JANUARY 23, 2026

This week’s update won’t thaw the icy weather headed our way but brings plenty of heat, including information on the latest progress in Congress to fund the federal government for the rest of the fiscal year. We also remind you about upcoming webinars on nonprofits and the 2026 election and share details about two recent developments that could have significant implications for nonprofits with federal grants and contracts. Stay warm and safe in the winter weather over the coming days!

With a partial shutdown of the federal government looming on January 30, the U.S. House of Representatives completed its appropriations process yesterday by passing a pair of bills that would fund parts of the federal government through the end of the current fiscal year (September 30):

The House already passed legislation to fund the rest of the federal government for the remainder of the fiscal year. In November, Congress agreed on legislation (which President Trump signed into law) to provide full-year funding for the U.S. Department of Agriculture, military construction, veterans’ services, and congressional staff. The House and Senate also both passed another bill (H.R. 6938) to provide funding for the remainder of the fiscal year for the U.S. Departments of Commerce, Interior, and Justice, and for the Environmental Protection Agency and the Army Corps of Engineers. That bill is still awaiting President Trump’s signature. In addition, the House approved legislation (H.R. 7006) last week to fund the U.S. Departments of the State and Treasury (including the Internal Revenue Services) for the remainder of the fiscal year.

Notably, this year’s House-passed appropriations bills include provisions that would prevent several federal agencies – including the National Institutes of Health, the National Science Foundation, the National Aeronautics and Space Administration, and the U.S. Departments of Commerce, Defense, and Energy – from imposing caps on indirect cost rates for nonprofits with federal grants. Several of the agencies have attempted to impose 15% caps on indirect cost rates over the past year, but these limits are being challenged in federal court.

The U.S. Senate is off this week and is likely to vote on the remaining House-approved appropriations bills next week. The appropriations bill for the U.S. Department of Homeland Security may be the most difficult for the Senate to pass since it does not have bipartisan support.

The 2026 election in North Carolina officially began last week, as county boards of elections started sending out absentee ballots to eligible voters who have requested them. In-person voting for the 2026 election begins in less than a month, with early voting for the primary election opening on Thursday, February 12.  

While 501(c)(3) nonprofits cannot support or oppose candidates for office or make campaign contributions, your nonprofit can (and should) engage in nonpartisan voter registration and voter education work. To help your nonprofit do this, the Center is offering two free webinars next month:

Nonprofits that were registered as lobbyist principals in 2025 (and their staff or contractors who were registered as lobbyists) must file their final quarterly reports with the Secretary of State Lobbying Compliance Division by today. Lobbyist principals need to use the special fourth quarter expense reports (available online) that include the cumulative total payments to lobbyists for the year. To help you understand the basics of state lobbying laws affecting nonprofits, check out the Center's summary of NC lobbying laws for nonprofits.

Also, the NC Secretary of State has opened lobbying registration for 2026. Lobbyist principals (i.e. nonprofits that lobby) and lobbyists (i.e. nonprofit employees and contractors who lobby on behalf of nonprofits) must register annually with the Secretary of State. Lobbyists and lobbyist principals must register within a day after they begin lobbying.

Last Friday, the U.S. Department of Justice (DOJ) announced that its increased reliance on the False Claims Act last year led to a record-high $6.8 billion in FCA settlements and judgments in the last fiscal year (which ended on September 30, 2025). DOJ’s increased use of the FCA could have implications for nonprofits with federal grants and contracts.

In May 2025, DOJ issued a memorandum asserting that federal grantees and contractors are in violation of the FCA if they “certify compliance with civil rights laws while knowingly engaging in racist preferences, mandates, policies, programs, and activities, including through diversity, equity, and inclusion (DEI) programs that assign benefits or burdens on race, ethnicity, or national origin.”  Last month, DOJ reportedly began investigating the DEI practices of businesses and organizations that receive federal grants and contracts. DOJ’s recent investigations into federal grantees’ and contractors’ DEI practices appear to be a follow-up action to last spring’s memorandum. DOJ has also “strongly encouraged” private lawsuits challenging DEI practices of federal grantees and contractors. FCA violations can lead to significant financial penalties for organizations and criminal liability for individual staff or board members who knowingly violate the statute.

To reduce the risk of FCA violations, nonprofits with federal grants or contracts may want to review their employment practices and policies and their programs and services before certifying compliance with federal antidiscrimination laws. In particular, nonprofits may want to review the July 2025 DOJ memorandum that provides guidance on the types of policies and practices that are deemed “unlawful discrimination” for recipients of federal funds, including nonprofits with federal grants or contracts. The memorandum asserts that “unlawful proxy discrimination” is unlawful discrimination, explaining that “facially neutral criteria...that function as proxies for protected characteristics violate federal law if designed or applied with the intention of advantaging or disadvantaging individuals based on protected characteristics.” 

Last month, the White House Office of Management and Budget (OMB) released the Trump Administration’s President’s Management Agenda, which articulates the Administration’s priorities for management of federal government agencies. A new Governing article explains the history of the President’s Management Agenda, which was introduced during the George W. Bush Administration, and the potential implications of the new President’s Management Agenda for states and local governments.

Several parts of the President’s Management Agenda have implications for nonprofits with federal grants and contracts, including:

Nonprofits with federal grants and contracts have already experienced many of these management policy shifts during the past year. However, the President’s Management Agenda indicates that more challenges could be coming in 2026 and beyond. Many of these policy changes for federal grantees could come when OMB releases its update to its Uniform Guidance this year, following up on an August 2025 Executive Order from President Trump (EO 14332). The 2024 revision to the OMB Uniform Guidance made significant improvements to the rules for federal grants to nonprofits, including providing for a de minimis 15% indirect cost rate on federal grants, increasing the federal audit threshold to $750,000 per year, and simplifying the application process for federal grants. The forthcoming changes to the OMB Uniform Guidance could roll back these reforms and include new provisions politicizing the federal grant management system.

This week, the Internal Revenue Services published Rev. Proc. 2006-8 that sets for the procedures for groups of affiliated organizations to apply for tax-exempt status through a group exemption letter. The group exemption process makes it easier for local affiliates of a national or statewide nonprofit to obtain and maintain tax-exempt status. The IRS had stopped accepting applications for group exemption letters on June 17, 2020 and resumed accepting them this Tuesday (January 20). 

The new IRS guidance on group exemption letters also provides updated procedures that the central organization (typically the national or statewide nonprofit) would need to follow to maintain its group exemption letter. These procedures include:

The new IRS guidance also clarifies that applications for group exemption letters must be filed electronically using IRS Form 8940.

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.
©2026 North Carolina Center for Nonprofits

Not a subscriber? Sign up for Center emails.
Current Center Member? Access your benefits or create your account.
Not a Center Member? Join now.
Not a nonprofit? Support or affiliate with the Center.