Karen Kelly, Sharon L. McCarthy, and Jacob Paikin co-wrote an article for Tax Notes examining the Trump administration’s scrutiny of tax-exempt organizations and how nonprofit executives’ personal tax matters may be vulnerable to investigation as well.
In the article titled "Get Your Tax House in Order,” Karen, Sharon, and Jacob discuss how nonprofit executives may mistakenly believe that their personal tax issues cannot be probed as part of any investigation into their nonprofit organization.
During an investigation, it is not unusual for an investigation to broaden from reviewing the conduct and filings of an entity to broadening that scrutiny to investigate the individuals affiliated with the target entity.
Recently, the Trump administration has signaled through executive orders, public statements, and memos that some nonprofits may be reclassified as "domestic terrorist organizations" and face criminal investigation, with tax crimes included in potential charges. A leaked memo issued by Attorney General Pam Bondi on December 4, 2025, included guidance for federal law enforcement agencies regarding the investigation of entities that engage in specific conduct intended "to further liberal agendas."
When a nonprofit organization is under federal investigation, associated individuals also come under scrutiny. By default, this includes nonprofit executives, but can also include board members, key employees, and major donors.
A notable example of such an investigation was the prosecution of former Washington lobbyist Jack Abramoff and his associates. Abramoff was accused of giving kickbacks to government officials in return for government contracts. But he was also investigated for using nonprofit organizations to conceal both his income and payments to government officials. In 2006, Abramoff pleaded guilty to multiple federal charges that included evading $690,000 in federal income taxes by funneling his lobbying income through nonprofits.
Affiliated individuals and entities were also investigated as part of the Abramoff investigation. The Council of Republicans for Environmental Advocacy (CREA) was subject to scrutiny. The organization's president, Italia Federici, had a romantic relationship with Steven Griles, a federal official who was accused of taking kickbacks in the scheme. As part of the investigation, Federici’s personal finances were investigated. Ultimately, in 2007, she pleaded guilty to tax evasion because she did not file tax returns or report the income she earned from CREA.
It is not unusual in a Department of Justice investigation for the individuals affiliated with the target entity to be investigated. This is also the case in investigations into nonprofits. Therefore, nonprofit executives need to ensure their personal tax matters are in order if their tax-exempt organization is at risk for a federal investigation. This includes filing any missing personal tax returns, catching up on tax payments, and ensuring that income and other items are properly reported. Amending prior tax returns may also be necessary if information is missing or incorrect. Once a criminal investigation is opened, it may be too late to take corrective action.
The complete article can be found here.
About Karen
The former acting 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 criminal matters and defending clients in government investigations.
About Sharon
Sharon is a Fellow of the American College of Trial Lawyers and has extensive experience representing individuals and organizations in white-collar criminal matters, civil and criminal tax controversies, and complex commercial litigation. She has experience in a wide range of matters involving allegations of securities fraud, including unregistered offerings of cryptocurrency, insider trading, and alleged market manipulation; bank fraud; tax fraud; mail and wire fraud, including theft of honest services; accounting fraud; criminal antitrust violations; public corruption; and attorney misconduct, among others.
About Jacob
Jacob graduated with honors from Johns Hopkins University in May 2024 with a double major in Political Science and Economics and a minor in Psychology. He began his legal career as an intern at the Maryland Public Defender's office in Baltimore City, where he assisted with 16 felony and misdemeanor cases. Jacob was accepted into the Harvard Law School Class of 2029 through their Junior Deferral Program. Additionally, Jacob worked as an intern for Senator Tim Kaine (D-VA), where he engaged with constituents and crafted reports on legislative issues relating to the Russo-Ukrainian war and Supreme Court ethics reform.
