The action (and inaction) at the NC General Assembly this week reflected the hot and stormy weather in Raleigh. Today’s policy update highlights the latest on two Center-initiated bills that would affect nonprofit corporate governance and fundraising (in good ways!). We also provide details on how the House’s votes to override four vetoed bills could impact nonprofits. And we share the latest on the state budget (still a work in progress) and state legislation affecting homelessness, Medicaid providers, and nonprofit fundraising events.
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NC Senate Approves Legislation to Modernize NC Nonprofit Laws |
On Wednesday, the NC Senate passed a bill (H.B. 517) that would make a variety of changes to modernize the NC Nonprofit Corporation Act to bring it into closer alignment with best practices for nonprofits and with nonprofit corporation laws in other states. These changes include:
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- Creating a simple annual report for North Carolina nonprofits. This change would help protect the reputation of our state’s nonprofits by helping prevent fraud and abuse of defunct nonprofits. Almost all other states currently have annual reporting requirements for nonprofits.
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Allowing nonprofits to merge with unincorporated nonprofit associations or limited liability companies (LLCs) that are treated as 501(c)(3) charitable organizations for federal tax purposes. As more nonprofits are looking to collaborate with other organizations or consolidate their operations, this revision would help ensure that they have the option of merging with other charitable organizations, regardless of their corporate form.
- Simplifying the process for nonprofits incorporated in other states to become North Carolina nonprofit corporations. This type of “domestication” provision could allow nonprofits to relocate to North Carolina without having to re-apply for tax-exempt status with the Internal Revenue Service.
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Creating a process for other business entities to convert to become nonprofit corporations.
- Requiring nonprofits incorporated in North Carolina in the future – other than private foundations – to have at least three board members. This would make the North Carolina law consistent with nonprofit best practices and with most other state nonprofit statutes.
- Clarifying that donor acknowledgment statements that follow the requirements of federal tax law are also acceptable for state law purposes. This clarification would help ensure that nonprofits are not unwittingly penalized for using donor acknowledgment language that is consistent with federal law and nonprofit best practices.
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The bill goes back to the House for one final vote, which is likely to happen next week. The House passed the bill last year by a 107-1 vote.
The Center has worked with the NC Bar Association on the details of this bill to modernize state nonprofit laws for nearly a decade. The Center is appreciative of Representative Heather Rhyne (R-Lincoln) for her leadership in getting the House to pass the bill, to Senator Benton Sawrey (R-Johnston) for his advocacy for the bill in the Senate, and to Representative Brandon Lofton (D-Mecklenburg), who is another primary sponsor of the bill and who has been a champion of modernizing the state’s nonprofit laws for the past seven years.
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NC House Bill Would Address Nonprofit Challenges Accessing Bequests from IRAs |
On Wednesday, the NC House Rules Committee approved a bill (S.675) that would address a variety of challenges accessing charitable donations that are made through bequests from individual retirement accounts (IRAs). Examples of these challenges, which typically result from policies of some financial institutions that hold IRAs, include:
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- Forced Account Creation. Instead of simply closing the IRA and issuing a check, some institutions require nonprofits to open an “Inherited IRA account” and become new customers of the financial institution.
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Invasive Personal Data Requirements. To open these accounts, nonprofits are often asked to provide personal information about an officer, including Social Security number, home address, and driver’s license—exposing staff to identity theft and data breaches, despite already providing proof of their tax-exempt status as an organization.
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Unnecessary Delays and Denials. If a nonprofit declines to provide this personal data, the institution may refuse to distribute the donation—contradicting the donor’s intent.
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The bill would address these issues by: |
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Defining acceptable (and reasonable) documentation that nonprofits could provide to financial institutions to verify their eligibility;
- Prohibiting financial institutions from requiring personal information of nonprofit staff and board members to process charitable distributions; and
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Requiring financial institutions to deliver charitable bequests to nonprofits within 60 days of receiving documentation.
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Savvy readers who noticed that we reported in last week’s policy update that the House had approved the bill in a 111-0 vote may wonder why the bill was back in a House committee this week. Shortly before the House vote on the bill last week, representatives from the financial services industry reached out the Center and to House leadership with some last-minute concerns about unintended consequences of the bill. The Center has worked with them on a new version of the bill that addresses their concerns but still protects nonprofits. Because the language of the bill is different than what the House passed in a vote last week, it needed to go back to a committee for review. The full House is scheduled to vote on the bill (again) next Tuesday. If the House approves the bill, it will then go to the Senate for a final vote.
The Center has worked with the North Carolina Council of Charitable Gift Planners in advocating for the General Assembly to take up this bill. We are appreciative of Representative Celeste Cairns (R-Carteret) for her leadership in getting the House to consider this important nonprofit legislation. |
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NC House Overrides Governor Stein’s Veto of Legislation to Eliminate DEI in State Government |
On Wednesday, the NC House of Representatives voted to override Governor Josh Stein’s veto of a bill (H.B. 171) seeking to eliminate diversity, equity, and inclusion (DEI) initiatives in state and local government in North Carolina. The bill, which includes a clear definition of “diversity, equity, and inclusion,” would prohibit state agencies, local governments, and public schools from promoting, supporting, funding, implementing, or maintaining DEI programs, policies, or initiatives and from applying for, accepting, or using federal funds, grants, or financial assistance that require compliance with DEI policies, initiatives, or mandates. It also would require the State Auditor to conduct periodic compliance audits to ensure that state agencies do not support DEI programs and initiatives. Last year, the House removed language from an earlier version of the bill that would have significantly limited DEI initiatives and programs in nonprofits with state and local funding.
The Senate could vote to override Governor Stein’s veto of the bill next week. Veto override votes require 60% supermajority votes in both chambers. If the Senate overrides the veto, most parts of the bill would take effect next Wednesday (July 1).
If (or more likely, when) the bill becomes law, the biggest practical impact for nonprofits will likely be that local governments will no longer be permitted to provide DEI-related grants to nonprofits. Under the bill, state agencies and local governments also would be prohibited from receiving federal grants the support DEI initiatives, but federal agencies are not currently funding DEI because of Trump Administration policies. However, by establishing a state law that prohibits state agencies and local governments from receiving federal grants related to DEI, the bill would continue to prevent state agencies and local governments in North Carolina from receiving federal grants supporting DEI initiatives - including pass-through grants that might have gone to nonprofits – even if a future administration were to revoke President Trump’s anti-DEI Executive Orders and related federal executive actions.
Separately on Wednesday, the House voted to override Governor Stein’s vetoes of legislation to ban DEI in public K-12 schools (S. 227) and public higher education institutions (S.558). The Senate had already voted to override the vetoes of both of those bills, so both are now law. Neither of those bills directly affect nonprofits.
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Legislative Leaders Still Negotiating State Budget |
This week, leaders from the NC Senate and NC House of Representatives continued negotiations on a state budget for FY2025-27, which began on July 1, 2025. North Carolina is currently the only state in the country without a state budget in place, and it now appears likely that the state will go the entire FY2025-26 year without a budget in place.
Last month, House and Senate leaders announced that they had agreed to compromises on three of the biggest differences between their chambers’ budget proposals – pay increases for state employees and public school teachers; future changes to state income tax rates; and funding for a new children’s hospital in the Triangle. Legislative leaders are still trying to have a final budget in place for a vote next month.
When legislators agree on a final budget, it will likely be presented as a conference committee report – meaning a final negotiated version of a bill that has passed both the House and Senate in different forms. That means that legislators will not be allowed to make amendments to the final budget bill – which will likely be well over 1,000 pages long – before voting on it. Many of the appropriations and provisions in the budget could have significant implications for nonprofits, including:
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Tax rate changes. The potential tax rate changes in the budget could impact future state funding for grants and contracts with nonprofits and for a variety of state programs and services that are important for people served by nonprofits. This year, North Carolina’s current individual income tax rate is 3.99% (down from 4.25% in 2025). The final version of the state budget is expected to lower the individual income tax rate to 3.49% next year, to 3.24% in 2030, and to 2.99% in 2033. Eventually, the rate could go as low as 2.49%, depending on total state revenue. The budget is also expected to maintain the scheduled phase-out of the corporate income tax, which is currently set at 2% and is scheduled to go down to 1% in 2028 and be eliminated in 2030.
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Other tax law changes. Typically, the state budget includes a variety of changes to state tax laws that legislators have considered during the session. Earlier this year, some members of the House contemplated limits on property tax exemption and sales tax refunds for nonprofit hospitals. If these provisions are included in the budget, they could set a dangerous precedent of limiting or eliminating state and local tax exemption for other charitable nonprofits.
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Medicaid funding. Typically, as part of the state budget, legislators provide funding for “Medicaid rebase,” which is essentially the amount of additional funding that the NC Department of Health and Human Services (DHHS) needs to cover Medicaid expenses due to enrollment increases and higher health care costs. Last year, legislators did not fund the full amount that DHHS requested for Medicaid rebase and instead waited until April 2026 to pass legislation providing full Medicaid funding for the current fiscal year. This led to DHHS cutting Medicaid provider rates last fall, although DHHS ultimately rescinded these rate cuts after several groups of providers brought lawsuits challenging the cuts. Lawmakers have prioritized reducing fraud and waste in Medicaid payments this year, so it is possible that they could provide less-than-full funding for Medicaid in the budget with the expectation that DHHS can reduce overall Medicaid expenses by reining in fraud and waste.
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Directed grants to nonprofits. The last state budget, passed in 2023, included about $1.5 billion in one-time, directed grants to nonprofits. It is likely that this year’s state budget will include some new, one-time funding for nonprofits, but it is unclear which nonprofits will receive these appropriations and how large the directed grants will be.
- Additional Hurricane Helene relief. Lawmakers have indicated that they will include more support for Hurricane Helene recovery in western North Carolina in the budget, but the details of this additional support has not yet been made public.
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NC IOLTA grant funding for legal services nonprofits. A state law from last year (S.429) forced the NC State Bar to stop making grants through the Interest on Lawyers’ Trust Accounts (IOLTA) program through June 30, 2026. The IOLTA grant program typically provides grant funding to a variety of legal services programs, so this state law has essentially defunded many legal services nonprofits for the first half of 2026. It is possible that the state budget could extend the freeze on IOLTA grants, create onerous new requirements for legal services nonprofits seeking these grants, or redirect IOLTA funds to other purposes, essentially extending the defunding of legal services nonprofits.
- Changes to other grant programs for nonprofits. Many nonprofits receive grants from a wide variety of state agencies. It is possible that the budget could include funding or policy changes to some of these grant programs.
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Other major policy changes. Typically, several bills that were considered by the House and/or Senate during the legislative session – along with some brand new legislative ideas – wind up being included as special provisions in the state budget, even if they do not directly affect state appropriations or tax laws. Your guess is as good as mine about what surprising provisions will appear in this year’s state budget.
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Once legislators release and vote on the state budget, the Center will share an analysis of key nonprofit appropriations and provisions in the Nonprofit Policy Update. |
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NC Senate Approves Bill to Establish Drug-Free Homeless Service Zones |
On Wednesday, the NC Senate passed a bill (H.B. 437) that would establish a drug-free zone within 100 feet of any facility (including a nonprofit) that receives government funding to provide housing or temporary shelter for people experiencing homelessness. Notably, the Senate unanimously voted to amend the bill on Wednesday to make it inapplicable to nonprofits that primarily provide other types of services to people experiencing homelessness (i.e., services other than housing or temporary shelter). The bill would create a criminal penalty for nonprofits that operate facilities to provide housing or temporary shelter for people who are experiencing homelessness if they intentionally allow the manufacture, sale, or distribution of illegal drugs at their facilities (with a limited exception for small quantities of marijuana). If the bill becomes law, affected nonprofits providing housing or temporary shelter for people experiencing homelessness also would be required to post at least one permanent sign at their facilities identifying them as drug-free zones.
The Senate-passed version of the bill also would prohibit local governments from allowing “unauthorized camping or sleeping” and instead would allow local governments to set up temporary locations for camping or sleeping by people experiencing homelessness. These temporary locations would need to be maintained by the local government on government-owned property and could only be maintained for less than a year.
The Senate passed the bill in a party-line vote. It now goes back to the House for a final vote. The House approved a version of the bill last year. |
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Let Us Know by July 6: How Would Proposed Changes to OMB Uniform Guidance Affect Your Nonprofit? |
Last month, the U.S. Office of Management and Budget (OMB) published on the Federal Register its proposed changes to the OMB Uniform Guidance, the rules that govern federal grants to nonprofits. OMB is proposing to change the name of the document from the Uniform Guidance to the Uniform Grants Regulation (UGR).
Notably, the proposed UGR maintains three important provisions from the 2024 revision of the OMB Uniform Guidance for which the Center and our nonprofit partners have advocated: |
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Ensuring that nonprofits may receive a de minimis indirect cost rate of 15% of their modified total direct costs on their federal grants;
- Setting the threshold for a single audit at $1 million in federal grants received; and
- Ensuring that federal agencies’ notices of funding opportunities (NOFOs) are clearly worded.
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The proposed rule would make several other significant changes to federal grant requirements. These would include: |
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Requiring political appointees to perform a “pre-issuance review” of many grant awards to ensure that grants are being used for purposes consistent with Administration priorities.
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Expressly providing that federal grant funds must not be used for: (a) diversity, equity, and inclusion (DEI) or diversity, equity, inclusion, and accessibility (DEIA) policies, principles, or practices; (b) gender ideology (meaning “theories or ideologies that deny the biological reality of sex or the sex binary in humans, or endorse or advocate for the notion that sex is a chosen or mutable characteristic); and (c) “the so-called ‘transition’ of a child under 19 years of age from one sex to another.” The proposed rule includes a lengthy justification for the legality of this new provision, presumably anticipating that it will be challenged in court.
- Ensuring that federal grants do not discriminate against (or in favor of) faith-based nonprofits.
- Providing that federal grants may not be used to promote or support “disparate impact liability.”
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Encouraging federal agencies to award multi-year grants instead of requiring nonprofits to reapply for federal grants every year. This change could create greater certainty or cost savings for many nonprofits.
- Requiring federal grantees and sub-grantees to provide assurances that none of their employees worked for a federal granting agency in the previous two years.
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Allowing federal agencies to consider the risk level of grantees based on their “history of questionable practices” which includes plagiarism, use of discredited studies, and engaging in activities that violate federal civil rights or religious liberty laws (presumably including the activities mentioned in the first bullet point above).
- Limiting the ability of federal agencies to require additional audits on nonprofit grantees.
- Increasing the authority of federal agencies to terminate or temporarily suspend federal grants for violations of the OMB UGR.
- Eliminating the use of fixed amount grant awards.
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Providing more leeway on how grantees establish their internal controls while also expressly requiring grantees to use the federal E-Verify system and to have cybersecurity measures in place to protect confidential business information.
- Limiting the ability of nonprofits to use federal grant funds for fundraising activities or to attend conferences unless these activities are approved by the federal granting agency.
- Expanding the prohibition on the use of federal grant funds for lobbying activities to restrict the use of federal grants for nonpartisan voter registration activities and for public messaging on public policy issues.
- Limiting the use of federal funds for membership in country clubs or in organizations whose primary purposes are Iobbying.
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OMB plans to publish a final version of the UGR this summer or early fall so that it will take effect on October 1, 2026 (the first day of the new federal fiscal year). The proposed UGR changes are open to public comment through July 13. If your nonprofit would like to submit comments, you can do so through the Federal Register. Venable law firm has a helpful summary of the major proposed revisions to the OMB Uniform Guidance and how they could impact nonprofits with federal grants.
The Center is planning to submit public comments on the proposal next month. Let us know if your nonprofit has federal grants or subawards and there are provisions that would be particularly harmful or beneficial for your organization. It would be helpful if you can provide your feedback by Monday, July 6 so the Center can include it in the public comments that we will be finalizing that week. Thank you if you have already shared your input!
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Conference Committee to Decide on Legislation that would Loosen Restrictions on Some Nonprofit Fundraising Events |
On Tuesday, the NC House of Representatives voted not to approve a Senate-passed bill (H.B. 198) that would make a variety of changes to state alcohol and gaming laws. Three of these changes would make it easier for nonprofits to conduct certain types of fundraising events: |
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One provision would exempt nonprofits from obtaining a one-time alcohol permit for certain types of fundraising events where wine, malt beverages, and spirituous liquor are sold at the event hosted by a retailer with an alcohol license.
- Another provision would enable nonprofits to obtain alcohol permits for multiple events in certain circumstances.
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A third provision would allow 501(c)(3) nonprofits to conduct an unlimited number of 50/50 raffles every year and would eliminate the caps on the value of cash prizes or real estate offered in raffles. Currently, nonprofits may only conduct up to five raffles in a year and prizes are limited to $125,000 in cash for any raffle, a total of $250,000 in cash for all raffles conducted during the year, and $2.25 million in appraised value for real estate.
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The House has preferred a different version of legislation on alcohol and gaming laws (H.B. 921). The House version includes the same one-time alcohol permit and 50/50 raffle provisions as the Senate bill. However, the House version does not include the multiple event permit provision from the Senate bill. The House bill also includes a provision (not in the Senate bill) that would increase the number of game night fundraising events that nonprofits may conduct from four per year to 24 per year.
The legislation now goes to a House-Senate conference committee that will try to come up with compromise language to send to the Governor this summer. |
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NC House Overrides Veto of Immigration Bill |
On Wednesday, the NC House of Representatives voted to override Governor Stein’s veto of immigration legislation (S.153) that requires a variety of state agencies to take steps to ensure that undocumented immigrants are not receiving state-funded services, including health care, affordable housing, and child care. The Senate voted last year to override the veto, so the new law took effect this week. A provision in an earlier version of the bill (but not the version that is now law), could have jeopardized some state and local grants and contracts for nonprofits that employ or provide services to undocumented immigrants.
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NC Senate Approves Bill to Broaden Ability of DHHS to Exclude Some Medicaid Providers |
On Tuesday, the NC Senate unanimously passed a bill (H.B. 34) that would allow the NC Department of Health and Human Services to retroactively revoke the ability of certain health care providers – potentially including some nonprofits – to receive Medicaid payments in the state if the providers’ licenses have been limited or restricted. The bill now goes back to the House for a final vote.
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New! Legal Compliance Checklist for NC Nonprofits |
Compliance matters, especially right now as nonprofits face increasing scrutiny. That’s one of the reasons the Center compiles and shares the annual Legal Compliance Checklist for North Carolina Nonprofits – and a new 2026 edition is available.
This comprehensive checklist outlines the rules and laws that apply to nonprofits’ governance, finances, advocacy, human resources, and fundraising – plus what’s changed and actions your organization may need to take. The 2026 edition has been reformatted to make it easier to navigate and expanded with updates on nonprofit corporate governance, federal tax laws, employment laws, federal and state grant requirements, intellectual property laws, and more.
Center members can access the checklist anytime as part of member benefits. Non-members can purchase the checklist for $50 (discounts for Center sustainers and associates). Access includes any updates throughout the year. |
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