HARMON CURRAN NONPROFIT LAW BLOG

On September 30, 2025, the U.S. Department of the Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) published a Priority Guidance Plan (“PGP”) for 2025-2026. The PGP identifies over one hundred guidance projects that, according to Treasury and the IRS, will be prioritized during the 12-month period of July 2025 through June 2026. Among the projects identified in the PGP, two are potentially significant for tax-exempt organizations described in section 501(c)(3) of the Internal Revenue Code (“Code”):

·       “Guidance on the application of the fundamental public policy against racial discrimination, including consideration of recent caselaw, in determining the eligibility of private schools for recognition of tax-exempt status under §501(c)(3)”; and

·       “Guidance on the statutory prohibition in §501(c)(3) against participation or intervention in political campaigns (the ‘Johnson Amendment’).”

New guidance in these areas could have a significant impact on section 501(c)(3) organizations. This blog post provides background information on the areas of law relevant to both projects and discusses their potential implications.

Public Policy Doctrine

By referring to “the application of the fundamental public policy against racial discrimination” the PGP invokes the public policy doctrine, an IRS-developed rule under which tax exemption may be denied or revoked if an organization’s purposes are contrary to a “fundamental” public policy. Historically, the IRS has deployed this doctrine sparingly. Its primary application has been to private schools that maintained policies of racial segregation or otherwise discriminated based on race. As the IRS explained in 1971, the United States has a “well-settled” policy against racial discrimination in education and other areas of public interest. Thus, “a racially nondiscriminatory policy as to students” is necessary for any school, private or public, to be “‘charitable’ within the common law concepts reflected in sections 170 and 501(c)(3) of the Code and in other relevant Federal statutes” and qualify for exemption from Federal income tax. The IRS clarified in 1975 guidance, however, that this doctrine is compatible with remedial efforts to establish and maintain policies of desegregation and nondiscrimination.

The U.S. Supreme Court upheld the IRS’s application of the public policy doctrine in 1983 in Bob Jones University v. United States. In Bob Jones, the Court affirmed the revocation of a private university’s tax exemption because the university, which had formerly excluded all Black applicants, continued to prohibit interracial dating among students and “den[ied] admission to applicants engaged in an interracial marriage or known to advocate interracial marriage or dating.” In its decision, the Court made clear that the public policy doctrine should only apply “where there can be no doubt that the activity involved is contrary to a fundamental public policy.”

Outside the context of racial discrimination in private education, the public policy doctrine’s reach has been limited. One reason for this is that requiring a public policy to be “fundamental” presents an arguably high bar. Bob Jones illustrates this. There, the Court relied on decades of consistent precedent from the judicial, executive, and legislative branches to conclude that the public policy violated by Bob Jones University was fundamental. Indeed, the Supreme Court had established that racial discrimination in public education was unconstitutional in a string of cases stretching from the 1930s to the 1950s. President Harry Truman had ordered the U.S. Armed Forces to desegregate in 1948, and the Executive Branch took an active role in desegregation in the ensuing decades. Congress had enacted landmark civil rights statutes targeting racial discrimination in public life in the 1950s and 1960s. Yet it was not until the 1970s that the IRS issued its first decisions declaring that racial discrimination in private education was contrary to a fundamental public policy. By this time, as the Supreme Court observed in Bob Jones, “the position of all three branches of the Federal Government was unmistakably clear.”

The PGP’s mention of “recent caselaw” may indicate that the IRS plans to reinterpret the public policy doctrine in light of the Supreme Court’s 2023 decision in Students for Fair Admissions v. President and Fellows of Harvard College, which held that race-conscious admissions policies at Harvard and the University of North Carolina were unconstitutional. The PGP may also have been alluding to Alliance for Equal Rights v. Fearless Fund Management, LLC, a preliminary decision by the Eleventh Circuit from 2024 concerning a grant contest for small-business owners that was expressly limited to Black women. Based on the contractual nature of the contest’s rules and the categorical exclusion of non-Black applicants, the court ruled that the grant contest was substantially likely to violate 42 U.S.C. § 1981, a federal civil rights statute prohibiting racial discrimination in “the making, performance, modification, and termination of contracts.” The court rejected Fearless Fund’s arguments that its contest was protected by the First Amendment or a “remedial-program exception” to anti-discrimination laws. But the opinion stopped short of ruling that no such exception exists or deciding whether a private, race-conscious remedial program that did not create an “absolute bar” to some applicants based on their race could withstand a section 1981 challenge.

Shortly after the Eleventh Circuit’s Fearless Fund decision and the resulting preliminary injunction, the parties settled, with Fearless Fund announcing that it was ending its grant program. Any new IRS guidance on the public policy doctrine may confront questions that were not resolved in Bob Jones, Students for Fair Admissions, or Fearless Fund. For example, the IRS might assert a public policy against race-conscious remedial programs operated by private schools or other tax-exempt organizations. If so, courts may be asked to decide whether a public policy that is sufficiently fundamental to support the denial or revocation of tax-exempt status can be established without the historical predicate of unanimous and consistent interpretation and action across branches of government that the Supreme Court found relevant in Bob Jones.

Prohibition on Political Campaign Intervention

Since 1954, organizations described in section 501(c)(3) have been prohibited by the Code from participating or intervening in any political campaign on behalf of, or in opposition to, any candidate for public office. This rule, known as the “Johnson Amendment” because it was enacted through a legislative amendment introduced by then-Senator Lyndon Johnson, is stated directly in the text of section 501(c)(3) of the Code. The prohibition is both categorical and absolute. If any section 501(c)(3) organization, including a church, engages in any amount of campaign intervention, excise taxes can be imposed on the organization and its managers and, if the organization continues to engage in such activities, the organization’s tax-exempt status can be revoked.

The President has criticized this rule, and the IRS has recently signaled reluctance to enforce it against religious organizations. In a July 2025 court filing, for example, the IRS took the position that the Johnson Amendment is not violated “[w]hen a house of worship in good faith speaks to its congregation, through its customary channels of communication on matters of faith in connection with religious services, concerning electoral politics viewed through the lens of religious faith,” because such an organization “neither ‘participate[s]’ nor ‘intervene[s]’ in a ‘political campaign,’ within the ordinary meaning of those words.” According to the July 2025 filing, a church endorsing political candidates to its congregation during religious services is no more problematic under section 501(c)(3) than “a family discussion concerning candidates.”

The inclusion of a project focused on the Johnson Amendment in the PGP may indicate that the IRS plans to formalize its recent interpretation of section 501(c)(3) in new guidance. If so, the effects for churches and other tax-exempt religious organizations in elections in 2026 and beyond may be significant. And there may be broader implications. For example, if the IRS carves out an exemption from the Johnson Amendment for churches and religious organizations based on First Amendment concerns, will nonprofit news organizations, universities, think tanks, and the many other organizations with missions that also implicate the First Amendment have a basis to argue that they qualify for similar carve-outs? Looking one step further, if the forthcoming guidance posits a conflict between the First Amendment and the text of section 501(c)(3), what will that imply for the statute’s lobbying restrictions? The IRS may risk breathing new life into the argument rejected in Regan v. Taxation Without Representation—that, by prohibiting substantial lobbying, section 501(c)(3) restricts nonprofits from exercising their First Amendment rights, thus imposing an “unconstitutional condition” on the receipt of tax-deductible contributions.

As the 2025-2026 PGP period enters its final months, it remains to be seen how any new guidance issued by the IRS will resolve these questions. If no guidance on these topics is issued by June 2026, the guidance priorities may be extended into the next plan year.