The Trump administration is considering an executive order that would label some nonprofits as having terrorist ties and immediately suspend their tax-exempt status.

Work on the order has gone on for months, but it is still being deliberated and may not be finalized or signed by President Donald Trump, people familiar with the matter said, The Wall Street Journal reported on Friday. It was unclear how many groups, or which ones, could be targeted.

How The Order Could Affect Nonprofits

Officials are reviewing Section 501(p)(2)(C) of the tax code, which lets the president label groups as supporting or engaging in terrorist activities through an executive order. Groups designated this way would automatically have their tax-exempt status suspended, which could damage their finances and dry up donations, WSJ noted.

Nine organizations have already had their tax exemptions suspended over alleged terrorist ties. Those suspensions followed sanctions designations by federal agencies such as the Treasury Department, not a direct presidential determination like the one now under consideration, lawyers said, per WSJ.

The Internal Revenue Service (IRS) normally must complete a detailed audit and give formal notice before revoking or suspending a group's status, and the group has the right to go to court. A 501(p) designation cannot be challenged on tax grounds, according to the report.

Carolyn Schenck, a former IRS official now at law firm Caplin & Drysdale, said an affected group would likely need to sue and argue that the designation was arbitrary and capricious to get a court to reverse it. She said that could be challenging because some of the government's evidence could be considered classified. During those lawsuits, groups would be taxed on any net income, and donations to them would not be tax-deductible, the report added.

A White House official told MarketDash in an emailed statement that "Any policy announcements will come directly from the President. Discussions about potential decisions or their impacts are otherwise baseless speculation."

The Treasury Department and the IRS did not immediately respond to MarketDash's request for comment.

Bessent on Tax-Exempt Status

Treasury Secretary Scott Bessent said in July, "We are examining where tax-exempt status has been exploited, which charitable entities have become financial conduits for foreign-influence activity, and how those entrusted with stewardship of these organizations have instead enabled violence," according to the report.

Trump Administration Previously Targeted Harvard and Private Schools

In April 2025, the Treasury Department asked the IRS to revoke Harvard University's tax-exempt status, Trump said at the time on Truth Social, "Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity."

In September, the Treasury Department and IRS proposed rules to strip tax-exempt status from private schools that discriminate based on race, color or national origin. The agencies said the proposal implements Trump's executive orders. It would cover as many as 18,000 institutions, with the rules taking effect in 2027.