At a recent CLA Nonprofit Organizations Committee program, Rose Chan Loui, Founding Executive Director of the Lowell Milken Center for Philanthropy and Nonprofits at UCLA School of Law, walked through the current legal landscape facing tax-exempt organizations. She pointed to a historic volume of executive orders, agency rulemaking used to shift policy without legislation, third-party litigation in the DEI space, and increasingly hostile public rhetoric about philanthropy and the nonprofit sector generally. Her presentation catalogued the specific threats to nonprofits and the legal theories being used to support them.
None of these threats to nonprofits are unique to the United States, and it is not new in kind, even if the current scale is unusual here. Governments that want to constrain civil society have used a fairly consistent toolkit for decades. It is worth laying that toolkit next to what Chan Loui documented, not to make a partisan point, but because the comparison is genuinely useful for risk planning. Organizations that understand the pattern are better positioned to respond to any individual piece of it.
A Toolkit With a Long History
Political scientists who study what’s often called “closing civic space” have documented a remarkably consistent set of tools used across very different regimes. Russia’s 2012 “foreign agents” law required NGOs receiving foreign funding and engaging in loosely defined “political activity” to register under that label, submit to intensive audits, and carry the designation on all public materials; Human Rights Watch has tracked similar foreign agent laws spreading to dozens of other countries since, describing them as a standard item in the authoritarian playbook. Hungary’s 2017 “Lex NGO” imposed similar transparency and registration burdens targeted at organizations critical of the government, while allowing ideologically aligned groups to operate without the same scrutiny. Egypt’s 2017 NGO law restricted foreign funding and political advocacy outright, backed by criminal penalties. Between 2014 and 2016 alone, researchers tracked more than sixty countries imposing new restrictions on civil society funding and assembly.
The closing civic space mechanisms vary, but they cluster around a few consistent categories. Threats to nonprofits include governments cutting off funding, either foreign or domestic. They impose burdensome registration, reporting, or audit regimes not required of other organizations. They apply a stigmatizing label (foreign agent, extremist, terrorist) that chills donors and partners. And they back all of it with civil or criminal liability. The Carnegie Endowment for International Peace has written specifically about how several of these same mechanisms have already appeared, in less concentrated form, in the United States over the past two decades, arguing that civic space here has been narrowing gradually and across administrations, not suddenly and from a single source.
What Chan Loui Documented in the Current U.S. Landscape
Measured one way, the current administration had issued 274 executive orders, 84 presidential memoranda, and 167 proclamations by the time of Chan Loui’s presentation, an unusually high volume by historical standards; other trackers, using different cutoff dates and counting methods, put the executive order count somewhat lower, in the 260s as of mid-2026, but every count agrees the pace is historically fast. Beyond the sheer volume, Chan Loui pointed to the use of federal agencies to change regulations and policy outside the ordinary legislative process, an increase in third-party lawsuits targeting organizations over DEI programming, and a marked shift in public rhetoric that treats philanthropy and the nonprofit sector as suspect rather than presumptively beneficial.
The threats she identified for individual organizations track the historical toolkit closely. They include loss of federal funding, loss of donor support or access to donor networks, tax audit or investigation (civil or criminal), loss of federal tax exemption or other favorable status, being labeled a domestic terrorist organization, and direct civil or criminal liability.
The Legal Bases Being Used
What makes this moment different from a simple political mood is that each of these threats is being tied to an actual legal theory, not just rhetoric. Chan Loui grouped the current bases into four categories.
Illegality or violation of public policy. This is the theory behind threats to revoke exemption over “illegal DEI,” or over an organization’s role in immigration, reproductive health, or environmental advocacy the government characterizes as unlawful. Ellen Aprill, in a widely circulated 2025 paper, walks through this and three related doctrines in detail and concludes that organizations have real statutory and constitutional arguments available to push back, but the doctrine itself is genuinely unsettled and worth taking seriously.
Terrorism designation. As we’ve written before, revoking exempt status, for any reason, still requires the IRS to follow an actual examination process with notice and appeal rights; a terrorism designation carries its own separate legal framework and consequences, and conflating the two threats can cause organizations to over- or under-react to either one.
False Claims Act exposure. Organizations receiving federal funds are exposed to FCA liability, which carries treble damages and allows private whistleblowers to bring claims on the government’s behalf, for misrepresentations in grant applications or reporting.
Fraud enforcement. The Department of Justice stood up a new National Fraud Enforcement Division in April 2026, with enforcement priorities announced in August 2026 that explicitly include federal grants and benefits paid to nonprofits alongside other federal spending. Civil False Claims Act inquiries can now run in parallel with criminal fraud investigations out of the same office, which raises the stakes of any inquiry considerably.
What This Means for Your Organization
None of this means every audit or funding decision reflects an authoritarian motive; governments have always had a legitimate interest in preventing actual fraud, and not every regulatory shift is targeted. The pattern is useful precisely because it is a pattern, not a verdict on any single action. What it should tell you is which categories of risk to actively monitor rather than treat as background noise. Those include funding dependency, the accuracy and documentation behind every federal grant report and certification, the organization’s actual (not aspirational) compliance with its stated tax-exempt purpose, and its readiness to respond quickly and correctly if a demand letter, subpoena, or audit notice arrives.
Organizations that have never had to think seriously about FCA exposure or the illegality doctrine before should start now, while there is still time to build the documentation and internal controls that make the difference between a defensible position and a vulnerable one.
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. This post is for general informational purposes and does not constitute legal advice.