A new bipartisan bill aims to ensure tax-exempt status does not equate to a federal government grant or subsidy. Proponents say the statutory clarification is needed to ensure all organizations are not subject to obligations intended only for those that accept federal funds.
The Safeguarding America’s Nonprofits Act, H.R. 10148, would add a new provision to IRC § 501 to clarify that an organization’s exemption from tax does not constitute “federal financial assistance.”
Representatives Greg Steube (R-FL) and Suzan DelBene (D-WA) are heading up the bill. “When the tax code was written, Congress intended for a clear distinction between nonprofits that do and do not accept government assistance,” Steube explained in a press release. The bill sponsors say tax-exempt organizations in the latter category should not be subjected to “compliance burdens” intended for organizations that accept federal subsidies.
‘Burdens’ for organizations that receive federal financial assistance
Lloyd Hitoshi Mayer, a Notre Dame Law School professor, unpacked those compliance burdens in a recent article. The term “federal financial assistance” is used in a number of anti-discrimination statutes, including Title VI and Title IX, Mayer explains.
And in 2022, a Maryland federal district court found that a school’s § 501(c)(3) status constituted federal financial assistance for purposes of Title IX. (Buettner-Hartsoe v. Baltimore Lutheran High School Association, 2022 WL 2869041) While the 4th U.S. Circuit Court of Appeals ultimately rejected that conclusion, Mayer said the district court ruling is more notable when viewed in a broader context.
Specifically, a California federal district court agreed that tax-exempt status constitutes federal financial assistance in a separate 2022 case. (E.H. v. Valley Christian Academy, 616 F. Supp. 3d 1040). And the Education Department declined to clarify whether federal financial assistance includes tax benefits when it revised Title IX regulations two years later, Mayer notes.
Then, shortly after President Trump took office in 2025, his administration issued a memorandum ordering agencies to review all federal financial assistance they provide and temporarily pause assistance “implicated by the executive orders” on “financial assistance for foreign aid, nongovernmental organizations, DEI, woke gender ideology, and the green new deal.”
Why the bipartisan support?
“It is not surprising that the bill enjoys bipartisan support,” Mayer told Checkpoint. “If tax exemption is considered federal financial assistance, that affects tax-exempt organizations across the political spectrum.”
He explained that a tax-exempt school could face a sex discrimination suit under Title IX related to gender-based dress code provisions or rules on sports participation. But schools could, likewise, face challenges under Title VI for race discrimination if they engage in affirmative action or have diversity, equity, and inclusion programs.
A recently proposed rule to end tax-exempt status for private schools that base their admissions and scholarship decisions on race, color, or national or ethnic origin solidifies that concern.
“There have been recent examples of both types of lawsuits that relied on tax exemption as a federal financial assistance,” said Mayer.
Burdens on tax-exempt organizations “cut both ways,” Holland & Knight attorney Christopher Armstrong told Checkpoint. “There are lots of great organizations that are right of center, but there are lots of great organizations that are left of center,” he explained. When burdens are placed on the tax-exempt sector, “it’s not politically obvious who that helps and who it hurts,” Armstrong added.
Almost a resolution
Mayer said that despite the recent cases, the majority of courts that have considered the matter have found that 501(c)(3) status does not constitute federal financial assistance for purposes of federal anti-discrimination statutes. And he said that there are “strong arguments” to support that conclusion.
But Steube and DelBene’s bill would “definitively resolve” the matter, he added.
He did, however, offer one caveat: The bill does not address whether receiving tax-deductible charitable contributions constitutes federal financial assistance.
“To fully resolve this issue, the legislation should be expanded to also state that the ability to receive charitable contributions that are deductible for income, gift, or estate tax purposes also is not federal financial assistance,” said Mayer.
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