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Some IRS officials fear the deliberations appear to depart from longstanding practice

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WASHINGTON—Trump administration officials are exploring ways of challenging the tax-exempt status of nonprofits, according to people familiar with the matter, in a move that some IRS staffers fear could damage the agency’s apolitical approach.

In hourslong meetings that continued over a recent weekend, Internal Revenue Service lawyers explored whether they could alter the rules governing how nonprofit groups can be denied tax-exempt status, the people said.

The meetings started taking place shortly after the Trump administration appointed a new top interim lawyer at the agency, Andrew De Mello, whom Trump had nominated for a different post in his first term. De Mello privately discussed the nonprofit rules with agency officials, including those at the tax-exempt division, according to people familiar with the matter.

Another senior IRS official, Gary Shapley, separately said in at least one meeting that he’s giving priority to investigating the tax-exempt status of a select group of nonprofit organizations, according to people familiar with his remarks. Shapley made the comments as deputy head of the criminal investigations unit. Shapley, who is also an adviser to Treasury Secretary Scott Bessent, didn’t name any specific groups, the people said.

Some current and former IRS officials fear that the deliberations appear to depart from longstanding practice at the IRS. They come as Trump has said his administration will strip Harvard University of its tax-exempt status and suggested the administration could target other organizations.

Trump officials outside the IRS have also had ongoing conversations about how to potentially target nonprofits’ tax-exempt status and endowments for months, an administration official said.

The IRS and Treasury Department can make broadly applicable changes that would affect how nonprofits are scrutinized. Officials have long stayed away from any clampdown on the sector, fearing it could be viewed as a partisan attack on certain nonprofits. Some IRS officials have told associates they were worried that De Mello would find a way to target nonprofits disfavored by Trump, according to people familiar with the concerns.

A spokesman for the IRS didn’t respond to a request for comment. A spokeswoman for the Treasury Department said De Mello’s meetings were standard protocol. “It is the job of any agency counsel to meet with department teams to ensure a fulsome understanding of all rules and processes,” the spokeswoman said. She noted that the chief counsel doesn’t serve as a policymaker and instead advises leadership.

The White House has denied considering any executive actions that target nonprofits’ tax status. On Friday, Trump ramped up his fight against Harvard, whose federal funding the administration has frozen amid broad disagreements. A revocation of Harvard’s tax status, which the university is expected to fight, would presumably require an IRS finding that the university violated its rules.

The Trump administration also has pulled grant funding for hundreds of groups, many of which are worried they could lose their tax-exempt status and thus their ability to receive tax-deductible donations.

“None of this is normal,” said Phil Hackney, who advised the tax-exempt division commissioner as a lawyer at the IRS in the early 2000s.

A White House official on Friday said the White House isn’t involved in decisions about any institution’s tax-exempt status, including Harvard’s. It is a crime for the president, vice president or certain other top officials to request a specific IRS audit or investigation.

De Mello took over the role of acting chief counsel after the former official in the role, William Paul, was demoted. Paul had expressed concerns about other Trump administration efforts. De Mello later cut Paul out of the discussions about nonprofits, the people said. Paul declined to answer questions from The Wall Street Journal. “It wouldn’t be right for me to talk to you,” he said.

De Mello was an IRS lawyer before Paul’s job change but wasn’t next in line to take the top job. He was Trump’s nominee in 2020 to be the Education Department’s inspector general but was never confirmed by the Senate. Trump recently nominated Donald Korb, who was IRS chief counsel during the George W. Bush administration, to take the job again.

An IRS chief counsel would likely engage with leaders of the tax-exempt team to make a major change to policies tailored to nonprofits, Hackney said in an interview. “You could have neutral conversations about neutral policies intending to make such a big change. For the chief counsel, it certainly wouldn’t normally be something that’s at the top of the list of things to discuss,” Hackney said.

Many provisions of President Trump’s signature Tax Cuts and Jobs Act from 2017 are set to expire at the end of 2025. Three economists break down the fiscal impact of the cuts for individuals and businesses. Photo Illustration: Annie Zhao

The agency has for decades been allergic to most top-down efforts to challenge the tax-exempt status of nonprofits, after long and bruising battles with Bob Jones University, which initially lost its tax-exempt status in the 1970s, and the Church of Scientology, which eventually settled with the IRS in 1993.

One tack the Trump administration could take against nonprofits is to examine those that focus on diversity, former IRS officials said. In late 2024, lawyers at the IRS wrote a memo that said the 2023 Supreme Court ruling barring affirmative action at educational institutions shouldn’t affect nonprofits that support diversity goals through other programs. Some officials believed that memo could be reversed, with the IRS instead pushed to examine nonprofits that, for example, provide scholarships to minority students.

The Treasury spokeswoman said “speculation regarding unsubstantiated Biden-era analysis is a red herring,” adding “The American people recognize that organizations providing essential community services are appropriately treated as tax-exempt.”

The IRS division that regulates the sector has been chronically understaffed and at times faced controversy. More than a decade ago, the IRS acknowledged it gave improper scrutiny to conservative-leaning nonprofit groups with the words “tea party” or “patriot” in their names. During that episode, IRS lawyers struggled to provide quick, clear guidance to front-line workers about what was allowed and what wasn’t. The agency later attempted to write rules detailing when certain nonprofits could engage in political activity but withdrew those after an uproar.

The IRS has said it doesn’t use politics to decide who gets audited, but Trump has said he believes his own supporters, including evangelists and other faith leaders, were targeted by Democrats through the IRS and other federal agencies.

Last month the president described his recent conversations with faith leaders to reporters in an Oval Office briefing. “They said ‘sir, I was targeted by the IRS. And the FBI came in, sir, and I’ve been going through hell for years,’” Trump said.