January 23, 2026 | Huma Khan, Senior Staff Attorney, MLFA Nonprofit Governance Department
The actions of the Trump administration over the previous year have sent tremors of fear through the nonprofit world. The executive orders and extreme statements coming out of the White House are causing organizations to wonder if they will be the subject of baseless federal investigations, and donors are becoming increasingly wary of giving. A recent policy Memorandum from Attorney General Pam Bondi’s Office was leaked to the press and has brought civil society fears to a new pitch.
The memo, directed at various law enforcement agencies, seeks to expand what actions fall within the scope of domestic terrorism. Domestic terrorism in itself is not a criminal offense, but rather a legal term used to classify other crimes. For example, the crime of arson may fall into the category of domestic terrorism if the factual circumstances of the case call for such classification. By classifying a case within the domestic terrorism rubric, agencies gain access to more expansive and invasive investigative tools, and courts may apply harsher sentencing guidelines against those found guilty. National Security Presidential Memorandum 7 (NSPM-7) published in September of 2025 attempts to draw more actions within the purview of domestic terrorism. And Attorney General Bondi’s memo further fleshes out what qualifies as domestic terrorism and how federal and state agencies should undertake such investigations. Broadening the scope of these investigations seems to be one of the goals of the Administration.
When this type of memorandum is leaked a significant amount of fear and speculation follows in its wake. In this post we hope to alleviate some of those fears by arming you with knowledge of the law, while providing guidance as to best practices to help weather the coming storm. Let’s begin with some legal facts to help dispel the myths that often surround them:
Fact 1. The president is prohibited by law from ordering the IRS to investigate any person or entity. The Internal Revenue Code §7217 exists to guard against the weaponization of the IRS by a sitting president. This law prohibits the President, Vice President, an employee of the executive, and any other individual in a high-level position within the executive branch, from requesting the IRS conduct an audit or other investigation of any particular taxpayer. Anyone who willfully violates the prohibition or fails to report it is subject to imprisonment for up to 5 years or a fine of up to $5,000 or both.
Fact 2. The IRS cannot revoke an organization’s tax exempt status without establishing it has a legal basis to do so, these legal grounds are enumerated in the list below. In addition to having a legal basis, the IRS must follow a formal procedure by which it provides notice of its investigation to the organization, and provide it the opportunity to respond and defend against any allegations. Below are a list of grounds for which an organization’s tax-exempt status can be revoked.
- The organization’s activities no longer qualify as tax-exempt under 501(c)(3). This would require a finding that the organization either no longer has a charitable mission, has engaged in extensive political activity or lobbying, is being run for the private benefit of individuals, or generates excessive unrelated business income.
- The organization has failed to file its 990 informational returns for 3 consecutive years. This failure leads to automatic revocation.
- The activities the organization engages in are illegal or violate public policy. Organizations may not expend funds to engage in activities that are illegal or that undermine clearly established and fundamental public policy. The illegal conduct or conduct in violation of public policy (or advocacy of such things) must be systematic and occur at the direction or with the knowledge of the organization’s leadership. The Administration is attempting to place the following types of activities into the category of “against public policy” or “illegal activity”: Diversity Equity & Inclusion policies, engaging in or funding civil disobedience, doxxing, extreme views on mass migration, efforts to shutdown immigration enforcement, anti-capitalism, anti-Christianity, and hostility towards traditional views on family, religion, and morality. Much of the forgoing list violates fundamental constitutional rights. However, it should be noted that others of these constitute crimes, and should not be engaged in.
- The organization has been designated by the U.S. Secretary of State as a Foreign Terrorist Organization (see below).
Fact 3. No state official can designate an organization as a Foreign Terrorist Organization (FTO) and strip them of their tax-exempt status. The power to designate a group as a Foreign Terrorist Organization rest solely with the U.S. Secretary of State in conjunction with the U.S. Attorney General and Treasury Secretary. This power is given exclusively to them by the Immigration and Nationality Act §219. In order for the Secretary of State to designate a group as an FTO it must establish that the group is: (1) foreign, meaning it is registered in a foreign country, merely receiving foreign donations is not sufficient; (2) it engages in terrorist activities as defined in INA §212(a)(3)(B); and (3) that the terrorist activities in question threaten US national security. Exclusively U.S. based organizations cannot be designated as FTOs unless it can be shown they are owned, operated or controlled by a foreign entity. Once an organization is formally designated the Secretary of Treasury under section 501(p) will revoke its tax-exempt status.
Fact 4. There is no domestic terrorism designation under U.S. Law. In the legal context domestic terrorism is defined by 18 U.S.C. §2331(5) as acts dangerous to human life that violate U.S. criminal laws, that appear intended to coerce or intimidate a civilian population, influence government policy by intimidation or coercion, or affect government conduct by mass destruction, assassination, or kidnapping. This section statutorily defines domestic terrorism but does not create a separate chargeable offense of domestic terrorism under which an individual or entity can be prosecuted, nor does it create a penalty for committing acts which may fall within its scope. In practice, crimes that fall into this definition are prosecuted under other criminal statutes, arson, murder, conspiracy, seditious conspiracy, material support, etc. The most recent and relevant example of this is the January 6th riot prosecutions. In those prosecutions there were charges ranging from obstruction and assault to seditious conspiracy and weapons offenses and not a §2331(5) “domestic terrorism” charge. Therefore, when prosecuting crimes that are publicly or internally labeled as domestic terrorism, prosecutors will choose whichever criminal statute clearly fits the conduct, as there are no domestic terrorism charges in the federal criminal realm. The domestic terrorism definition is instead used to classify federal investigations, and for sentencing enhancement purposes. By classifying an investigation as domestic terrorism related, federal agencies have additionalinvestigative tools at their disposal. FBI counter-terrorism investigation guidelines specify that when acts meet the domestic terrorism statutory definition, they are flagged for special handling and resources, and investigators can potentially seek enhanced legal authority for surveillance and searches.
Fact 5. Donor Privacy is protected by the first amendment. The First Amendment protects not just the right to associate with an organization and donate to it, but also the right to do so privately. The supreme court ruling in NAACP v. Alabama held that an organization has the right to keep its membership lists private. The court’s reasoning was that forced disclosure could lead to a chilling effect on participation, especially if an organization has controversial or unpopular viewpoints. In Americans for Prosperity foundation v. Bonta the Supreme Court extended this protection to nonprofit donor lists. The court held that the government could not demand donor lists as this would also have a chilling effect on donor giving. As freedom of association is a fundamental constitutional right any government agency requesting this data must demonstrate they have a compelling governmental interest, which is a very substantial legal burden to meet.
With all these legal safeguards protecting nonprofits and their donors, why are we still worried? Attorney General Pam Bondi’s Memorandum is directed at prosecutors and law enforcement agencies, and is broadening the scope of domestic terrorism investigations. Scattered throughout the memo are references to acts including organized rioting, destruction of property, violent civil disorder, extreme views on mass migration and open boarders, anti-capitalism, anti-Christianity, anti-fascism, hostility towards traditional views on family, religion and morality, and the list goes on. If these acts are deemed to fall within the rubric of domestic terrorism, federal agencies will have broad investigative powers at their disposal. The FBI and the Joint Terrorism Task Force (JTTF) have officially been given the directive to look back over the preceding 5 years and reopen investigations that fall within this expanded and ambiguous list of actions deemed to be domestic terrorism. The goal, as the memo states, is to compile a list of groups and entities that engage in acts that may constitute domestic terrorism, ultimately mapping a full network of actors inside and outside the US.
The reality is federal investigations and lawsuits, even if ultimately baseless, still have consequences. An organization under investigation must expend valuable time and resources to fight back. If such resources are not at their disposal, then they will likely shutdown as a result, even if no wrongdoing ever occurred. If an organization does have enough resources at its disposal to mount a defense, it still must face the potential loss of public credibility as a charitable institution, and consequently the loss of funding and support that comes with it. This seems to be the objective of the administration. Knowing the law is not on their side they seek to utilize the expansive tools of domestic terrorism investigations as a means of attacking credible nonprofit institutions. Their hope is to find the needle in the haystack, an investigation that can culminate in the prosecution of a nonprofit under the rubric of a domestic terrorist organization. All so they can proclaim “I told you so,” and thereby continue to unjustifiably defend their executive overreach.
What can nonprofits do to protect themselves?
- Ensure your programs and activities are aligned with your tax-exempt purpose as listed in your organizing documents.
- File all federal 990 informational returns.
- Remain in good standing with your state. File any and all annual reports with your Secretary of State, Attorney General, or other state compliance body.
- Ensure you are complying with state solicitation laws in all the states you collect donations from.
- If you are a humanitarian organization providing aid overseas, ensure you are fully compliant with all OFAC sanctions regulations.
- Know your donors, do not accept large anonymous donations.
- Protect your donor identification data securely and ensure all donors that their privacy is a priority.
- Maintain your financial books and records accurately and with an eye towards transparency.
- Maintain your governance books and records, including meeting minutes, so as to create a legal record which reflects your organizations adherence to laws and regulations.
- Do not engage in or endorse any doxxing or swatting.
- Do not partner with organizations that engage in doxxing or swatting.
- Do not hinder law enforcement activities.
- When organizing protests issue clear statements regarding participant conduct, publicly expressing that property damage, trespass, and physical altercations are not permissible.
