMG principal who previously served in the Treasury Department Office of Tax Policy. Up until that point, nonprofits mostly faced excise taxes meant to serve as penalties for certain operations.
“This time around, the sector understands they may be targets,” Madrigal said. “Not necessarily targets because they’ve done anything wrong, but targets because they aren’t well-positioned to defend their interests.”
A Moving Target
House Republican proposals are a good starting point to see where lawmakers might be headed, Clabaugh said.
Sara Barba, a principal who specializes in tax policy lobbying at Integer LLC,said she was concerned to see the elimination of a deduction for health organizations on the GOP’s recent policy list; removing deductions for specific types of charities creates a hierarchy of which nonprofits Congress prefers.
“Nonprofits have been under so much scrutiny, largely from the House Ways and Means Committee in the past two years, that they’re going into this tax reform negotiation at a disadvantage from past years,“ Barba said.
For example, House Republicans held a series of hearings on antisemitism on college campuses, questioning the funding from some tax-exempt entities. The House passed a bill last November that would terminate the tax-exempt status of terrorist-supporting organizations. Nonprofit trade groups, such as the National Council of Nonprofits and the United Philanthropy Forum, said they oppose the bill and are worried it gives Treasury too much power to decide which nonprofits qualify.
Democrats are also concerned about the cost of higher education. And lawmakers from both sides of the aisle made another call last fall for the IRS to heighten its oversight of tax-exempt hospitals.
A Path Forward
Republicans are trying to figure out how to extend the 2017 tax law. The party has gone back and forth for weeks about whether to pass one broad tax and policy package or two separate bills. They’ll likely use budget reconciliation, a process that allows legislation to pass with a simple majority.
Tax writers and nonprofits’ individual representatives are a good starting point for lobbying efforts. The sector is also eyeing who will be the new power players in this Congress, Grumet said.
Ken Kies, President Donald Trump’s pick for the Treasury Department’s top tax adviser, will help shepherd the next tax bill. He has experience advocating for nonprofits, including community foundations and associations.
“It’s always nice to have somebody who understands the nonprofit sector in those roles, and not everyone does,” Barba said. “I’m optimistic.”
