DECEMBER 12, 2025

Tis the season for surveys (and for new policy developments affecting nonprofits)! Today’s update shares information about a new state legislative committee on property tax law changes that could have significant implications for nonprofits. We seek your input on nonprofit property tax exemption, along with two other quick surveys that will help shape the Center’s public policy and advocacy work in 2026. We also share developments in the Johnson Amendment case, news that DHHS is stopping its Medicaid rate cuts, and the latest on Congress’s inability to pass health care legislation and information on new and proposed federal guidance that could affect immigration and federal grant programs. 

On Monday, the NC House of Representatives formed a new bipartisan study committee to explore state property tax laws, potentially including nonprofit property tax exemption. The committee’s primary goal is “to study options to reduce the property tax burden on taxpayers in North Carolina.” The House Select Committee on Property Tax Reduction and Reforms will hold its first meeting next Wednesday. The committee will likely meet several times this winter and spring and will likely make recommendations for changes to property tax legislation for the House (and potentially the Senate) to consider during the 2026 short session that begins in April. Over the course of these meetings, it is likely that the committee will explore nonprofit property tax exemption and could make recommendations to limit or eliminate property tax exemption for some or all 501(c)(3) nonprofits to keep property tax payments lower for North Carolina individuals, families, and businesses.

Many charitable nonprofits that own their property are exempt from paying property tax on it if they use their property (or distinct parts of it) “wholly and exclusively” for their nonprofit’s mission-related purposes. North Carolina’s nonprofit property tax exemption law is somewhat complicated, with seven different statutes that provide for property tax exemption for certain types of 501(c)(3) nonprofits.

The North Carolina Constitution requires property tax exemptions to be enforced uniformly in all 100 counties of the state. County assessors determine whether nonprofits are exempt from property tax, and each county assessor has its own process for making this determination. Municipalities (cities and towns) generally follow the decisions of county assessors in determining whether nonprofits are exempt from municipal property taxes, but they are not required to do so.

As the Center advocates for lawmakers to protect nonprofits’ tax exemption, we are seeking input from nonprofits about property tax exemption. Please take five minutes to complete a brief survey about your nonprofit’s property tax exemption (or lack thereof) and the potential impact of changes to state nonprofit property tax exemption laws. Note that it is helpful for nonprofits to complete the survey even if they don’t own property or have property tax exemption (and that the survey should take less than a minute to complete if your nonprofit doesn’t own property or have current property tax exemption).

If you want to learn (a lot) more about nonprofit property tax exemption in North Carolina, check out a comprehensive 2018 article on the topic from the North Carolina Law Review.

Two weeks ago, a federal court in Texas heard oral arguments in a case in which the Internal Revenue Service has requested a consent judgment that would allow two churches to make political endorsements to members of their congregations. Like other 501(c)(3) tax-exempt organizations, churches may not “participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” Essentially, the IRS is interpreting the nonpartisanship requirement (sometimes known as the Johnson Amendment) as having a narrow exemption for communications from churches and other houses of worship to their congregations “through [their] customary channels of communication on matters of faith in connection with religious services.”

If the court were to issue the consent judgment, it would not be appealable and would limit the exception to the Johnson Amendment to the two churches that are parties to the case. However, Americans United for Separation of Church and State (AU), a left-leaning advocacy group, filed a motion to intervene in the case in July, effectively arguing that it has a legal interest in the case and that none of the parties to the case adequately represent its interest.

Last Friday, both the plaintiffs in the case and AU filed additional briefs with the court in response to questions the judge asked during oral arguments. AU’s new brief makes the case that the court does not have authority to grant the consent judgment under the Anti-Injunction Act and the Administrative Procedures Act and that the court cannot enter a consent decree that violates a federal statute (the Johnson Amendment). The plaintiffs’ new brief, on the other hand, argues that the churches and IRS have satisfied the standards for a court to issue a consent decree. The plaintiffs’ brief further explains that the language on “customary channels of communications” in the proposed consent judgment (which appears to be vague) is based on an existing Federal Elections Commission regulation.

Now that the parties have filed these additional briefs, the court could issue a ruling on AU’s motion to intervene – and potentially on the requested consent judgment – later this month. If the court grants the motion to intervene, AU would have the right to appeal the consent judgment, which could ultimately lead to a broader appellate court ruling (perhaps ultimately by the U.S. Supreme Court) on whether the nonpartisanship provision in Section 501(c)(3) of the Internal Revenue Code is allowable under the First Amendment. (Spoiler alert: There is a strong chance that an appellate court would strike down the nonpartisanship provision in its entirety, potentially affecting all 501(c)(3) nonprofits.)

On Wednesday, Governor Josh Stein directed the NC Department of Health and Human Services (DHHS) to restore full funding at September 30, 2025 levels for Medicaid providers in North Carolina. On October 1, DHHS cut rates for Medicaid providers, including many nonprofits, by anywhere from 3% to 10%. Multiple lawsuits were filed by health care providers challenging these rate cuts, and two courts issued injunctions preventing DHHS from implementing the cuts to specific types of providers.

DHHS implemented the Medicaid rate cuts after the NC General Assembly failed to fully fund Medicaid for FY2025-26, leaving a funding gap of about $319 million. Over the past two months, both the NC Senate and the NC House of Representatives have unanimously approved  bills (three bills for the House) to fully fund Medicaid, but the chambers have been unable to agree on whether to include other provisions in the Medicaid funding legislation. Legislators are not expected to return to Raleigh for voting sessions on Medicaid – or on a broader state budget for FY2025-27 – until sometime next year.

Governor Stein’s press release announcing the decision to reverse the Medicaid rate cuts quotes a wide variety of nonprofit service providers. Legislative leaders responded by criticizing the DHHS decision to cut Medicaid rates on October 1, noting that Medicaid funding will not run out until April 2026 without additional funding from the General Assembly.

Without congressional action, the enhanced premium tax credits on Affordable Care Act (ACA) Marketplace health plans are scheduled to end after 2025. Translation: The cost of ACA Marketplace health coverage will increase significantly for many North Carolinians in 2026, including for many people who are clients of nonprofits and employees of nonprofits that do not offer employer-provided health coverage. Yesterday, the U.S. Senate was unable to pass two bills that could help prevent or minimize the forthcoming spike in health care costs:

The Senate rejected both bills in 51-48 votes (with a different group of 51 Senators supporting each bill). Either bill would have needed 60 votes to pass the Senate.

The U.S. House of Representatives is expected to vote on its own health care plan next week. Details of the House plan are not available to the public yet, but House leadership indicated that it will not include an extension of the ACA enhanced premium tax credits. A bipartisan group of House members, including Congressman Don Davis (D-NC), are also trying to force a vote next week on a separate bill that would extend the ACA enhanced premium tax credits for two years, while lowering income limits for the tax credits and adding anti-fraud measures.

Last Thursday, the U.S. Department of Justice (DOJ) reportedly sent a memo to federal prosecutors prioritizing enforcement of domestic terrorism and providing guidance on how federal prosecutors and law enforcement officials can work to “dismantle domestic terrorism organizations and activities.”

The memo, which has been leaked to several media sites but has not been made public by DOJ,  defines “domestic terrorism” as “criminal conduct that occurs primarily inside the territory of the United States and that involves acts dangerous to human life that appear to be intended to intimidate a civilian population; influence the policy of government by intimidation or coercion; or affect the conduct of government by mass destruction, assassination, or kidnapping.” Potentially, this definition could include some advocacy nonprofits including those that are engaged in (quoting the memo) “opposition to law and immigration enforcement; extreme views in favor of mass migration and open borders; adherence to radical gender ideology, anti-Americanism, anti-capitalism, or anti-Christianity; support for the overthrow of the United States Government; hostility towards traditional views on family, religion, and morality; and an elevation of violence to achieve policy outcomes, such as political assassinations.”

The memo identifies 25 federal crimes that prosecutors may consider as “the most serious, readily provable offenses” when investigating nonprofits or foundations that may be deemed to be domestic terrorist organizations.

The recent DOJ memo follows up on a September 25 National Security Presidential Memorandum (NSPM) from President Trump[ that was focused on countering domestic terrorism and organized political violence. The NSPM directs the National Joint Terrorism Task Force to “investigate, prosecute, and disrupt entities and individuals engaged in acts of political violence and intimidation designed to suppress lawful political activity or obstruct the rule of law,” including investigations of nonprofits and foundations that engage in or fund activities that could foster political violence.

Last month, the U.S. Department of Homeland Security (DHS) published a proposed regulation to make changes to the public charge rule that could discourage immigrants from using public benefits like the Supplemental Nutrition Assistance Program (SNAP) or Medicaid. Since the 19th century, American immigration officials have been allowed to deny visas to people who were deemed likely to be a “public charge,” meaning they would rely principally on government assistance. The public charge rule allows immigration officials to give greater weight to applicants' medical history, income levels, and dependency on public assistance in determining whether to grant lawful immigration status. The proposed new rule, which would likely take effect sometime in 2026, would rescind a 2022 rule that guaranteed that noncash public benefits like SNAP and Medicaid could not be considered in determining whether an individual would be granted lawful immigration status.

In 2019, DHS changed the public charge rule to take into consideration noncash benefits like SNAP and Medicaid. Many nonprofits expressed concerns that the 2019 changes to the public charge rule discouraged immigrants from using public benefits such as SNAP and Medicaid and caused disparate treatment of immigrant families who are at or near the federal poverty level. The public charge rule was revised in 2022 to disallow immigration officials from considering these noncash benefits, including benefits received by family members who are U.S. citizens. The proposed rule does not specify which noncash benefits would be considered when immigration officials review applications for lawful immigration status but instead would authorize DHS to develop its own policies and guidance. These DHS policies would not be subject to the regulatory review process.

The new proposed rule is open to public comment through Friday, December 19. The NC Justice Center has highlighted two ways that nonprofits can make public comments:

On Wednesday, the U.S. Department of Justice (DOJ) published a final rule removing protections against disparate impact discrimination from its enforcement of Title VI of the Civil Rights Act of 1964. Title VI prohibits discrimination in programs and activities that receive federal financial assistance, including a wide range of federal programs that provide grants to nonprofits and assistance to people served by nonprofits. Disparate impact liability is a principle of civil rights law that allows individuals or groups to have protection against a wide range of policies – such as height and weight requirements, criminal history or credit history tests, and educational requirements – that disproportionally affect people who are part of a protected class (based on race, sex, age, and other factors). For decades, DOJ and other federal agencies have included disparate impact protections in their regulation and enforcement of Title VI.

The final rule took effect immediately when it was published on Wednesday. DOJ published the final rule without first releasing a proposed rule or allowing the opportunity for public comments, as is typically required in the federal rulemaking process under the Administrative Procedures Act (APA). It is quite likely that the final rule will be challenged in court since the expedited rulemaking process appears to have violated the APA.

Last week, the U.S. Customs and Immigration Service (USCIS) announced that it had revised its policy manual to shorten the work authorization period for hundreds of thousands of legal immigrants from five years to 18 months. The shortened work authorizations could create new compliance burdens for nonprofits with legal immigrants on their staffs and could create backlogs with USCIS reviews of work authorization requests.

Two weeks ago, the IRS published a request for comments on forthcoming guidance on a new federal tax credit of up to $1,700 per year for contributions to 501(c)(3) nonprofits that qualify as “scholarship granting organizations.” The new tax credit is part of the One Big Beautiful Bill Act that Congress passed this summer. It would take effect for contributions made beginning in 2027.

The new federal law provides rules for how nonprofits would qualify as “scholarship granting organizations.” Among other things, scholarship granting organizations would need to:

The Center has heard a number of questions from nonprofits, elected officials, and others about this new federal tax credit. Here are answers to three of the most common questions we have heard (at least so far): 

The federal law requires states to opt in to the provision in order for the tax credit to be available to taxpayers in their states. North Carolina passed opt-in legislation (H.B. 87) in July, but Governor Josh Stein vetoed the bill. Legislators have not yet voted on overriding the veto, although the bill passed both the NC Senate and NC House of Representatives with enough votes to override the veto.

Nonprofits can submit comments to the IRS about rulemaking and guidance on the new scholarship granting organizations tax credit through December 26.

Nonprofit Policy Update is the weekly newsletter on state and federal policy issues affecting 501(c)(3) nonprofits. Learn more about the Center's public policy agenda.
©2025 North Carolina Center for Nonprofits

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