Editorial note: this essay originally appeared at The Giving Review.
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Illegality, asymmetry, neutrality, intentionality, and liability
The definition of “illegal” “is straightforward,” but “things that are against public policy also run afoul of the doctrine against illegality. … The classic example is a school for pickpockets. It’s certainly legal to operate a school, but that’s clearly not going to be in the public interest and it’s not something that should be subsidized through the tax code or through the way that charities are addressed under state law.”
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Conservative and free-market foundations “don’t tend to have relationships with community-organizing-type groups. They don’t tend to have relationships or fund groups that engage in direct action. They don’t tend to fund or have relationships with groups that operate in areas overseas that are controlled by foreign terrorists.
“And so there really is this asymmetry, where there is this whole set of potential illegality issues that is, I think, a very serious matter for a lot of the progressive philanthropic movement, but doesn’t necessarily have a lot of resonance on the other side of the fence, just because they pursue different strategies.”
Might that plausibly lead one to conclude there’s ideologically motivated enforcement or application of the law? “It’s really an application of neutral principles because it’s always been the principle that … charitable funds shouldn’t be used for unlawful conduct. … It’s not something, I think, that’s appropriate for a charity to do—to turn a blind eye to grant recipients using the money, resources, connections, and so forth to carry out unlawful activities. I think there’s been this nonchalance among a lot of the progressive-philanthropy community, kind of just looking the other way or laughing it off.”
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If a “foundation simply gave money to a group that subsequently happened to be involved in some sort of criminal activity, those bare facts alone would never support criminal liability. That’s just not the way that it works.
“Generally, there has to be a greater intent that is involved. So at a minimum, that’s going to be knowledge.” In the case of federal criminal charges, “there has to be some nexus to something that’s a federal crime and then, particularly” in the contexts of “charities and foundations, you’ve got this overlay of federal tax law. There’s this interesting interaction where if their grantees are undertaking unlawful activities, the fact that a foundation or a charity knew about that, that might support—and I may be going out on a limb here—but it might support some sort of tax-fraud charge, where something like that … arguably, that could be an improper use of charitable assets. And it might well lead to an improper reporting of the use of charitable assets.
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“For groups that find themselves now facing potential risk” of investigation or prosecution “over funding decisions they’ve made, of course their response is going to be this is an attack on civil society, whereas for groups that have been carrying out their missions, and paying attention to their obligations under law, and not doing things that are potentially subject to criminal liability—which is the vast swath of civil society—this is not really going to be part of their risk profile.”
— Andrew Grossman, from “A conversation with BakerHostetler’s Andrew Grossman (Part 1 of 2),” October 20, 2025, and “A conversation with BakerHostetler’s Andrew Grossman (Part 2 of 2),” October 21, 2025
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Civil terrorism and nonprofit status
“If you’re using your nonprofit status to organize unlawful activity, you are abusing the implicit deal that I talked about earlier, about using your special nonprofit status for good to advance the public welfare through robust and informed discussion of speech. I don’t think that there’s anything inherent in our nonprofit system that says that you should be able to organize crimes, even if you think that those crimes advance the public welfare in some way. That seems like a pretty crazy reading of our nonprofit system.”
Civil terrorism is different than the civil disobedience of protests during the civil-rights era. “For the most part, civil disobedience” in that era “was meant to draw attention to the injustice of the law being violated. No one thinks that there’s anything on just about laws blocking highways or preventing vandalism, at least not for now.”
Plus, more largely, “those who engaged in civil disobedience did not have access to the democratic process. That was precisely what they were protesting against. “Their ability to vote was actually hampered, and they had to express … their will as a cohort of American citizens by other means.
“No one today claims that the activists who blocked the Golden Gate Bridge or vandalized Columbia University’s property are being denied access to the democratic process and are unable to vote their will and express it that way. They’re just choosing not to use those lawful, wonderful means to advance their ends. They are choosing law-breaking where law-breaking is not the only option.
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“[T]here is not an enormous history of grantors being held liable, civilly or criminally, for the actions of their grantees. But theoretically, a grantor who knows that their grants are going to organize Illegal activity—what are known under the racketeering statutes as predicate acts—if you know that your money is going to fund organize, develop, predicate criminal actions, it is plausible that you could be prosecuted for conspiring to advance those acts.
“It’s not really a novel legal theory. It would be novel in its application—which is not to say that it would be the first time that a nonprofit, faced criminal liability. It would take things to the next level. That might be what’s warranted here. … I think that is probably the greatest vulnerability in terms of the criminal law that nonprofits face in the civil-terrorism space.”
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It’s “not a total coincidence that malevolent actors would settle into the nonprofit space. It offers a kind of legitimacy and comfort and shield from transparency that bad actors would necessarily want. It’s kind of a sweet spot to be a fiscally sponsored entity where you can avoid talking about where your money comes from even as your donations are treated as tax-deductible.
“I don’t think we should be shocked that there’s some abuse of the nonprofit system going on. It’s only natural. I say to those who want to preserve our robust civil society and the nonprofit sector, you need to reinforce those boundaries. You’re going to lose the nonprofit sector entirely if you cannot get it under control.
“Americans are not going to stand for tax deductions subsidizing domestic terrorism, nor should they. That’s preposterous. We need to be able to trust the system, and that requires enforcing the rules that keep it honest and accountable to the American people. I say to those to those who want to preserve the nonprofit sector, I’m with you 100%. I am. That requires enforcing the rules.”
— Tal Fortgang, from “A conversation with the Manhattan Institute’s Tal Fortgang (Part 1 of 2),” October 23, 2025, and “A conversation with the Manhattan Institute’s Tal Fortgang (Part 2 of 2),” October 24, 2025
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The nonprofit crisis
“I’ve always basically worked in the nonprofit sector and so, to me, … the crisis for the nonprofit sector is ebbing trust in nonprofits. I think that trust, in fact, is the essential ingredient that makes these things go. Without trust, you can’t get individuals to donate, you can’t get people to volunteer, you can’t get the staff to do the work, you can’t get the board members to trust the leadership. So I wrote the book to try to focus the attention—I mean, it’s written for a general audience, but it’s also written specifically for nonprofit leaders, to try to encourage them to focus on this problem.
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“Nonprofits would be making a mistake if they focus all their energies on responding to the Trump administration’s threat without seeing what I think is the core problem underlying and leading to the threat.”
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“One of the big problems that I think that the sector has to address is an utter failure to—for part of the sector, at least—… even use language that’s intelligible to something like half of the American public. I do think that there is kind of a reset happening and people are starting to take seriously the problem,” however, “and you see both foundations and, to a lesser extent, NGOs starting to grapple with the problem of hyper-partisanship and political polarization and the role that they may have played over the past decade or so in fueling that. … I think that’s a step in the right direction for the field.
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Philanthropically supported nonprofits are “in so many respects downstream of philanthropy and to the extent that the critique of nonprofits as out of touch with mainstream American thinking, unaccountable to any kind of interest other than their own operations, using language that ordinary Americans can’t understand, arrogant, speaking down to people, yeah, sure those things are much, much worse in philanthropy than they are” among the supported nonprofit groups.
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“[P]laces like the Sierra Club have done themselves a huge disservice over the past decade by losing their narrow focus on, or exclusive focus on, what their core mission is.”
— Greg Berman, from “A conversation with The Nonprofit Crisis author Greg Berman (Part 1 of 2),”December 1, 2025, and “A conversation with The Nonprofit Crisis author Greg Berman (Part 2 of 2),” December 2, 2025
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The practicality, politics, and possibilities of philanthropic reform
In defending private foundations’ existing required payout of five percent of assets, they and those associations that speak for them “have gotten into this mode of, We’re in the business of helping foundations exist for perpetuity and any payout above five percent is going to damage those chances,” Masaoka says. “Why is perpetuity the purpose of policy? Isn’t it helping charities?”
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“If you have a hundred million dollars in a donor-advised fund, not only did you get a tax deduction for that in the year that you made the donation, but you can also deploy the assets. You can also say whether your assets are at a community foundation or Fidelity. You can say, I want $50 million invested in my best friend’s company, or a company that I want to have some influence with, or at that I want to have become a customer of mine, right? I think that idea of using assets for private gain and for private influence is not as well understood …. Now, I don’t know what to do about that. That’s where the smart guys come in.
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“The fundraising industrial complex right now is telling everybody that” DAFs are “a new source of revenue.” There are “all these webinars now on how to raise money from donor-advised funds, which is sort of to me like having a webinar on how to raise money from Wells Fargo checking accounts.”
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Offering an analogy, “Agribusiness has been very smart about holding up the image of the family farm. So when people think about farming, they think about Mom and Pop with a pitchfork and two pigs, you know? And instead, it’s literally hundreds of thousands of acres under machine-based cultivation with undocumented people from Mexico picking strawberries. So I think we need to do a better job of saying, We’re trying to regulate big business, but … we intend to protect family farms.”
In the philanthropy context, reform advocates “have not made that differentiation very clearly.”
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The “right of speech, freedom of religion, freedom to assemble peaceably, freedom to petition, the government—these are all made real through the nonprofit sector. …
“[I]f we got rid of the tax deduction, we would keep the all-volunteer organizations,” which are 70% of the nonprofit groups in America, and we would keep the big, national, heavily government-funded nonprofits, but “we would lose the mid-level, locally based organizations and I think those are really important.”
— Jan Masaoka, from “A conversation with the Philanthropy Project’s Jan Masaoka (Part 1 of 2),” December 3, 2025, and “A conversation with the Philanthropy Project’s Jan Masaoka (Part 2 of 2),” December 4, 2025
