WCTEO 2026: Selected Highlights

Published on: by Gene Takagi Category:CALIFORNIA LAW, CURRENT AFFAIRS & OPINION, EVENTS, IRS & FEDERAL TAX ISSUES, RISK MANAGEMENT
The California Endowment sign in front of the building.

The following are just some of the many highlights from the 2026 Western Conference on Tax Exempt Organizations (WCTEO). As with all of our posts capturing highlights of events, my interpretations, opinions, and selection of additional resources may be sprinkled with the information provided by the presenters.

Tribute to Doug Mancino

Beyond the Congressional Record, there were several warm-hearted and teary moments about the man who initiated the formation of the WCTEO with Ellen Aprill.

Power Hour Plus

Ofer Lion, Seyfarth Shaw 
Jean Tom, Davis Wright Tremaine

  • OBBBA (OB3 Act):
  • Floor on deductions for itemizers and corporations
  • Charitable deductions for non-itemizers – limited to $1,000 for single filers / $2,000 for married couples filing jointly (contributions to DAFs and private non-operating foundations are not eligible)
  • Deductions: 60% AGI limit for cash contributions to public charities is now permanent
  • Federal estate and gift tax exemption increased to $15 million for 2026 (adjusted for inflation thereafter)
  • The Current Moment for Tax-Exempt Organizations
  • Executive Orders Affecting Tax-Exempt Organizations (adverse to the sector) – 2025, 2026
  • NSPM-7: Countering Domestic Terrorism and Organized Political Violence
  • HR 9495: HR 6800 (to terminate the tax-exempt status of terrorist supporting organizations)
  • S.3942: “Stop Proxy Organizations Nurturing Subversive Operations and Riots”(SPONSOR) Act (to provide that 501(c)(3) organizations are liable for the use of funding provided as a fiscal sponsor)
  • Queries:
    • What is charitable now?
    • What is illegal now?
  • Implications for the sector:
    • evaluate their own risk profile and engage in risk assessment of their practices
    • examine/audit their race-conscious/DEI and other targeted programming or practices
    • Supreme Court opinion excerpt (SFFA v. Harvard): “…nothing in this opinion should be construed as prohibiting universities from considering an applicant’s discussion of how race affected his or her life, be it through discrimination, inspiration, or otherwise. … A benefit to a student who overcame racial discrimination… must be tied to that student’s courage and determination.”
  • State Law
    • Texas and Florida Designation of Terrorist Groups (reflects federal concerns regarding foreign influence in nonprofits) – be very careful in Florida about money from foreign sources of concern, including foreign countries of concern (how would the charity know where a donor is from?)
    • California AB 488 (and Hawaii’s similar bill which will become law on July 1, 2026) – be careful of requirement of good standing to be/remain on charitable fundraising platforms – a delinquency can take many months to cure and leave a charity unavailable to use a fundraising platform for a major campaign (e.g., Giving Tuesday)
  • Priority Guidance Plan for 2025-26 and Notice 2025-19 request for comments
    • Guidance under §4960 regarding excess compensation paid by applicable tax-exempt organizations, including the expanded definition of “covered employee ”beyond the top 5 highest paid employees
    • Regulations under §4945 regarding expenditure responsibility requirements
    • Guidance on the application of the fundamental public policy against racial discrimination, including consideration of recent case law, in determining the eligibility of private schools for recognition of tax-exempt status under §501(c)(3)
    • Guidance on the statutory prohibition in §501(c)(3) against participation or intervention in political campaigns (the “Johnson Amendment”)
    • What got dropped?
      • Guidance under section 4941 regarding a private foundation’s investment in a partnership in which disqualified persons are al
      • Regulations under section 4958 regarding donor advised funds and supporting organizations
      • Guidance regarding the public-support computation with respect to distributions from donor-advised fund
  • Pulpit Politics: Can Churches Now Campaign?
    • Johnson Amendment: 501(c)(3) organizations, including churches and religious institutions, are strictly prohibited from participating or intervening, directly or indirectly, in any political campaign on behalf of or in opposition to a candidate for public office
    • National Religious Broadcasters, et al. v. Long (E.D. Texas, July10, 2025) – waiting to see if court will approve consent judgment/decree in which the IRS agreed to a narrowed enforcement position for the plaintiff religious organizations; allows churches to endorse candidates from the pulpit without violating their tax-exempt status, provided it is done through “customary channels of communication” on matters of faith during religious services
  • Group exemption
    • Rev. Proc. 2026-8
    • Lifts 5-1/2 year suspension on issuing new group exemptions
    • Minimum of 5 subordinate organizations
    • Clearer and higher standards for affiliation and general supervision or control
  • What’s AI up to in the Nonprofit Sector?
    • Healthcare – Epic AI Charting (listens during patient visits, drafts the clinician’s note, and queues up orders based on the conversation)
    • Data protection – do not load sensitive materials into AI
    • OpenAI conversion saga
  • Higher Education
  • Carl Barney and the Appraisers – lesson: your qualified appraisal better be good
  • Charitable contribution – still “strict liability” for substantiation/appraisal requirements
  • Regulatory instability
    • Loper Bright Supreme Court case (2024) ended Chevron deference
    • DAF proposed regulations (2023)
    • Memorial Hermann v. IRS (5th Circuit Decision, October 28, 2024);
    • Freedom Path, Inc. v. Internal Revenue Service, 805 F. Supp. 3d 329 (D.D.C. Sept. 30, 2025);
    • Split Dollar Loans (4960 Regulars: “ATEOs [i.e., applicable tax-exempt organizations] that are private foundations or section 509(a)(3) supporting organizations should consider, before entering into these[split-dollar loan] arrangements, that loans (including transactions treated as loans for Federal tax purposes) to certain employees may constitute an act of self-dealing under section 4941 [for private foundations] or an excess benefit transaction under section 4958(c)(3).” Treas. Dec. 9938, 86:11 Fed. Reg. 6196, at 6205 (January 19, 2021)(emphasis supplied))

Reconsidering Bob Jones: Public Policy, Illegality, and DEI 

Roger Colinvaux, Columbus School of Law
James Joseph, Arnold & Porter
Joshua Mintz, MacArthur Foundation 
Moderator: LaVerne Woods, Retired 

  • Note: Executive Orders (EOs) and other executive actions do not create law or overturn existing law – understand “illegal DEI” in such context, also the contexts of illegal actions described in EOs regarding immigration and child abuse
  • Law: Internal Revenue Code Section 501(p) – suspension of tax-exempt status if the organization is formally designated as a terrorist group or determined to support terrorist activities; existing IRS Process for Auditing and/or Revoking Tax-Exempt Status (see, e.g., How the IRS Can—and Cannot—Revoke Federal Tax-Exempt Status (Jeff Tenenbaum, ABA Business Law Section))
  • Recent developments: EO designating Antifa as a domestic terrorist designation despite the fact that Antifa is a colloquially named movement, not an organization); PSLF regulations and NSPM-7: “domestic terrorists . . . [are waging] a violent assault against democratic institutions, constitutional rights, and fundamental American liberties. Common threads animating this violent conduct include anti-Americanism, anti-capitalism, and anti-Christianity; support for the overthrow of the United States Government; extremism on migration, race, and gender; and hostility towards those who hold traditional American views on family, religion, and morality.”
    • Rhetoric plus federal actions – “This time is different” (attacks on ideology and purpose)
    • But nonprofits can choose not to engage in anticipatory obedience with rhetoric that is not law or is itself against the law
  • Illegality and violations of fundamental public policy as bases for denial or revocation of 501(c)(3) status – see Once and Future Revocation of Tax Exemption for Pursuit of DEI and Other Alleged Violations of Section 501(c)(3) (Ellen Aprill, SSRN)
    • What is fundamental public policy?
      • As a condition of qualifying under 501(c)(3) – used very, very sparingly (a few EOs do not make a fundamental public policy)
      • In Bob Jones – no doubt; firm nation-wide policy; agreement among all three branches of federal government; some case laws, legislation; the IRS should not be given authority to determine which public policy is fundamental (also Lope Bright)
    • What about illegality as revocation – Rev. Rul. 75-385 (encouraged civil disobedience)
      • Illegal DEI – what makes a particular activity illegal – there must be some law
  • Tip: For grant reports, less is more
  • Section 1981 and application to private entities to attack race-conscious charitable activities
  • Colinvaux: Section 1981 shouldn’t apply to donative transfers (e.g., grant agreements) because they are fundamentally different from a commercial type transaction contemplated in the statute (which was enacted in 1866 to protect formerly enslaved Black persons have the same rights to enter into and enforce contracts as White persons)
    • Charity is exclusionary by nature (charitable class) – laws need to factor that fundamental principle
    • The First Amendment right of expressive association strongly supports the efforts of private groups to address social problems free from government interference
    • See Charitable Giving and Civil Rights: A Defense of Private Remedial Action (Roger Colinvaux, Yale Law Journal)

Navigating the New World of College Sports

Bob Lammey, EY 
Rich Schmalbeck, Duke University 
Tammi Wong, University of California, Office of the President (pending approval)
Moderator: Debi Heiskala, EY 

  • College sports – 3 epochs: (1) starting 1852 first intercollegiate competition and progressing through early years of college football and basketball (not much revenue generation); (2) starting on July 13, 1978 and the founding of ESPN; (3) starting with NIL policy
  • Congressional inquiries: What is the charitable purpose of college sports? What about the private benefits associated with big-time college sports? How should the unrelated business income tax apply?
  • Pre-NIL: Television revenue from big-time sports as unrelated business income – 80% Solution and Donor Purchase of Seat Rights (before 2018, donors who make contributions to colleges in exchange for seat rights could deduct 80% of their gift even if it would otherwise be in violation of quid pro quo rules))
  • Be aware of solutions that address the 5% of student-athletes at the steep cost of the other 95%
  • See The NCAA and the IRS: Life at the Intersection of College Sports and the Federal Income Tax (Richard Schmalbeck & Lawrence Zelenak, Southern California Law Review); NCAA’s Tax-Exempt Status Under Pressure as Student-Athletes Gameplan for New Revenue Sharing (Tim Shaw, Checkpoint News, Thomson Reuters); Are Changes Coming to Tax Treatment of College and University Athletics? (Thomas C. Schroeder, Davis Wright Tremaine)

Keynote – “You’ll Get Through This”: Navigating Reputational Threats During a Crisis

Eric Herman, Teneo 
In conversation with Jill Horwitz, Northwestern School of Law 

  • Tip: Consider PR hygiene to communications
  • Tip: Have a crisis plan or a crisis planning process
    • Scenario planning: First ask what are 3, 5, or 10 things that can go wrong or that I’m most worried about?
    • Audience identification: What audiences do we most care about and how do we best communicate with each?
    • Written plan: ideally develop one with the help of crisis communications experts and lawyers
  • Tip: Monitor media references to the organization (and its programs and key employees)
  • Note: Credibility is everything – don’t lie, don’t mislead, don’t negligently misstate, don’t deflect in ways that surrender your credibility

Creative Structures for the Common Good

Erin Bradrick, NEO Law Group
Jorge Lopez, Builders Vision  
Karl Mill, Mill Law Center 

  • Karl: What is meant by common good? Should it be examined on a redistributive – extractive scale or a democracy – plutocracy scale or a spectrum of all of these things?
  • Erin: Fiscal sponsorship structures can be used to advance the common good, but fiscal sponsorship basics are not well understood by attorneys, funders, agencies, groups seeking fiscal sponsorship, and lawmakers (e.g., see Ted Cruz’s bill defining fiscal sponsorship – SPONSOR Act); this is why the nonprofit sector may want to control the definition and limit it to just Model A (comprehensive) fiscal sponsorship
  • Karl (subbing for David Shevlin): Nonprofit-For-profit affiliations – prudent investment – mission-related investment (enough to be considered prudent) – program-related investment; collaborations vs. joint ventures; private benefit considerations; unrelated business income tax considerations
  • Jorge: Description of Builders Vision – example of philanthropy using multiple structures to maximize impact

International Issues Land Ashore

Rose Chan Loui, UCLA School of Law
Atiqua Hashem, Conrad N. Hilton Foundation   
Ruth Madrigal, KPMG  
Moderator: Ingrid Mittermaier, Adler & Colvin 

  • Charitability in the International Context
    • 501(c)(3) charitable purposes can be furthered through foreign activities
    • Donations to U.S. charities intended for foreign charitable NGOs may be tax deductible if not earmarked
  • Grantmaking by Private Foundations to Foreign Organizations
  • U.S. Anti-Terrorism Financing Laws – See, e.g., Our Response to Anti-Terrorism Financing Guidelines (MacArthur Foundation)
  • Foreign Corrupt Practices Act (FCPA) – See A Resource Guide to the U.S. Foreign Corrupt Practices Act, Second Edition (DOJ & SEC)
  • Foreign Agents Registration Act (FARA) – See FARA and Nonprofits: Recent Developments and Compliance Considerations (Matthew T. Sanderson, Caplin & Drysdale)
  • Current Developments
    • “the actions align with a playbook deployed in illiberal democracies” to constrain, control, and otherwise capture the nonprofit sector – fundraising constraints, redirection; investigations and law enforcement; stigmatization of the sector
    • Targeted negative impacts on the nonprofit sector using dollars (e.g., funding cuts), laws, and words
    • Alternatives to US AID that may end up being bright spots – e.g., African Development Bank, Asian Development Bank

Developing a Response Plan

Monique Abrishami, Levy Firestone Muse 
Rachel Levy, Deloitte Tax LLP
Andrew Schultz, Adler & Colvin 
Moderator: Helen Cheng, Withers

  • Preparing for IRS inquiries – IRS agents love and are sticklers for process – these processes can also create some safeguards against attempted politicization
  • Preparing for inquiries from other agencies – from a nonprofit client’s perspective, even if certain agencies may not pose the same risks as the Department of Justice, the associated legal costs and administrative burdens may be very high regardless, even if the nonprofit is simply subpoenaed for an investigation of another party
  • Note: If accepting federal funding, a nonprofit’s risk profile may be very different from its peers that do not accept federal funding – potential threat of violation of False Claims Act – See FAQs for Recipients of Federal Funding Regarding Required Certifications (Lawyers Alliance for New York and NYLPI)
  • Note: Some agencies (and funders) may want language in an organization’s policies re: terrorism and illegal activities (some may even ask about specific provisions re: civil disobedience and protest activities that violate the law)
  • Tip: Fight the fights you need to fight, but don’t fight stupid fights (e.g., consider relationship to mission as well as benefits and risks of action or inaction as they relate to the organization)
  • Tip: If you’re thinking you need a new or revised document retention policy, make sure you consider more broadly document management and what data you’re collecting and how is it being maintained – consider the very high cost of document review which may include many thousands of communications that contain useless information, some of which may be potentially very harmful or very expensive to investigate (e.g., Slack communications open to outsiders to bring in other outsiders; emails asking in the subject line: “Is this illegal?”)
  • Tip: Develop and train staff on a process if a government agency comes to the office
  • Tip: Develop guidance to staff for international travel and coming back home (for some organizations – burner phone and new laptops to protect sensitive organizational information)
  • Tip: Develop relationship with banks to understand their process in an investigation of a client

State Actions

Mary Beckman,  Office of the Massachusetts Attorney General, Retired 
Rob Wexler, Adler & Colvin  
Casey Williams, Liebert Cassidy Whitmore 
Joseph N. Zimring, Office of the Attorney General, Charitable Trusts Section 
Moderator: Gene Takagi, NEO Law Group

  • CA dissolution proposed regulations pulled
  • CA AG actions re: Flipcause and GoFundMe
  • state interest and actions related to charity mergers, transfers of substantially all assets, and dissolutions – major corporate transactions involving charitable assets held in charitable trust (e.g., CA AG – Nonprofit Transactions)
  • hypo discussion of CA nonprofit, public charity, university with campuses in CA and MA in financial distress and contemplating various options including a merger with NY university, sale of strong financial performing assets to board members, dissolution – fiduciary duties of the board, best interests of the corporation (in light of the charity’s purposes – ALI Restatement of the Law, Charitable Nonprofit Organizations), employee interests, community’s interests, AG’s role)

Audits and Investigations

Ellen Aprill, UCLA School of Law
Dwayne Horii, Rodriguez Horii Choi & Cafferata LLP
Michael Mondelli, SingerLewak LLP
Steve Toscher, Hochman Salkin Toscher Perez P.C.
Moderator: Terri Cammarano, Cedars Sinai 

  • Setting:
    • AG Bondi Dec. 4, 2025 memo directing federal law enforcement to “consider any applicable tax crimes in cases in which extremist groups are suspected of defrauding the Internal Revenue Service.”
    • New York Post Jan. 30, 2026 article reporting that Treasury Secretary Bessent is planning to appoint senior officer in Treasury to go after nonprofits that “use and abuse” their charity status, to include excessive political activities, lobbying, or fraud.
  • Tip: If you get ANY mail from the IRS: open it immediately and get it to your executive director and your CPA and/or tax attorney right away; DO NOT handle an IRS audit by yourself. Get professional help.
  • Note: There is no privilege between CPA and client unless there is a Kovel agreement through an attorney
  • Tip: Consider a FOIA request to see what is in government’s files (easy to send, but may take substantial time to get a response – still worth it)
  • Tip: If an organization has evidence that the IRS is considering revocation of its exempt status on First Amendment (and perhaps other Constitutional) grounds, it need not wait for a final adverse determination to seek judicial review. Z Street v. Koskinen