The
U.S. is not automatically removing the 501(c) status from non-profits
across the board in 2025; rather, there are specific, long-standing rules for
automatic revocation, and some recent political discussions and a new law have
introduced other potential changes and considerations.
Key Changes and Considerations in 2025
Automatic Revocation for Non-Filers: The primary way a non-profit automatically loses its tax-exempt status is by failing to file the required annual information returns (such as Form 990 or 990-EZ) with the IRS for three consecutive years. This is an existing rule, not a new one for 2025.
Political Targeting Concerns: Throughout 2025, there have been concerns and discussions within the government about potentially targeting the tax-exempt status of certain non-profits (e.g., environmental or immigrant rights groups) based on their activities or missions. However, the American Bar Association notes that federal tax exemption cannot be revoked by executive order alone and requires an individual, case-by-case IRS audit with opportunities for appeal.
New Legislation ("One, Big, Beautiful Bill Act"): A tax law signed in July 2025, Public Law 119-21, did not include provisions that would allow for the easy, broad removal of non-profit status based on an administration's discretion. An earlier version of the House bill had a provision that was removed by the Senate.
Changes for Churches: In July 2025, the IRS announced a policy change (following a lawsuit settlement) allowing churches and houses of worship to endorse or oppose political candidates from the pulpit without risking their 501(c)(3) status, provided it's not linked to financial contributions or use of church resources beyond normal communications. This does not apply to other types of 501(c)(3) organizations, which are still broadly prohibited from political campaign activity.
Increased Scrutiny and Penalties: Non-profits are facing increased scrutiny regarding compliance.
Excise Tax on Executive Pay: Effective for tax years beginning after December 31, 2025, a 21% excise tax on compensation over $1 million will expand to cover all highly compensated employees, not just the top five.
Beneficial Ownership Information (BOI) Reporting Penalties: Starting January 1, 2025, the penalties for non-compliance with the Corporate Transparency Act's BOI reporting requirements increased significantly. While most 501(c)(3)s are exempt from this reporting, those that are not must comply.
Non-profits should consult the IRS website or seek legal counsel to ensure ongoing compliance with all federal tax requirements.
Reports and official actions in 2025 indicated that while there was no blanket removal of 501(c) status, specific categories of non-profits faced increased scrutiny and potential for revocation by the IRS, often in connection with political pressure. For instance, churches received more leeway for political speech, while other nonprofits were threatened with loss of status over perceived political activity. Legislative proposals and IRS actions also focused on specific issues, like reporting requirements for federal funds and activities deemed illegal. Organizations that fail to file required annual returns for three consecutive years continue to face automatic revocation of their tax-exempt status.
Targeted threats and increased scrutiny
Targeting specific types of organizations: In 2025, there were reports of political figures threatening the 501(c)(3) tax-exempt status of specific types of organizations. Environmental rights groups, immigrant rights groups, and universities like Harvard were mentioned.
Executive orders and legislation: An executive order in early 2025 highlighted risks to nonprofit tax-exempt status by defining "substantial illegal purpose" in a way that some felt could be used to target specific types of organizations.
Targeting terror-supporting groups: House legislation was introduced in May 2025 that would allow the Treasury Secretary to revoke the tax-exempt status of organizations unilaterally determined to be "terrorist supporting". This was opposed by hundreds of nonprofits for its broad discretionary power.
Political endorsements for churches: In contrast, a July 2025 policy change by the IRS, though not a repeal of the Johnson Amendment, gave more freedom to churches regarding political endorsements during sermons, while maintaining prohibitions for other 501(c)(3) organizations.
Existing reasons for removal
Non-filing: Organizations that fail to file their annual Form 990-series return for three consecutive years automatically have their tax-exempt status revoked. The IRS updates a monthly list of these automatic revocations.
Failure to meet operational test: In April 2025, the IRS revoked the tax-exempt status of an organization for failing to meet the operational test, citing insufficient engagement in charitable activities over several years. This ruling demonstrated the importance of active engagement in charitable activity to maintain status.
Legal protections and pushback
Case-by-case audits: The American Bar Association noted in May 2025 that federal tax exemption cannot be revoked by executive order alone. IRS procedures require individual audits for each organization, with opportunities for defense and appeals.
State-level protection: In May 2025, New York State considered a bill to protect nonprofits from federal actions deemed illegal or improper.
Nonprofit advocacy: Organizations like the Council of Nonprofits and the Environmental Protection Network have issued statements throughout 2025 opposing political targeting of nonprofits and advocating for the independence of the sector.
https://www.google.com/search?q=is+the+us+removing+501c+status+from+some+non-profits+in+2025
Norb Leahy, Dunwoody GA Tea Party Leader
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