Senator Tom Cotton has introduced legislation called the Nonprofit Governance Integrity Act. The bill would change who can serve on the boards of tax-exempt nonprofits and tie compliance directly to maintaining federal tax-exempt status.
What the Bill Would Do
- Prohibit 501(c)(3), 501(c)(4), and 501(c)(6) nonprofits from maintaining tax-exempt status if any member of the board is a citizen or national of certain countries (China, Russia, Iran, North Korea, and Cuba).
- Exempt churches and associations of churches.
- Make board composition rules a condition of retaining 501(c) status.
If enacted, nonprofits with nationals on their boards who are not allowed to serve would risk losing their tax-exempt status.
Why This Matters
Tax-Exempt Status at Stake
Losing 501(c) status would mean losing exemption from federal income tax and making donor contributions non-deductible—an existential threat for most nonprofits.
Chilling Effect on Boards
The rule would apply to all nonprofits, large or small. This could chill recruitment and diversity, especially for nonprofits engaged in international work or serving immigrant communities.
Legal and Constitutional Questions
Restricting board service based on nationality raises potential constitutional issues, including free association and equal protection. It is also unclear how dual nationals or permanent residents would be treated
Administrative Burdens
Nonprofits may need to:
- Vet board candidates for nationality
- Keep compliance documentation for IRS purposes
- Amend bylaws to allow quick removal of disqualified directors
What Nonprofits Should Do Now
Even though the bill is only proposed, nonprofits can prepare by:
- Monitoring the bill’s progress in Congress
- Reviewing current board composition
- Considering amendments to bylaws or board policies to allow flexibility if required
- Seeking legal counsel if they work internationally or have diverse boards
Bottom Line
The Nonprofit Governance Integrity Act would make board composition a compliance issue with direct tax consequences. Nonprofits with international connections could face difficult decisions if it passes. For now, boards should stay informed, assess risk, and be prepared to adjust governance practices if this proposal advances.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C., licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.Â