The nonprofit community has been busy with a variety of threats to nonprofits around the country, including universities, environmental organizations, and large credit unions. We’ve seen a lawsuit filed by Harvard, the president threatening to crack down on tax exempt status, and even the bank lobby getting involved. Plus, an update on IRS processing times. Let’s dive in!
Credit Unions Under Scrutiny
Congress is actively debating tax reforms that could significantly impact credit unions, particularly those with assets exceeding $1 billion. In case you’re new to credit unions, they are generally exempt from income taxes, unlike other banks, under the Federal Credit Union Act of 1934. Depending on the state, many credit unions find their exemption under 501(c)(14) of the Internal Revenue Code.
The Independent Community Bankers of America (ICBA), a trade association for banks, is leading the charge to eliminate federal tax exemptions for larger credit unions, arguing that they operate like normal banks and that taxing them like one would ensure fair competition among smaller banks.
The competing view pushed by credit union associations and other nonprofit advocates, like America’s Credit Unions, emphasize the nonprofit status and community-focused mission of these credit unions, warning that taxing them could harm members by reducing benefits like lower loan rates and higher savings yields. Of course, it’s precisely this ability to offer consumer friendly products that the ICBA claims makes tax exemption an unfair competitive advantage.
The debate is part of broader discussions on tax reforms, including the expiration of provisions in the Tax Cuts and Jobs Act this year. Congress is still very early in this process and it’s hard to say whether there is any wind in those sails, as the House Ways and Means Committee is now in the process of reviewing the proposal.
Harvard vs. Trump Administration
Harvard University has filed a lawsuit against the Trump administration following a freeze on $2.2 billion in federal research funding. The administration accused Harvard of failing to address antisemitism on campus and issued a list of demands, including changes to hiring and admissions practices and the elimination of diversity, equity, and inclusion programs.
While Harvard isn’t the only university in the crosshairs, Harvard is the most prominent university that has publicly refused to comply with the president’s policy, arguing that the government’s demands are unconstitutional and should be seen as an attack on academic independence. Through a series of public comments, Trump has been escalating pressure on Harvard, and nonprofits generally, in the public eye, including threats to revoke the university’s tax-exempt status.
For now, Harvard’s case to lift the freeze is in the hands of a federal court. While using federal funds to influence educational institutions is not new, this lawsuit has potentially far-reaching implications for universities accepting federal dollars.
Environmental Nonprofits on Edge, Briefly
It’s hard to pin down where the rumors originated, but indeed rumors of an executive order targeting environmental nonprofits sparked concern among advocacy groups and nonprofit practitioners alike. Although there was no order issued, many people speculated who might be on the chopping block after the President’s comments suggested that tax-exempt status is a “privilege” that could be scrutinized.
For what it’s worth, many analysts were quick to point out that executive orders likely would not be able to unilaterally revoke tax-exempt status, as this authority lies with Congress. Furthermore, the president cannot legally instruct the IRS to investigate specific organizations. However, an executive order could direct the IRS to prioritize enforcement actions against certain organizations, potentially creating challenges for environmental nonprofits.
Ultimately, the White House did clarify that the president was not considering or drafting an order targeting environmental groups… although, anything is subject to change in recent months. These rumors show the high level of anxiety within the nonprofit sector about the executive’s current policy objectives.
Processing Times for New Exemption Applications
Recent experiences show that the timing for exemption and reinstatement of tax-exempt status applications is inconsistent, ranging from a couple of months to half a year. Of course, the type of exemption application matters, but even considering applications for public charity status, some practitioners report faster approvals under the current administration, while others find the process slower. Even expedited applications are acknowledged quickly, but determination letters arrive at the same pace as non-expedited ones. The speed likely depends on the IRS examiner handling the application, which practitioners cannot control.
