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Washington D.C. – As September, universally recognized as Better Breakfast Month, draws to a close, the analogy of starting the day on an empty stomach rings particularly true for the nation’s charitable sector and the legislative bodies that shape its operating environment. Just as an individual struggles to function effectively without proper nourishment, Congress recently returned from its August recess facing a critical government funding deadline, much like a day already behind schedule. With the looming specter of a shutdown by September 30, and a Senate yet to pass a single full-year appropriations bill, the charitable sector had spent the summer watching the clock tick with increasing anxiety.
The good news, a temporary reprieve in the form of a continuing resolution (CR), has offered some much-needed breathing room, pushing the immediate funding deadline to December 11. However, this temporary measure is merely a stopgap, not a comprehensive solution. As independent Sector emphasizes, "breathing room is not a meal plan." This period of extended uncertainty highlights a complex and challenging policy landscape for nonprofits, encompassing everything from federal funding and regulatory overhauls to critical issues of due process and civic engagement. This month, we delve into the pressing matters on the legislative and regulatory table, exploring what the sector must champion to ensure its vital work doesn’t get overlooked or undermined.
The December 11 Deadline: A Temporary Reprieve Amidst Looming Battles
Main Facts:
Congress successfully passed a continuing resolution (H.R. 6500) to avert a government shutdown, extending funding at current levels until December 11. Crucially for the nonprofit community, this bill also delays the implementation of the Office of Management and Budget’s (OMB) controversial proposed rule, which sought to overhaul the federal grantmaking system, until at least the same December date.
Chronology:
The original government funding deadline of September 30 loomed large following Congress’s return from August recess. On the cusp of a potential shutdown, the continuing resolution (H.R. 6500) was passed with significant bipartisan support: 370-48 in the House and an overwhelming 90-6 in the Senate. This action effectively shifted the immediate crisis to a new deadline of December 11. This delay also impacted the OMB’s proposed changes to federal grantmaking, which were set to take effect sooner.
Supporting Data:
The bipartisan support for the CR underscores the broad desire to avoid government disruption, even if only temporarily. The OMB proposed rule, which aims to revise the federal Uniform Guidance for grants, previously garnered nearly 500,000 public comments, an extraordinary volume reflecting widespread opposition and concern from across the nonprofit and public sectors. This immense public feedback highlighted the potential for significant negative impacts on organizations reliant on federal funding.
Official Responses:
For nonprofits, the passage of the CR represented a "double win," as characterized by Independent Sector. It not only kept essential government services running, preventing immediate disruption to programs and funding streams, but also provided additional time to engage with policymakers. This extension offers a crucial window to address the most "harmful provisions" of the OMB rule, allowing for continued advocacy and negotiation to safeguard the operational capacity of federal grantees. While the CR staved off an immediate crisis, the underlying budgetary tensions remain, with Senate Democrats already labeling President Trump’s FY2027 budget request – which includes a staggering $1.5 trillion in total defense resources, a 44% increase over FY2026 – as a "nonstarter."
Implications:
The December 11 deadline is not a resolution but rather a "reset." While it provides temporary stability, it merely postpones the inevitable, highly contentious negotiations over full-year appropriations. Only three of the twelve Fiscal Year 2027 appropriations bills have passed the House floor, and though all twelve have cleared committee, the Senate has yet to act on any full-year measure. This sets the stage for a high-stakes, bipartisan negotiation during the "lame-duck" period following November’s midterm elections.
The core of the appropriations battle revolves around the significant proposed increase in defense spending. To offset such a substantial boost, deeper cuts to non-defense discretionary spending would be required. These non-defense funds are the lifeblood for countless social services, educational programs, scientific research, and community development initiatives that nonprofits deliver. Any significant reduction here would place immense pressure on the programs and grants that communities nationwide depend on, potentially leading to service reductions, job losses within the sector, and increased strain on vulnerable populations.
Beyond the immediate budget fight, the delay of the OMB proposed rule on federal grantmaking offers a critical opportunity. The initial proposals were widely criticized for potentially increasing administrative burdens, restricting the use of federal funds for vital nonpartisan activities like voter engagement, and reducing flexibility for grantees in adapting programs to local needs. The additional time allows Independent Sector and other advocacy groups to continue working with policymakers to mitigate these detrimental effects, ensuring that federal grantmaking systems support, rather than hinder, the effective delivery of public services by the nonprofit sector. The coming weeks will be crucial for shaping a final deal that recognizes the indispensable role of the charitable community.
IRS Proposed Stripping Tax-Exempt Status from Private Schools Over Race: A Chilling Precedent?
Main Facts:
The Treasury Department and the IRS released a proposed rule, "Racial Nondiscrimination in Private Schools," on September 3, 2026. This rule seeks to deny or revoke 501(c)(3) tax-exempt status from any private educational institution that considers race, color, or national or ethnic origin in any school program or policy, for any purpose, including remedial or diversity objectives.
Chronology:
The proposed rule was officially published on September 3, 2026, triggering a public comment period that remains open until November 3, 2026. If finalized, the rule would become effective for taxable years beginning after May 31, 2027, giving affected institutions some time to adjust, though the implications of the proposal are immediate.
Supporting Data:
The proposed regulation is far-reaching, encompassing a wide array of school programs and policies, including admissions, scholarships, financial aid, athletics, and all other school-administered initiatives. It would apply to private elementary and secondary schools, colleges, universities, and professional and trade schools. Treasury and the IRS estimate that this rule could impact a significant portion of the private education landscape, affecting up to 18,000 private schools and approximately 750,000 students across the country. For decades, the IRS had recognized that affirmative action programs, specifically designed to address historic discrimination, were consistent with public policy and did not jeopardize tax-exempt status. This proposed rule marks a dramatic departure from that established understanding.
Official Responses:
The Treasury and IRS justify this expansive rule by invoking the "public policy doctrine," a long-standing legal principle that mandates tax-exempt organizations operate in alignment with fundamental public policy. However, critics argue that the rule significantly expands the nondiscrimination standard far beyond what prior IRS guidance has required, effectively eliminating the previous exception for affirmative action programs.
Dr. Akilah Watkins, President and CEO of Independent Sector, articulated a broader concern: "a rule that empowers the IRS to strip tax-exempt status based on how an organization defines its charitable mission sets a dangerous precedent that any future administration could use to target politically disfavored causes." This statement highlights fears that the rule’s scope could extend beyond education, potentially weaponizing the IRS’s power against a wide range of nonprofits.
Implications:
The immediate implications for private educational institutions are profound. Should the rule be finalized, schools that currently incorporate race, color, or national or ethnic origin into their policies for diversity, equity, or remedial purposes would be forced to choose between maintaining their tax-exempt status and pursuing their mission-driven objectives related to inclusivity and addressing historical disparities. This could lead to a significant chilling effect on diversity initiatives within private education, potentially reversing years of progress in fostering representative student bodies and equitable learning environments.
Beyond the educational sphere, the proposed rule raises serious questions about the future of the public policy doctrine and its application to the entire charitable sector. If the IRS can unilaterally redefine what constitutes "fundamental public policy" in such an expansive way, it could open the door for future administrations to target other types of nonprofits whose missions or activities are deemed politically unfavorable. Organizations engaged in advocacy for marginalized communities, environmental justice, or other politically charged issues could find their tax-exempt status under threat. This could stifle innovation, advocacy, and the ability of nonprofits to address complex societal challenges.
The comment period, closing November 3, 2026, represents a critical opportunity for the charitable sector and concerned citizens to voice their opposition and highlight the potential negative consequences of this far-reaching proposal. The precedent set by this rule could fundamentally alter the relationship between the IRS and tax-exempt organizations, with long-lasting impacts on charitable freedom and the diversity of public good initiatives.
A Win for Nonprofit Due Process, More Work Needed
Main Facts:
The Senate Finance Committee took a significant step by advancing the Taxpayer Assistance and Service Act (TASA) with a bipartisan amendment from Senators James Lankford (R-OK) and Raphael Warnock (D-GA). This amendment, strongly supported by Independent Sector, aims to strengthen due process protections for nonprofit organizations facing IRS action on their tax-exempt status. Concurrently, Representatives Lloyd Doggett (D-TX) and Terri Sewell (D-AL) introduced the Protecting the Rights of Organizations Fairly (PROOF) Act in the House, further reinforcing the call for codified due process.
Chronology:
This month, the Senate Finance Committee voted 26-1 to advance the TASA bill, including the Lankford-Warnock amendment, which was incorporated without objection. This broad consensus signals strong bipartisan support for enhanced taxpayer protections. On September 3, the PROOF Act was introduced in the House, demonstrating a parallel legislative effort to enshrine these protections.
Supporting Data:
The overwhelming 26-1 vote in the Senate Finance Committee for TASA, coupled with the unanimous adoption of the Lankford-Warnock amendment, underscores a rare bipartisan agreement on the need for stronger taxpayer rights. This consensus highlights a recognition on both sides of the aisle that clarity and fairness in IRS procedures are essential for the proper functioning of the charitable sector.
Official Responses:
The Lankford-Warnock amendment achieves two crucial objectives. First, it explicitly adds "determinations of tax-exempt status" to the list of situations where taxpayers have a right to appeal to the IRS Independent Office of Appeals. This covers both revocations of existing status and denials of initial applications, providing a vital safeguard against arbitrary decisions. Second, it codifies the requirement for the IRS to notify nonprofit organizations of their right to appeal, transforming what was previously an administrative courtesy into a legal obligation.
Dr. Akilah Watkins, President and CEO of Independent Sector, emphasized the importance of these developments, stating, "For nonprofit organizations, tax-exempt status is a privilege and a responsibility. The bipartisan Taxpayer Assistance and Service Act is an important step towards safeguarding fair and impartial due process for every American, including the millions of nonprofit organizations entrusted with tax-exempt status." The broader TASA bill also strengthens the IRS Independent Office of Appeals by granting it direct hiring authority for its own attorneys and requiring it to consider all hazards of litigation when resolving cases, further enhancing its independence and effectiveness.
Implications:
These legislative efforts represent a significant stride forward for the charitable sector. Historically, nonprofits facing IRS scrutiny regarding their tax-exempt status have sometimes encountered opaque processes or limited avenues for appeal. The Lankford-Warnock amendment provides a clear, legally mandated pathway for recourse, ensuring that organizations have a fair chance to present their case before an independent body. This reduces the risk of incorrect or politically motivated IRS actions and fosters greater trust in the regulatory system.
The PROOF Act, introduced in the House, complements these efforts by specifically writing due process protections directly into the tax code for audits of existing nonprofit organizations. Together, these initiatives signal a growing and bipartisan recognition that the nonprofit sector requires clearer, codified protections to operate effectively and confidently. Without robust due process, nonprofits, particularly smaller organizations with limited legal resources, can be vulnerable to protracted and costly disputes that divert resources away from their core missions. By strengthening these protections, Congress is helping to ensure that the "privilege and responsibility" of tax-exempt status is upheld with fairness and impartiality, allowing nonprofits to focus on serving their communities without undue fear of arbitrary regulatory action. While this is a substantial win, the phrase "more work needed" suggests continued vigilance will be necessary to ensure these protections are fully implemented and effectively enforced.
National Voter Registration Day: The Sector Shows Up
Main Facts:
National Voter Registration Day, held on September 15, witnessed an extraordinary turnout and collaborative effort, with over 2,000 community partner organizations and 140 premier partners, including Independent Sector, mobilizing across all 50 states to facilitate voter participation.
Chronology:
September 15 marked the annual National Voter Registration Day, a crucial event in the lead-up to the midterm elections, which are now just weeks away. The day saw thousands of events powered by a vast network of organizations, reflecting a concentrated push to engage eligible citizens. The official voter registration total from the day is still being finalized and is expected to be released shortly.
Supporting Data:
The scale of the effort was immense, with more than 3,500 events held nationwide. These events were hosted by a diverse array of organizations, from local libraries and food pantries to national nonprofits and campus groups. This broad participation highlights the charitable sector’s unique capacity to reach eligible Americans in their everyday lives – where they live, work, learn, and gather – to help them register, update their information, and prepare for the upcoming elections. The urgency of this work is underscored by the statistic that nearly one in four eligible Americans remains unregistered to vote, emphasizing the critical role of nonpartisan voter engagement.
Official Responses:
While there are no direct official government responses in this section, the charitable sector’s robust participation on National Voter Registration Day serves as a powerful collective statement. It demonstrates the sector’s unwavering commitment to making democracy accessible and ensuring that all eligible voices can be heard. This collective action is a testament to the belief that nonpartisan voter registration is not just a civic good but a fundamental component of a healthy democracy.
Implications:
The timing and success of National Voter Registration Day could not be more meaningful. With midterms rapidly approaching, the nonpartisan voter registration work performed by nonprofits is more important than ever. These organizations fill a crucial gap, often reaching individuals who might otherwise be overlooked by traditional political campaigns or government outreach efforts. By simplifying the registration process and providing accessible information, nonprofits empower citizens and strengthen democratic participation.
However, this vital work faces a significant threat. As reported throughout the year, the OMB proposed rule on federal grantmaking, currently under review and delayed until December 11, includes provisions that would specifically restrict the use of federal grant dollars for nonpartisan voter engagement activities. This potential restriction is a serious concern. Many nonprofits that receive federal funding also engage in nonpartisan civic engagement as part of their broader mission to serve communities. If these activities are deemed ineligible for federal support, it could severely curtail their ability to conduct voter registration drives, educate communities about the electoral process, and promote civic participation.
Such a restriction would not only undermine the efforts of organizations committed to democratic health but also create an environment where access to the ballot box could become more challenging for marginalized communities. The sector’s ability to undertake this essential work is not just a civic good; it is, as Independent Sector stresses, "something we must actively defend." The strong showing on National Voter Registration Day underscores the sector’s resolve to continue this critical work, even in the face of potential regulatory headwinds.
Form 990 Is Getting Its Biggest Makeover in Nearly 2 Decades
Main Facts:
On April 23, 2026, the U.S. Department of the Treasury announced that the IRS intends to revise Form 990, the annual information return filed by most tax-exempt organizations. This revision represents what could be the most significant overhaul of nonprofit reporting requirements since 2008.
Chronology:
The intention to revise Form 990 was announced on April 23, 2026. While the Treasury and IRS are expected to publish formal proposed regulations and open a public comment period before any changes take effect, "no specific timeline has been announced" for these crucial next steps. This leaves the sector awaiting further details while understanding the direction of travel.
Supporting Data:
The impending revisions mark the most substantial changes to Form 990 in nearly two decades, signaling a comprehensive reevaluation of how nonprofits report their financial and programmatic activities. The Treasury’s stated focus is on achieving "greater transparency and stronger oversight," particularly concerning the disclosure of government grants and contracts and fiscal sponsorship arrangements. These areas have been explicitly identified as "higher-risk areas for misuse of funds and reduced public accountability."
Official Responses:
The Treasury’s public statements frame the initiative as a move towards enhanced transparency and accountability. By focusing on areas like government grants and fiscal sponsorships, the IRS aims to mitigate perceived risks of fund misuse and ensure public confidence in the charitable sector. However, the lack of a specific timeline for proposed regulations means the sector must anticipate changes without precise details, fostering a degree of uncertainty.
Implications:
While framed as a transparency initiative, the announcement signals a broader and potentially concerning shift: Form 990 is increasingly viewed not solely as an informational return but as a powerful tool for enforcement and public oversight. This reorientation raises significant questions about how expanded disclosure requirements could be utilized – and potentially weaponized – against certain segments of the nonprofit community.
When combined with the current administration’s broader posture toward organizations engaged in diversity, equity, and inclusion (DEI) initiatives, immigration advocacy, and public policy work, these changes could have a chilling effect. Nonprofits operating in these politically sensitive areas might find themselves subject to heightened scrutiny, with new reporting requirements potentially exposing detailed operational data that could be misinterpreted or used to target their activities. For example, expanded disclosure on government grants could inadvertently reveal sensitive information about beneficiaries or programs, while more detailed reporting on fiscal sponsorships could add significant administrative burdens to arrangements designed to support smaller, emerging charitable efforts.
The implications for compliance and administrative burden are also substantial. Nonprofits, particularly smaller organizations with limited administrative staff, may struggle to adapt to complex new reporting requirements. This could divert precious resources from their programmatic work into compliance efforts, potentially hindering their ability to deliver services. Furthermore, the increased focus on "higher-risk areas" could lead to disproportionate scrutiny of organizations engaged in critical social justice work, simply because their activities involve government funding or innovative collaborative models like fiscal sponsorship.
Independent Sector will be closely monitoring the rulemaking process and will alert members when a public comment period opens. In the interim, nonprofits that receive government grants, manage fiscal sponsorship arrangements, or operate in areas of heightened federal scrutiny are strongly advised to proactively review their governance and documentation practices. This includes ensuring meticulous record-keeping, robust internal controls, and clear policies for financial management and program delivery. Proactive preparation now can help mitigate potential compliance challenges once the proposed rules are formally introduced.
Don’t Miss the Policy Professionals Advocacy Intensive at ISNS 2026
Main Facts:
Independent Sector’s National Summit 2026 is rapidly approaching, and a key pre-summit opportunity for government relations, policy, and advocacy professionals is the Policy Professionals Advocacy Intensive (PPAI).
Chronology:
The PPAI is scheduled for Tuesday, October 13, from 9:00 AM to 4:00 PM MT, the day before the full ISNS 2026 summit officially kicks off. The full summit will take place in Phoenix, providing a dedicated space for sector leaders to converge.
Supporting Data:
The PPAI is specifically designed for "experienced advocates and government relations professionals" who seek a deeper engagement than typical conference sessions. This focused approach allows for an in-depth exploration of complex policy issues and strategic planning.
Implications:
In an era defined by legislative uncertainty, evolving regulatory landscapes, and the increasing politicization of charitable work, the PPAI offers a vital forum for policy professionals. It creates a dedicated space to reflect on the sector’s navigation of today’s challenging policy environment, allowing participants to share "hard-won lessons" gleaned from the past two years of federal policy activity.
The intensive aims to equip attendees with "strategic approaches to building sector resilience going forward." This includes exploring emerging themes such as the rapidly developing field of AI policy, which will undoubtedly impact how nonprofits operate and advocate; workforce policy solutions, crucial for sustaining the sector’s human capital; and a comprehensive analysis of what recent federal policy activity signifies for the road ahead. Given the complex issues discussed throughout this article – from federal funding battles and grant rule changes to IRS oversight and voter engagement threats – the PPAI serves as an indispensable resource. It provides a platform for advocates to collaboratively strategize, refine their approaches, and ensure the nonprofit sector remains a powerful, resilient force in shaping public policy. For those registered for ISNS 2026, adding PPAI to their agenda is highly recommended, and it is free for Independent Sector nonprofit members.
Conclusion: Sustaining the Sector’s Vitality Amidst Policy Headwinds
The landscape for the charitable sector is undeniably complex, marked by both critical challenges and crucial opportunities for advocacy. From the temporary reprieve of the December 11 funding deadline and the ongoing battle over federal appropriations to the far-reaching implications of the proposed IRS rule on private schools and the significant overhaul of Form 990, nonprofits are operating in a dynamic and often uncertain environment.
Yet, amidst these headwinds, there are also significant victories, such as the bipartisan progress on strengthening due process protections for nonprofits, a testament to the sector’s effective advocacy. The robust participation in National Voter Registration Day further underscores the unwavering commitment of nonprofits to civic engagement and democratic health, even as these activities face potential regulatory restrictions.
As Independent Sector and its members continue to monitor legislative developments and regulatory changes, the call to action remains clear: active engagement, informed advocacy, and collective resilience are paramount. Just as a good breakfast fuels a productive day, sustained attention to these policy matters will nourish the charitable sector, enabling it to continue its essential work of strengthening communities and advancing the public good, regardless of the political climate. The coming months will demand vigilance and collaboration to ensure that the sector’s voice is heard and its vital contributions are protected.
Travis Swanson is the Government Relations Manager at Independent Sector
Reynand Wu
Raul Delapena Setiawan
