Navigating the Changing Landscape: Legislation, Litigation and Executive Action
Laws, court decisions and executive actions leave marks on the nonprofit sector much like brushstrokes shape a canvas. In today’s polarized and fast-moving environment, those marks appear rapidly, increasingly, and with growing impact on mission-driven work.
During the Gupta Governance Institute’s 2025 Nonprofit Directors Dialogue, Morgan Lewis partners Ann Batlle and Emily DeSmedt, guided participants through a discussion of the accelerating legal and regulatory risks facing nonprofits, and what boards must do to stay prepared.
The discussion made one theme clear: the operating environment for nonprofits is changing faster than many organizations’ governance practices.
Legislative proposals, congressional inquiries, litigation strategies, and executive agency actions are converging to create a new era of scrutiny. But with preparation, discipline and mission clarity, nonprofits can navigate these pressures without compromising their mission or reputation.
A New Era of Heightened Scrutiny
There has been a sharp increase in legislative proposals, executive actions, and oversight activity targeting tax-exempt organizations, particularly those working in advocacy, education, immigration, climate action or international grantmaking. The volume and speed of change suggest an era of sustained, and potentially expanding, scrutiny.
As legal and policy landscapes continue to shift, nonprofit boards must remain vigilant, intentional, informed and mission driven.
Congressional Inquiry and Executive Action
Congressional hearings and inquiry letters are increasingly used to examine nonprofits’ missions, funding and tax-exempt status. Although they don’t impose legal penalties, they can create significant burdens such as extensive document requests, which can burden staff and lead to unwanted media attention and public scrutiny.
Since January 2025 President Trump has signed more than 200 Executive Orders (EOs) on a broad range of issues that may directly or indirectly affect nonprofits that receive federal funding, and those with programs or missions related to DEI, LGBTQ+, climate or immigration.
While EOs don’t change substantive law, they do provide guidance and directives to federal agencies that can encourage agencies to reinterpret long-standing rules, shift enforcement priorities and expand False Claims Act exposure.
The Weaponization of Existing Laws
While most DEI programs remain legal under existing interpretations of longstanding civil rights laws such as Title VI and Section 1981, recent high-profile cases such as Students for Fair Admissions v. Harvard and American Alliance for Equal Rights v. Fearless Fund are templates for future litigation and preview arguments and tactics likely to resurface.
Although their direct impact on most nonprofits is limited, the trend has an indirect chilling effect on the sector. Even when programs are legally sound, the decision to stand on principle in the face of potential legal challenges may not be an easy one. No matter the outcome, litigation is expensive, discovery is intrusive, and cases can take years to wind through the courts.
Reputation vs. Legal Risk
Legal risk includes potential litigation, enforcement action, and loss of funding. Reputational risk includes political backlash, negative press, donor concern, and hostile social media campaigns. Boards must consider both without allowing optics alone to drive anticipatory compliance.
Boards are left to grapple with a strategic dilemma: “lean in” to DEI and risk reverse-discrimination lawsuits, agency investigations, hostile media campaigns and donor backlash or pull back from DEI and risk traditional discrimination claims, diminished staff morale, and undermining the mission.
Threats to 501(c)(3) Status
Despite numerous constitutional and legislative protections, there are rising concerns about attempts to weaponize tax-exempt status against nonprofit organizations associated with liberal causes and other perceived political opponents of the administration.
Participants agreed the potential loss of tax-exempt status is the most existential risk for nonprofits.
Emergent threats include:
- Use of the illegality doctrine to revoke the tax-exempt status of organizations involved in immigrants’ rights, protest movements or environmental activism.
- Use of a broadened definition of “illegal DEI activity” under federal civil rights laws to challenge the tax-exempt status of nonprofits whose missions involve equity, inclusion or civil rights as acting “contrary to fundamental public policy.”
- Directions to the DOJ, FBI, Treasury and IRS to investigate nonprofits suspected of “aiding and abetting unlawful activity,” which would trigger automatic suspension of exempt status under 501§(p) of the tax law with no IRS review, advance notice or immediate appeal.
Even if later reversed, revocation of tax-exempt status under any of the above would create reputational damage and jeopardize operations. Strong parter-screening processes, OFAC checks, donor communications plans, monitoring systems for policy and litigation developments, and legal counsel on standby are prerequisites for organizational preparedness.
Calculating Risk Tolerance
The board’s fiduciary duty includes protecting the organization from foreseeable risks while also ensuring commitment to its mission. For many participants, losing sight of their purpose is the most immediate threat to their organizations.
When defining an organization’s risk tolerance, boards must balance risk exposure with mission integrity. For example, loss of tax-exempt status is generally non-negotiable, however, loss of certain grants or contracts may be outweighed by mission imperatives. Boards should be guided by organizational values rather than social or political trends.
In addition to the organization’s core purpose and values, board members should consider the organization’s culture, budget, values, public profile, and ability to withstand the legal and reputational costs of legal challenges. Boards should also understand the level of support for politically sensitive initiatives within the organization and stakeholdres including its members, donors and grantors.
Assess and Adapt
As dynamics continue to change, boards must engage in regular discussions to reaffirm the organization’s purpose, clarify what is worth defending, and ensure alignment — both internal and amongst stakeholders — particularly around politically sensitive or equity-related work.
Internal risk assessments can identify vulnerabilities and enable boards to take proactive steps to terminate and/or adjust programs and practices considered too risky.
Areas for internal review include:
- Programs related to DEI, immigration, climate, or other politically charged areas
- Public-facing communications
- Federal funding and dependencies
- Grant structures and documentation
- Grantmaking and scholarship criteria
When potentially controversial programs are identified, organizations may take incremental steps to mitigate risk or lower the organization’s profile such as scrubbing websites to remove DEI language or replacing protected class-based qualifications with other factors that achieve the same objective (e.g., first-generation status, socioeconomic disadvantage, etc.). However, organizations whose purpose is in direct conflict with an EO or directive may choose to take more drastic action.
Boards should ensure internal and stakeholder alignment in answering the following questions:
- What are the organization’s core mission and values?
- What risks are we willing to take to remain true to mission?
- What can be modified to reduce unnecessary risk exposure?
- What cannot be compromised without undermining purpose?
Keep Calm and Carry On
In today’s fast-moving environment, fear is not a strategy, preparedness is. Operational discipline, scenario planning (both crisis planning and financial modeling), legal preparedness, and proactive crisis management are essential oversight functions.
Tools such as litigation and legislation trackers, policy alerts, and briefings by legal counsel can help boards make decisions based on information and strategy rather than fear.
Proactive steps for boards to consider include:
- Develop frameworks for monitoring, calibrating, managing and reporting potential risks.
- Designate staff to track and regularly update leadership and the board on legislative proposals, executive actions, litigation, state attorney general activities and trends in congressional oversight.
- Document and rehearse response protocols for potential threats including clear approval processes and coordination between legal and communications teams.
- Train staff to spot legal issues and build a team of external experts in advance of litigation or increased regulatory pressure.
- Practice message discipline; be aware that internal communications are discoverable and public statements can be misinterpreted.
- Ensure Directors & Officers liability insurance is in place and fit for purpose.
- Collaborate, pool resources, share intelligence and threat assessments, and engage in collective action with peer groups.
Key Takeaways
- Stay mission focused. Purpose, not politics, should anchor decision making.
- Avoid anticipatory compliance. Strengthen oversight, but don’t overcorrect out of fear.
- Define and align on risk appetite. Align board and management on what is core to mission and worth defending.
- Audit programs and funding streams. Conduct a privileged review of programs, grantmaking, contracting and communications.
- Communicate with discipline. Train teams on message control and legal sensitivities.
- Be proactive, not reactive. Thoughtful preparation protects mission and reputation.
- Collaborate with peers. Cross-sector partnerships reduce isolation and strengthen resilience.
Additional Resources
- Tracking the Policy Landscape for the Charitable Sector – Independent Sector
- Congressional Investigations - ICNL
