Exempt organizations are operating in an increasingly complex and sensitive regulatory environment. Recent executive actions focused on countering domestic terrorism and political violence have expanded the enforcement landscape for nonprofits and their funders. While these initiatives are aimed at protecting public safety, they also introduce new compliance risks for tax-exempt organizations—particularly around funding, partnerships, and communications.
Understanding these developments and proactively managing risk is essential for safeguarding an organization’s tax-exempt status, reputation, and operational stability.
Executive Actions Affecting Exempt Organizations
In September 2025, the President issued a Presidential Memoranda on Countering Domestic Terrorism and Organized Political Violence, along with a companion fact sheet outlining a coordinated federal enforcement strategy.
IRS Commissioner Directives
Under the memoranda, the IRS Commissioner is directed to:
- Ensure that no tax-exempt organizations directly or indirectly finance political violence or domestic terrorism
- Refer organizations, officers, and employees to the Department of Justice when appropriate for investigation or prosecution
This directive expands the compliance exposure of exempt organizations beyond traditional tax and reporting concerns into broader law-enforcement scrutiny.
Expanded Role of Federal Law Enforcement
The memoranda also place new responsibilities on other federal agencies:
- The Attorney General is instructed to recommend groups or entities whose members meet the criteria of a domestic terrorist organization.
- The Attorney General and Secretary of Homeland Security are directed to designate domestic terrorism as a national priority and develop grant programs to support law-enforcement prevention and detection efforts.
Together, these actions signal a more aggressive and coordinated approach to investigating organizational structures, networks, funding sources, and related activities.
How Domestic Terrorism Is Defined
For enforcement purposes, domestic terrorism is defined under 18 U.S.C. §2331(5) and includes activities that:
- Involve acts dangerous to human life that violate federal or state criminal laws
- Appear intended to:
- Intimidate or coerce a civilian population
- Influence government policy through intimidation or coercion
- Affect government conduct through mass destruction, assassination, or kidnapping
- Intimidate or coerce a civilian population
- Occur primarily within the territorial jurisdiction of the United States
While these definitions target criminal conduct, the breadth of the enforcement strategy increases the risk of indirect exposure for tax-exempt organizations through funding relationships, partnerships, or communications.
Why This Matters for Nonprofits
The executive actions emphasize investigating all participants in criminal or terroristic conspiracies—not just individuals, but also:
- Organizations
- Funding sources
- Networks and affiliated entities
- Supporting structures
Practical consideration:
Because of the broad scope and evolving interpretation of these directives, uncertainty remains in the exempt-organization sector. However, the risk profile for nonprofits has clearly expanded.
Risk Mitigation Action Items for Exempt Organizations
Now is an appropriate time for organizations to proactively assess and strengthen their risk management practices. Consider the following steps:
Governance and Leadership Awareness
- Educate senior management and the board about the new executive directives and enforcement priorities
- Ensure leadership understands how organizational activities could be interpreted under heightened scrutiny
Legal and Compliance Review
- Consult legal counsel to evaluate potential exposure in light of the evolving enforcement environment
- Review governance documents, policies, and procedures for alignment with best practices
Operational Risk Assessment
Evaluate whether:
- Insurance coverage adequately addresses the risk of investigations and related legal costs
- Financial management systems and internal controls are strong and well documented
- Programs and activities are regularly assessed for compliance and reputational risk
Communications and Partnerships
- Review internal and external communications to ensure clarity and avoid misinterpretation
- Assess the activities of partner organizations and grantees that could indirectly expose the organization to risk
Ongoing Monitoring
- Stay engaged with professional organizations and trusted advisory resources
- Monitor regulatory developments, enforcement trends, and emerging guidance affecting exempt organizations
Recent executive actions focused on domestic terrorism and political violence mark a significant shift in the enforcement environment for tax-exempt organizations. While the full impact of these directives is still unfolding, nonprofits should not wait for clarity before acting.
By strengthening governance oversight, reviewing compliance practices, and proactively managing risk, exempt organizations can reduce exposure to costly investigations and protect their tax-exempt status. In today’s environment, informed leadership and vigilant risk management are essential components of nonprofit sustainability.
