For many years, one of the pillars of American non-governmental efforts has been the federal tax system’s provision of exemptions for such organizations. This has long been seen as encouraging many people, companies, and institutions to support such valued efforts, which they might be more reluctant to do.
As the Guardian noted in a recent article, “[s]ome of the work in question was once seen as bipartisan or noncontroversial but is being treated as radical by the Trump administration, such as alleviating poverty, lowering utility bills or providing people with food.”
From small private foundations to large public charities, nonprofit organizations offer services, ranging from education, healthcare, social services, arts and humanities, and religion. They vary significantly in size and scope, and include large domestic and international organizations.
The majority, however, are smaller organizations, with over one million organizations having annual revenues below 50,000 U.S. dollars, as opposed to 70,000 having annual revenues between one and 4.9 million U.S. dollars.
Trump has already “weaponized” the removal of tax-exempt status for many deep-pocket organizations that do not comply with his policies. That said, removing the federal Internal Revenue Service 501(c)(3) tax exemption designation for small- and medium-sized organizations has survival implications for many. (Note that “nonprofit” status is different in that it refers to incorporation under State laws, not the Federal Government.)
What follows summarizes how the denial of tax-exempt status would affect organizations without huge endowments, ones often doing exemplary service for those most vulnerable.
Economic Impact on Funding
Tax deductions for donors are a core inducement for many. Removing this status would likely mean donors are less inclined to contribute if they cannot receive tax benefits.
Many foundations and government grants require organizations to have 501(c)(3) status. Without this designation, small- and medium-sized organizations may struggle to compete for this funding, which is vital to their operations.
Nonprofits often host fundraising events that benefit from tax-deductible tickets or sponsorships. Without 501(c)(3) status, these events may experience lower participation, which will inevitably translate into reduced revenue.
Operational Challenges
Without 501(c)(3) status, organizations would be subject to federal, state, and local taxes. This is likely to severely strain limited budgets, diverting funds away from mission-driven activities to cover tax liabilities.
Loss of Trust and Credibility
501(c)(3) status promotes a sense of trust and credibility among donors and supporters. Removing this status might lead to skepticism about the motivations of organizations, which could affect their ability to attract and retain supporters.
Without nonprofit status, organizations might struggle to differentiate themselves from for-profit entities, which can complicate their mission-driven initiatives and potentially blur the lines between charitable intent and profit.
Impact on Staffing and Volunteers
Volunteers often feel motivated to contribute to organizations with non-profit status because of a perceived impact on the community. Losing this status may depress volunteer numbers, affecting service delivery and community engagement.
Nonprofits often operate with lower salaries compared to the for-profit sector, largely due to tax benefits and grant funding. Without these financial supports, organizations may need to increase salaries to retain skilled staff, which would drive up operational costs.
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Strategic Shifts
Removing 501(c)(3) status would force organizations to reassess their business models. Many small- and medium-sized organizations may pivot towards a more revenue-generating approach, focusing on products or services rather than community services.
Organizations may seek partnerships with for-profit organizations to sustain their operations, which might lead to mission drift as they prioritize profitability over community impact.
Long-Term Sustainability
With reduced revenue, many organizations may need to downscale their programs and services, leading to diminished community benefits and potentially reducing their overall impact.
Some organizations might explore hybrid models, a combination of nonprofit and for-profit, to compensate for lost funding. This could create new challenges in maintaining focus on their original missions.
How U.S. Citizens Can Respond to Actions to Remove Nonprofit Tax-Exempt Status
Small- and medium-sized organizations are aware of the options available to them to galvanize their supporters. For those who are not yet directly involved, there is value in identifying pathways to help.
These include writing and speaking out against executive orders that undermine worthy causes; lobbying congressional representatives for the same purpose; and encouraging greater State and local nonprofit funding that cannot be revoked by the federal government.
What It All Means
Removing 501(c)(3) non-profit status would have a profound impact on small- and medium-sized organizations.
The loss of tax-deductible donations, grant opportunities, increased operational costs, and potential shifts in public perception would challenge their ability to fulfill their missions. Organizations would need to adapt significantly, leading to possible changes in staffing, funding approaches, and overall strategic direction. And ultimately, it will be the most vulnerable groups who will pay the cost as they receive less assistance.
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com — In the Cover Photo: President Trump sits for an interview with Fox News journalist Rachel Campos Duffy, April 14, 2025. Photo Credit: The White House.
