APRIL 1, 2026

Even though today is April Fool’s Day, we promise that the information in today’s policy update is not a joke (although we have included memes with each item to honor the holiday). We begin with the good news that a federal court in Texas dismissed a longstanding case that could have significantly weakened the Johnson Amendment. We include information about a new study showing the impact of government funding disruptions on nonprofit finances. We share the latest on a court ruling finding that last year’s defunding of NPR and PBS was unconstitutional, a new Executive Order banning DEI in federal contracts, and a court ruling preventing a federal agency from imposing an anti-DEI certification in a grant program. And we provide an update on the ongoing shutdown of the U.S. Department of Homeland Security.

Yesterday, a federal court in Texas dismissed a case in which the Internal Revenue Service and two churches in Texas sought approval of a consent judgment that would have allowed the 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 was seeking a court ruling that this nonpartisanship requirement (sometimes known as the Johnson Amendment) has 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.” As the Center has explained, by undermining the Johnson Amendment, the consent judgment would have set a precedent that could have troubling consequences for the charitable nonprofit sector.

The court ruled that it did not have jurisdiction to decide the case under the Tax Anti-Injunction Act since the case involved the potential revocation of the churches’ 501(c)(3) tax-exempt status, which would create tax liability for them. The court noted, however, the parties could consider bringing the lawsuit in a different federal court – the U.S. Tax Court, the U.S. Court of Federal Claims, or the U.S. District Court for the District of Columbia – if the IRS were to make a determination about the churches’ 501(c)(3) status as a result of their violation of the Johnson Amendment. The plaintiffs in the case plan to appeal the ruling to the U.S. Court of Appeals for the Fifth Circuit, but the appellate court will likely rule on the applicability of the Tax Anti-Injunction Act, not the underlying Johnson Amendment claims. If the plaintiffs’ appeal is unsuccessful, it is unclear whether the churches may file a new lawsuit in another court seeking an interpretation that the Johnson Amendment does not apply to their political endorsement. In the meantime, the Johnson Amendment remains fully in place without any limitations.

Yesterday, a federal court in the District of Columbia issued a permanent injunction that prevents the Trump Administration from implementing or enforcing an Executive Order from last May (EO 14290) aimed at defunding National Public Radio (NPR) and the Public Broadcasting System (PBS), two of the nation's largest and most prominent nonprofit news outlets. The Executive Order directed the now-defunct Corporation for Public Broadcasting (CPB) to immediately cease federal funding for NPR and PBS and directed other federal agencies to ensure that they do not provide funding to NPR or PBS.

Last summer, Congress approved a rescission request from President Trump that ended funding for CPB (hence its recent dissolution as a nonprofit corporation), NPR, and PBS. Yesterday’s court ruling found that the Executive Order violated the First Amendment by preventing NPR and PBS from receiving federal funding simply because the President disagreed with their reporting. While it does not restore their rescinded funding and cannot lead to the reformation of the CPB, the lawsuit means that NPR and PBS are once again eligible to receive federal funds from other agencies.

The ruling may also set an important precedent that could help bolster the legal case for other nonprofits whose federal grants have been terminated or suspended because they express ideas that are contrary to priorities of the Trump Administration. In a strongly-worded opinion, the court noted that “[i]t is difficult to conceive of clearer evidence that a government action is targeted at viewpoints that the President does not like and seeks to squelch” and that the President may not “use his governmental power to direct federal agencies to exclude Plaintiffs from receiving federal grants or other funding in retaliation for saying things that he does not like.”

Since January 2025, many nonprofits have experienced disruptions in their federal grants, through funding freezes, the elimination of some grant programs, the termination of many individual grants to nonprofits, and new certification requirements that have made some nonprofits ineligible for grants they previously received. Likewise, the lack of a state budget and projected declines in state revenue are likely to jeopardize many nonprofits’ state grants and appropriations in the near future.

Last week, the Urban Institute issued a report highlighting the impact of these grant disruptions on nonprofits. The report, which is based on an analysis of Form 990 data, found that more than 2,600 North Carolina nonprofits received government grants in 2023 and that these grants totaled more than $6.4 billion in revenue for these organizations. Of these North Carolina nonprofits receiving government grants, 78.82% would have a budget deficit if they lost their government grants, with the average organization facing a deficit of 32.9% of their budget.

Last Thursday, President Trump published an Executive Order (EO 14398) on the Federal Register that aims to prevent federal contractors from having diversity, equity, and inclusion (DEI) practices in place. The Executive Order directs federal agencies to include provisions in all contracts and subcontracts by April 25 prohibiting federal contractors and subcontractors from “engaging in any racially discriminatory DEI activities.”

The Executive Order also requires federal contractors and subcontractors to provide their contracting agency with any “information and reports, including providing access to books, records, and accounts” so that the federal agency can assess compliance with the anti-DEI provision. Further, the Executive Order allows federal agencies to cancel, terminate, or suspend contracts for violation of the anti-DEI provisions and to prevent noncompliant contractors or subcontractors from receiving future federal contracts.

Last week, a federal court in Illinois issued an injunction preventing the U.S. Department of Justice (DOJ) from requiring that recipients of a federal grant program aimed at supporting human trafficking survivors must certify that they do not operate programs with DEI components.

The court found that the DOJ certification requirements likely violated the First Amendment and Spending Clause of the U.S. Constitution, as well as the federal Administrative Procedures Act. While the injunction only applies to the DOJ grant program supporting human trafficking survivors, it shows why other similar anti-DEI certification requirements from individual agencies or across federal government may not hold up in court.

Temporary funding for the U.S. Department of Homeland Security (DHS) expired in February, meaning that DHS is officially shut down until Congress agrees either to fund it for the remainder of the fiscal year (through September 30) or through a temporary continuing resolution. Last Thursday, the U.S. Senate passed a bill (H.R. 7147) to fund all of DHS except for Immigration and Customs Enforcement (ICE) and Border Patrol.

For the past month, members of Congress have been negotiating with the White House on possible reforms to ICE and Border Patrol practices. On Friday, the U.S. House of Representatives rejected the Senate’s DHS funding bill and passed a separate bill to provide temporary funding for all of DHS – including ICE and Border Patrol – through May 22. Both chambers are on break this week and next week, so DHS will remain unfunded until at least the week of April 13 when Congress returns to Washington.

The DHS shutdown has led to many disruptions in airport security since the Transportation Security Administration (TSA) is part of DHS. To help alleviate these disruptions, President Trump issued a presidential memorandum last Friday directing DHS to work with the Office of Management and Budget to find funds that can be used to pay TSA workers until Congress restores funding for DHS. 

The Center is hosting a series of Nonprofit Policy Conversations this spring. Registration is open for the first three policy conversations:

At each policy conversation, the Center will provide a public policy briefing that includes the latest information about recent federal executive actions that could affect nonprofits and a preview of what nonprofits can expect during the 2026 short session of the NC General Assembly. We will also have a discussion for participants to share their insights about important state and federal policy issues for 2026. 

The Center is planning additional policy conversations for the Triad in collaboration with Guilford Nonprofit Consortium and HandsOn NWNC on Monday, June 15 (location TBD) and other regions of the state. Details and registration information will be available soon.

These weekly policy updates provide information on policy issues that could become laws in the future. Of course, nonprofit staff and board members need to be aware of a wide range of existing laws and regulations that affect their organizations’ operations. To help you better understand these laws, the Center is offering a two-part workshop series on legal compliance for nonprofits. The online workshops will be held on April 17 and April 24 from 10:00-11:30 a.m.

The first part on April 17 will cover nonprofit corporate governance, charitable solicitation, fundraising laws, and employment laws. The second part on April 24 will cover federal and state tax compliance issues for 501(c)(3) nonprofits as well as laws and regulations related to federal and state grants and contracts. The Center plans to offer three hours of CLE credit for attorneys who attend the live online workshops (pending approval). Register today.

Along with the legal compliance workshop series, the Center also plans to publish its updated and expanded legal compliance checklist next month.

As a reader of these weekly policy updates, you are probably aware that the Center takes positions on – and lobbies on – state and federal public policy issues that affect most or all 501(c)(3) nonprofits in North Carolina. The Center’s Board of Directors recently approved the 2026 Public Policy Agenda for North Carolina’s Nonprofit Sector, which describes the Center’s current positions on state and federal public policy issues affecting nonprofits. 

Many of the public policy solutions and challenges identified on the Center’s 2026 public policy agenda are included because of your input and the input of other nonprofits. For readers who don’t have the time to read through eight pages of policy positions, we have included a “cheat sheet” at the beginning of the document, highlighting the Center’s top five state and federal policy priorities for the year.

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

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