Kostelanetz partner Karen Kelly wrote an article for the Virginia State Bar Taxation Section’s newsletter titled “Administration Priorities May Threaten Nonprofits in Virginia,” which discusses Trump administration enforcement activities that could affect tax-exempt and nonprofit organizations in Virginia.
As Karen explains, not only are the targeted organizations at risk, but donors, executives, and affiliated individuals could also be at risk. Karen urges exempt organizations to thoroughly review their compliance policies and procedures, including checking that their tax filings are accurate and up to date.
Karen delves into how National Security Presidential Memorandum 8 (NSPM-7), issued on September 25, 2025, "Countering Domestic Terrorism and Organized Political Violence," could affect non-profits and tax-exempt organizations.
NSPM-7 directs the DOJ, the Treasury, and the Department of Homeland Security (DHS) to identify and investigate potential "domestic terrorist organizations." The broad definition of "domestic terrorist organization" can include "extreme" views on race, gender, immigrants, and "hostility towards those who hold traditional American views on family, religion, and morality." In addition to identifying and designating such groups as domestic terrorist organizations, the National Joint Terrorism Task Force and its local offices are directed to investigate them.
NSPM-7 also directed the IRS to investigate tax-exempt entities suspected of "directly or indirectly financing political violence or domestic terrorism" and to refer employees and officers of these organizations — and the exempt organizations themselves — to DOJ for further investigation and potential prosecution.
Karen also explains how investigations of targeted tax-exempt organizations and associated individuals are now a major priority for the Trump administration, following a December 4, 2025, directive from then-Attorney General Pam Bondi. The Bondi directive laid out a whole-of-government approach to the "grave threats" she said were posed by "Antifa-aligned extremists." Under Bondi's directive, federal law enforcement and the DOJ must also consider applicable tax crimes in which such entities or affiliated individuals are suspected of defrauding the IRS.
Karen notes that the incredibly broad scope of NSPM-7 and subsequent directives puts politically sensitive organizations at risk, particularly those advocating for immigrant rights and gay rights. The organizations themselves could face significant scrutiny from the federal government, but so may their individual donors, grantors and funders, executives, and employees. While certain nonprofits face greater risks, Karen advises all nonprofit organizations to be prepared, given the directives to make criminal investigations a top priority.
Karen notes that Virginia nonprofit organizations could be particularly at risk, because the Eastern District of Virginia is a favored judicial venue of the Trump administration. Organizations with offices in Virginia may, therefore, be at heightened risk for federal investigation.
Karen urges nonprofit executives, key employees, and advisors to audit their compliance programs, review annual tax filings, donor lists, funding sources, and other crucial information, and to communicate the current legal reality with their donors and stakeholders. Nonprofit organizations in Virginia should operate with the assumption that civil audits and criminal investigations may be forthcoming and prepare accordingly.
You can learn more about NSPM-7 and the expected impacts on the nonprofit world by reading the complete article here.
About Karen
The former head of the Justice Department’s Tax Division, Karen joined Kostelanetz after more than 30 years of federal and state trial practice, including prosecuting tax and white-collar crime. Her practice focuses on representing clients in state and federal civil tax controversies, defending clients in government investigations, including in criminal tax and white-collar matters, and against state and federal criminal charges.