Source: Inside Philanthropy
Earlier this month, California Gov. Gavin Newsom signed into law Assembly Bill 1318, which ensures nonprofits in the Golden State can continue to receive state funding should their federal nonprofit status be revoked due to political targeting. The bill, which was authored by Assemblymember Mia Bonta (D-Oakland) and sponsored by CalNonprofits, clarifies that nonprofits need only have either state or federal tax-exempt status, not both, to be eligible to receive contracts, grants and other forms of support from the state.
“It’s one simple change of phrasing, but it has a huge power… We now have at least the beginning of a bulwark against federal attacks on the nonprofit sector when it comes to revoking status due to politics or ideology,” said CalNonprofits CEO Geoff Green.
President Donald Trump has threatened nonprofit organizations and philanthropic institutions, particularly those that support causes like racial justice, equity, LGBTQ rights and immigrant rights. Protecting immigrant-serving nonprofits was the original impetus behind AB 1318.
In September, following the assassination of right-wing provocateur Charlie Kirk, Trump issued a memorandum in which he directed federal agencies to “investigate, prosecute and disrupt” nonprofits, institutional and individual funders and any other entities that foster what the administration characterizes as “domestic terrorism.” Trump has also targeted George Soros’ Open Society Foundations (OSF) specifically — with the Department of Justice reportedly gearing up to open a criminal investigation into OSF. Other liberal funders, like the Ford Foundation, could also be in the crosshairs.
According to recent reporting by the Wall Street Journal, the Trump administration is looking to weaponize the IRS, enacting “sweeping changes that would allow the agency to pursue criminal inquiries of left-leaning groups more easily.”
As grim as things look at the federal level, there’s still a lot that state and local governments can do. California, which has developed a reputation as a “blue fortress” against Trumpism — with the backing of philanthropy — provides one window into how state law can protect space for civic sector action that the federal government might seek to restrict.
CalNonprofits, the policy association and membership group which sponsored AB 1318, is also looking to support other legislation to protect the state’s nonprofits. It’s backed by philanthropic funders including the California Community Foundation, California Wellness Foundation, David and Lucile Packard Foundation, Evelyn and Walter Haas Jr. Fund, Gerbode Foundation, Josephine S. Gumbiner Foundation and Sierra Health Foundation.
Originally conceived as an effort to protect immigrant-serving organizations, AB 1318 was expanded to apply to all nonprofits in the state. While the legislation does not, of course, prevent organizations from losing their 501c3 privileges on the federal level should Trump’s efforts to rescind them succeed, it does give them one lifeline in a state where millions rely on nonprofit services.
“In the spirit of trying to figure out how to protect a very crucial part of California’s resilience and resistance to the Trump administration’s agenda, we wanted to ensure that California would be in a position to continue to support, fund, grant and contract with our nonprofit organizations that we depend on so much,” Bonta said.
How does AB 1318 protect nonprofits in danger of losing 501c3 status?
In California, how nonprofits are defined directly overlaps with how the federal government defines federal tax-exempt status, Bonta said. Generally, the IRS grants 501c3 status first, and then organizations ask the state to grant nonprofit status at the state level.
“Up until now, one of the assumptions was, if it’s good enough for the IRS, chances are that the state regulators would feel similarly, and almost always, they did,” Green said. “But now that we have an administration that is threatening to pull 501c3 status from any organization with whom they disagree — whether it’s political or ideological targeting — we decided there are certain defensive moves that we can make within the state.”
Green sees AB 1318 as a creative use of the state’s powers to push back against the federal attacks on the nonprofit sector. Certain powers, he said, are left up to the state, and that includes defining corporate structure. Law and oversight varies by state, and state attorneys general can be just as important, if not more so in many cases, than the federal government and the IRS in terms of regulating what nonprofits can do.
One challenge concerning AB 1318 is that in California, there are two forms organizations can use to apply for nonprofit status: Form 3500 and a simplified version called Form 3500A, which was introduced several years ago. Because the latter is simpler, the majority of recently formed nonprofits used it.
“The problem is [Form 3500A] depends explicitly on 501c3 status being current at a federal level. So by its own rules, if you lose your [federal] 501c3 status and you got state status through the simplified form, you would, by definition, lose your state status,” Green said.
CalNonprofits will be running a campaign to educate nonprofits about the issue and urge them to check which form they used when applying for nonprofit status. If they used the simpler form, they would need to resubmit the full 3500 form. CalNonprofits is also looking to speak with legislators about potentially changing this rule.
In addition to its efforts on AB 1318, CalNonprofits is preparing to deal with other issues involving nonprofits coming out of Washington. This potentially includes protecting the Johnson Amendment, which prohibits tax-exempt organizations from participating or intervening in any political campaigns on behalf of any candidate for public office. Among other things, the amendment prohibits religious leaders from endorsing candidates from the pulpit.
There have been numerous attempts to get around or nullify the enforcement of the Johnson Amendment. In 2017, for example, President Trump issued an executive order that directed the Treasury Department to relax enforcement of religious organizations and the individuals associated with them. Numerous legislative efforts to change the Johnson Amendment have been introduced over the years.
Earlier this year, the IRS filed a motion in federal court supporting the position that churches and other houses of worship can endorse political candidates without losing their tax-exempt status, arguing that if this communication extends only to their congregations, it amounts to a private matter, not as political campaigning. The case is still pending, and a federal judge will hear oral arguments in November.
AB 1318 started as a way to protect immigrant-serving organizations
While AB 1318 has been broadened as the Trump administration’s threats to the nonprofit sector escalate, it was initially conceived as a way to protect nonprofits that serve immigrants and work to defend and advance immigrant rights, particularly those of undocumented immigrants. Bonta, who, prior to joining the California legislature spent 25 years in the nonprofit sector, began working on the legislation as soon as Trump was elected last November.
“I sat down with somebody who was at a nonprofit that afforded immigrant support services, and they essentially said to me, ‘we have to start planning now. This is going to be really bad,’” Bonta said.
Trump’s first term was marked by harsh anti-immigrant policies, and he made immigration the focal point of his 2024 campaign, promising to be even more aggressive in his efforts to curb immigration and deport millions of immigrants living in the U.S. Bonta was particularly concerned with what would happen to nonprofits that worked in areas like immigrant services, immigrant support and any advocacy related to nonprofits.
Her concern was warranted: Within his first 100 days in office, Trump issued a series of executive orders targeting immigrants, including an attempt to end birthright citizenship, declaring a national emergency at the southern border, suspending the U.S. Refugee Admissions Program and designating cartels as global terrorist organizations. All year, draconian immigration enforcement has been a central priority for the White House.
Without interventions like AB 1318, revocation of tax-exempt status would mean that the organizations that provide immigrants with legal aid, advocacy and other forms of support would no longer be able to contract with states. But given that Trump has also targeted organizations that work to advance equity and protect other vulnerable communities, AB 1318’s scope was widened to include all nonprofits in the state.
“The conversation started with, how do you protect what was clearly going to be a target of the federal administration, and then expanded from there to recognize that actually that same strategy could be used to protect all nonprofit organizations, and so the assembly member and CalNonprofits both agreed that that was the right course,” Green said.
While AB 1318 will provide some relief to nonprofits, Bonta hopes philanthropy will step up. There are encouraging signs, she notes, including how some funders have increased their annual payout and tapping into their endowments.
“This is a time when we need all of philanthropy to step up into this moment to protect our civil liberties,” Bonta said. “A lot of the work that [nonprofits] do is focused on lifting up our communities, and it’s very important for philanthropy to step into this moment with complete clarity of purpose around the task at hand, which is to defend our democracy and ensure that we are helping Californians thrive and that we can live to fight another day, despite the attacks that are being made on so many of our community members right now.”