Rules of the Road for Social Impact Organizations

Summary

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Podcast Summary: Rules of the Road for Social Impact Organizations

Podcast: Nonprofit Leadership Podcast
Host: Dr. Rob Harder
Guest: Elizabeth “Betsy” Schmidt, Senior Research Fellow at the University of Massachusetts and author of Rules of the Road for Nonprofit Leaders
Release Date: January 11, 2026

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Main Theme

In this episode, host Dr. Rob Harder sits down with Betsy Schmidt to demystify the complex legal and regulatory landscape facing nonprofit leaders. Drawing on her new book, Rules of the Road for Nonprofit Leaders, Schmidt reframes the law not as a burden, but as a versatile tool that can empower organizations to safely and effectively further their missions. The conversation moves beyond compliance, diving into best practices, governance, advocacy, and trends affecting nonprofits today.

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Key Discussion Points & Insights

1. Why a Book on Legal Rules for Nonprofit Leaders?

• Betsy’s Inspiration: Years of teaching nonprofit students and advising organizations made Schmidt realize that the more people learned about nonprofit law, the more unnecessarily cautious—and at times even paralyzed—they became. They viewed the law as a series of “can’ts” rather than a framework for action.
  • “I began to realize nonprofit leaders are action oriented and want to do things, and when they’re being told what they can’t do, that can be a problem.” (05:10, Schmidt)
• Reframing the Law: The law should be seen as a supportive guide. Betsy outlines eight empowering “rules of the road” (06:02):
  • Keep the mission front and center.
  • Govern wisely.
  • Fill your coffers.
  • Do the paperwork.
  • Treat your friends and stakeholders well—but just not too well!
  • Be ready to change course if needed.
  • Advocate for your cause.
  • Engage ethically and with intention.

2. Staying True to Mission & Legal Compliance

• Most nonprofits are already compliant if they are focused on their mission and purposes as declared to the IRS and the state.
  • “If you’re really following your mission, that’s very unlikely to happen [cross legal boundaries].” (07:43, Schmidt)
• Mission Drift Alert: Regularly review your mission and confirm it aligns with current operations. Both states and the IRS allow for mission amendments as long as proper channels are followed. (08:55, Schmidt)

3. Beyond Minimum Compliance: Governance, Ethics, and Finances

• Governance and Oversight: The law sets basic standards (e.g., duties of care and loyalty) but ethical leadership demands going beyond just what’s legally required.
  • “If we’re going to be ethical leaders, we have to do more than what the law tells us to do.” (09:24, Schmidt)
• Balanced Priorities: Avoid both extremes—obsessing over mission at the cost of solvency, or focusing solely on financials and neglecting core purposes. (09:24-10:35)

4. Common Pitfalls and Legal Grey Areas

• Advocacy & Commercial Activity: Confusion prevails, especially regarding what counts as advocacy, lobbying, or unrelated business income. Even well-resourced institutions struggle to interpret IRS rules.
  • Memorable analogy: “We’re telling leaders to stay within the speed limit, and we’re not telling them what the speed limit is.” (11:22, Schmidt)
• Lack of Clarity: Over-cautiousness leads nonprofits to miss opportunities that would further their missions.

5. Rules Around Advocacy, Lobbying, and Political Activity

• Education (Green Light): Nonprofits can educate without restriction.
• Political Campaign Activity (Red Light): Strictly forbidden for 501(c)(3)s to endorse or oppose political candidates.
  • “The only red light is for opposing or endorsing a candidate for a political campaign. And so that’s actually rather narrow...” (12:56, Schmidt)
• Lobbying: Permitted within limits. Up to 20% of budgets for organizations under $500,000 (declining percentage for larger orgs); the IRS provides two ways to measure this.
  • “Lobbying is legal and if you’re beginning to do that much lobbying, lawyers would suggest getting a 501(c)(4) affiliated organization.” (15:00, Schmidt)
• Education vs. Lobbying: You can organize community events, publish op-eds, and discuss issues/bills with legislators as education—not lobbying unless explicitly encouraging action on legislation.

6. 501(c)(3) vs. 501(c)(4)

• Key Distinctions:
  • 501(c)(3): Tax-exempt, donations are tax-deductible, but limited in lobbying and prohibited from direct political activity.
  • 501(c)(4): Can do unlimited lobbying and political advocacy, but donations are not tax-deductible.
  • Separate Entities Required: If you want both, they must be separate orgs with distinct finances and governance. (19:06, Schmidt)
• Quote: “You could have overlapping boards, but the different entities with different bylaws, different articles of incorporation, different agreement with the state. And you can’t mix the funds at all...” (19:06, Schmidt)

7. Recent Legal and Regulatory Changes

• Slice through the Noise: Rhetoric and policy debates have had greater impact than actual changes in law over the past year. Many lawsuits are still pending, especially around federal funding and its conditions (e.g., DEI clauses, immigration enforcement, gender-affirming care). (20:04-22:15)
• California’s Exception: State law now allows for retention of state nonprofit status even if federal exemption is lost, potentially setting a precedent for other states. (22:36, Schmidt)
  • “If you lose, quote, your federal recognition... you can still maintain a state level recognition...” (22:45, Harder)

8. Trends and Emerging Issues to Watch

• DEI and Supreme Court: Trends point to increased scrutiny on affirmative action and DEI policies, possibly extending beyond higher education.
• First Amendment and Political Activity: Churches challenging restrictions on political endorsements as violations of free speech—a live issue pending in the courts. (24:14-26:00)
• Federal Funding Risks: Grants come with new conditions, raising the stakes for compliance. False Claims Act increases liability for nonprofits who inadvertently misstate their activities.

9. Staying Current: Resources and Practical Advice

• Where to Learn More:
  • Betsy’s site: nonprofitrules.com
  • Jonesing on Nonprofits (Substack by law professor Daryl Jones)
  • Gene Takagi’s “Nonprofit Tweets of the Week” on Twitter
• Get the Book: Available via Georgetown University Press, Amazon, Barnes & Noble, and Indie bookstores. 30% discount with code “TGUF” at Georgetown University Press.
  • “It’s written for non lawyers. It’s written for people who aren’t trained in the law. And really most nonprofits can’t afford lawyers except in emergency situations.” (28:49, Schmidt)

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Notable Quotes & Moments

• Mission and Law Alignment (07:43, Schmidt):
  “If you’re really following your mission, that’s very unlikely to happen—that you’d cross legal boundaries.”

• The Ethic of Leadership (09:24, Schmidt):
  “If we’re going to be ethical leaders, we have to do more than what the law tells us to do.”

• Confusion Surrounding Advocacy (11:22, Schmidt):
  “We’re telling leaders to stay within the speed limit, and we’re not telling them what the speed limit is.”

• Clarity on Political Activity (12:56, Schmidt):
  “The only red light is for opposing or endorsing a candidate for a political campaign. And so that’s actually rather narrow.”

• The 501(c)(3) vs 501(c)(4) Dilemma (19:06, Schmidt):
  “You can’t mix the funds at all because the C3 has tax deductible funds... you have to be very, very careful about keeping them separate.”

• Practical Advice for Leaders (28:49, Schmidt):
  “It’s written for non lawyers... most nonprofits can’t afford lawyers except in emergency situations.”

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Timestamps of Major Segments

• Intro & Need for Legal Literacy: 00:36–04:04
• Betsy’s Motivation & Legal Positives: 05:10–06:48
• Mission and Legal Compliance: 07:43–08:55
• Governance, Ethics, and Board Roles: 09:24–10:35
• Common Legal Pitfalls & Unclear Rules: 10:56–12:10
• Advocacy, Lobbying, Political Activity Demystified: 12:56–17:13
• 501(c)(3) v. 501(c)(4) and Organizational Structure: 17:13–19:40
• Recent and Emerging Legal Issues: 20:04–27:27
• How Leaders Can Stay Informed & Book Details: 27:27–29:43
• Final Tips for Leaders & Board Members: 29:43–30:20

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Closing Thoughts

This episode delivers actionable clarity for nonprofit leaders who want to confidently navigate legal, ethical, governance, and advocacy boundaries. Betsy Schmidt’s insights and tools empower leaders and boards to use the law as a resource—not a restraint—and encourage an ongoing, mission-focused approach to compliance and ethical leadership.

Takeaway:
If you stay true to your mission, operate with intention and ethical governance, and keep learning, you’re likely on the right side of the law—enabling your organization to make the greatest impact possible.

Transcript

[Rob Harder]

This is Dr.

Rob Harder with the Nonprofit Leadership podcast, Making youg World Better. What does it take to be an effective nonprofit leader today? What are the biggest challenges? What are the biggest obstacles? How should nonprofits fundraise in an economy that is constantly changing? All these reasons combined led me to start this show. And it's my hope that through this.

Series, people can learn not only what.

It takes to be an effective nonprofit organization, but to hear from effective leaders who are. Who are successfully making a positive impact in their communities. We hope you enjoy the show as together we hear how they are making their world better.

Hey, everyone, this is Rob Harder, and you're listening to the Nonprofit Leadership Podcast. Thanks for tuning in. Well, laws and rules around policy, around political activity, around advocacy, around financial oversight, governance, all these issues, I have a feeling that most nonprofit leaders out there, and my guess is you may be one of them. I know I was one of them for a long time. We just don't learn a lot about what are those guidelines? What are the laws that really govern some of these issues that we end up bumping into? When you're leading a nonprofit organization, I think it's just one of those things. We assume good intentions, right? And we have a strong mission and have a passion to accomplish that mission, and we move forward and we start a nonprofit and we go. And then all of a sudden we realize, wait a second, we have not learned enough information, perhaps when it comes to guidelines and rule, and particularly when it comes to the law of what is right, what is allowed and what's not allowed, sometimes people don't know. And I found this particularly true when it comes to advocacy and political activity. I think this is one of the areas that make a lot of nonprofit leaders nervous because they don't want to lose their nonprofit status by becoming too political, so to speak. Right. Or getting in too many advocacy efforts where all of a sudden now their 501C3 is put into question. And so this is an interesting conversation I've got on my show today. Elizabeth Schmidt. She goes by Betsy. She's a senior research fellow at the University of Massachusetts, and she's also the author of a new book entitled Rules of the Road for Nonprofit Leaders. She spent her career really in public policy and understanding the law, and particularly as it pertains to nonprofits. And so we'll ask questions like, what are the guidelines when it comes to advocacy and political activity? And what are the typical rules around governance and financial oversight? Ethical standards, all those things. And one of the things I'll just start with is this. I really like how she says at the end of the day, if you stay true to your mission, for the most part, you're most likely already following the law. So the good news is I think most of us are already following the law. There just may be certain areas where, because you're not aware, you may be going into areas that are really not part of your mission. Number one or two, maybe slipping into areas that do maybe on the advocacy side of things are crossing the line where you're not supposed to get involved with this as a nonprofit organization. The other thing I'm going to mention is that's so interesting. It's been a while, but I've had some, a few people on the show to talk about the various types of nonprofits out there. So one example that he's going to bring up is there's a 501C3, which is the typical designation for most nonprofits that are out there. Humanitarian nonprofits, you know, food insecurity focused nonprofits, housing affordability nonprofits. Kind of your typical nonprofit is typically a 501C3, but there's 501C4s, and they're slightly different and they don't have all the tax benefits of a 501C3. And she's going to talk about that, why that's different and how particularly when it comes to political activity or advocacy, they're different in how they're set up and their articles of incorporation and their bylaws and all that stuff. So it's a really interesting conversation. Again, not your typical exciting topic when it comes to law and what are the guidelines. But I think it's important information and I think it's a book that probably would be really good for you and your board to read. It's called Rules of the Road for Nonprofit Leaders. And again, the author is Elizabeth Schmidt. She goes by Betsy, and she's my guest today. So thanks so much for tuning in. Now onto the show.

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[Rob Harder]

Well, welcome everybody, to the Nonprofit Leadership Podcast. I'm so glad to have Betsy Schmidt here in the studio today. And we got a lot to cover and she's got a book that we want to get through, and it's all about how nonprofits and social impact leaders can really utilize what's in the law law to really maximize what they're doing with their mission. So, Betsy, first of all, thanks so much for taking time to be on the show today.

[Elizabeth "Betsy" Schmidt]

I'm delighted to be here.

[Rob Harder]

Yeah, you got it. Well, as you'll see in my show notes, and you heard of my intro, she just recently wrote a book called Rules of the Road for nonprofit leaders using the law to support your mission. So let's dive into that, like, great title. We don't often talk about the law. You know, in terms of nonprofits, we almost always talk about the mission. But obviously, it's really important that we follow the rules of the law and really utilize what is out there in terms of guidelines for nonprofit leaders to maximize our missions. So let's talk about for you what first inspired you to write this book and what gap were you hoping to fulfill?

[Elizabeth "Betsy" Schmidt]

I've been working with nonprofits and with nonprofit students in college, graduate school, and law school for 25 years or so. And what I realized was the more they learned about the law, the more cautious they got. And they began saying things that I'd go, oh, wow, no, no, no, it's not that strict. And I began to realize nonprofit leaders are action oriented and want to do things, and when they're being told what they can't do, that can be a.

[Rob Harder]

Problem that makes sense. And I love that you were responding to leaders that were diving into the nonprofit sector and really trying to do the best they can. Okay, so you've said that the law is often written in a way that feels restrictive to nonprofits. Hence you said people get more hesitant and really are more careful. How do you reframe it so that organizations can really see the law as a tool to advance their mission rather than as an obstacle to their mission?

[Elizabeth "Betsy" Schmidt]

And so I decided to sit down and go, is there a way to reframe this and make it so that students will really realize that they can do things within the law? And I realized that there are actually eight positive statements that you can say that. Of course, it takes a whole chapter to describe each of them in detail, but it's keep the mission front and center, govern wisely, fill your coffers, do the paperwork, treat your friends and stakeholders really well, but just not too well, and be ready to change course if you need to. And so there are a couple others in there that are more esoteric, but, oh, advocate for your cause. I've got that in there, too. So really, nonprofits can do all those things.

[Rob Harder]

That's great to know. And I do think there is. If people are confused or they don't know what the law tells them in terms of guidelines, I think about policy, and I've had many people on the show talk about how you can be an advocate and do some advocacy for on behalf of your nonprofit towards maybe current legislation or whatever. And you have to be really careful, right? There's a lot of very careful rules around advocacy and policy making. And, and I think because when it's similar to the same situation, if you don't know what those guidelines are, if you don't know what the rules are, then you just kind of back away completely. And yet you can advocate as a nonprofit, just have to be really careful how you do that and make sure you follow the law when you do that. So similarly, you often tell nonprofit leaders that they're likely already following the law if they're just staying true to their miss Mission. So unpack that for us and unpack that for my listeners who are leaders of nonprofit organizations. What does that look like at the state level, at the federal level, and even just when it comes to faithfully pursuing one's mission in general?

[Elizabeth "Betsy" Schmidt]

Yes. Well, that is absolutely the truth if you think about it. You got permission to work within your state because you told them what your purpose is and you got permission to get tax exemption by telling the IRS what your purpose was. So you won't use the exact same words. You can change your mission's words, but you're going to keep following those purposes in order to be able to keep doing business and enable order to keep your exemption. And so that's following your mission. Interestingly, the things that you're not supposed to do, like get too involved in politics or get too involved in commercial activity, if you're really following your mission, that's very unlikely to happen. And in essence, 501 is pretty it's only about 25 words, but it's a lot to unpack. But all the negative things in it are basically, if you're following your mission, you're going to be doing okay.

[Rob Harder]

Got it. So you found in your experience, and particularly with younger leaders that are still new to the nonprofit and social impact sector, that as long as they're really staying true to their mission and not have a mission drift or getting into areas that have nothing to do with their mission, they're usually okay when it comes to following the law.

[Elizabeth "Betsy" Schmidt]

Right. And I do suggest that every year or so you double check and make sure that your mission hasn't changed, it's certainly possible to go back to the IRS if it hasn't changed too much and tell them we've changed it. And same with the state, you can amend Your articles of incorporation.

[Rob Harder]

Okay, besides following the law, what other practices are essential for a healthy and compliant nonprofit? I'm thinking like governance, financial oversight, perhaps ethical standards. What are some of the key things you bump into that are important for nonprofit leaders to remember?

[Elizabeth "Betsy" Schmidt]

Well, there actually are some rules around governance and financial oversight, so you'll want to learn those rules. But they're never as. This is another thing to think about. If we're going to be ethical leaders, we have to do more than what the law tells us to do. So governance, the state talks about duties of care and loyalty. You're not going to get in trouble with the law unless you've been grossly negligent. Well, by the time you've been grossly negligent, your organization's in real trouble. So you really need to do more than that. And same, you know, if you're not being ethical, you're going to hurt the reputation of the organization, and that's going to hurt your clients and the people you're serving. So it really is important to keep that ethical hat on. Oh, by the way, money too. If you don't earn enough money to keep the doors open, you can't do complete your mission. So some people, in fact, surveys show that boards are often so concerned about money, they're forgetting their mission. But some boards are the opposite. They're end leaders. They think so much about their mission, they forget, wait a sec, we're going to have to not make payroll if we don't pay attention. So.

[Rob Harder]

Right. Yeah, that's right. You always have to make sure you're covering payroll to pay your team. Okay, so as you bump into these issues and you've write about them in your book, what are some of the biggest pitfalls or the maybe the most common barriers that you keep bumping into? Sounds like these are a few of them. Are there specific things within that that you're like, oh, I see this again and again and again as you did your research for your book, that people.

[Elizabeth "Betsy" Schmidt]

Are confused about, I think, well, there's certainly confusion about advocacy and how much commercial work you can do. Unrelated business income is actually quite so confusing that I think the IRS found in 2014 that most colleges and universities, all of whom can afford good attorneys, I mean, I suppose not all of them, but most of them can afford really good attorneys, weren't calculating it the way they wanted them to. So it can be quite confusing. My last chapter of the book talks about how we can make things better and being more clear in the language and drawing better Boundaries are two of my suggestions. In the areas where it's pretty ambivalent. I didn't come up with this analogy, but I like the analogy. We're telling leaders to stay within the speed limit, and we're not telling them what the speed limit is. And so what happens is you stop very short of what you could be doing. And if that extra commercial activity or if that extra advocacy would help you achieve your mission, then the law is actually hampering you by being unclear. Okay.

[Rob Harder]

Okay. That makes sense, actually.

[Elizabeth "Betsy" Schmidt]

Yeah.

[Rob Harder]

Yeah. If you're pulling back and not doing all that you could to accomplish your mission. Yeah. You're. You're holding back the organization from moving forward. Okay, well, and I already mentioned it, and you just mentioned it again, and it is a big one. I think the rules around political activity and advocacy are the ones I hear the most confusion about. Overall, I feel like that maybe the good news is people are out there that are training others, nonprofit leaders, specifically on governance and business activity and financial management, things like that. But one that I feel like there's still quite a bit of confusion is that advocacy piece and political activity. Can you walk us through what's allowed? Where are the lines between education on the one hand, lobbying on the other, campaign activity, maybe on another? So, yeah, how do you sparse out all those different things that people could bump into?

[Elizabeth "Betsy" Schmidt]

So I'm talking about federal. There are state lobbying issues that I won't get into. But if you're trying to keep your 501C3 status, you're going to want to educate. You're allowed to educate as much as you want. So I, I have a, an image in my head of a green light for educational advocacy. As long as you're educating, you can do everything. The only red light is for opposing or endorsing a candidate for a political campaign. And so that's actually rather narrow. Like right now, J.D. vance, we're assuming that he's going to run in 2028, but we wouldn't call him a candidate. So if you wanted to endorse president, you could. I also show my students a picture of a church that says vote for Jesus Christ. Jesus Christ is probably not really a candidate. So there's a lot that falls short of political campaigning. And you can also invite someone. In 2008, I believe, maybe it was 2007, Barack Obama was invited to come speak at his church, and people went, wait, that's political campaigning. And it turned out it wasn't because he was brought there as a congregant it's narrowly defined. Same with lobbying. Now you're allowed to do lobbying. You just don't want to do too much. And lobbying is also defined really carefully and really. So you have to be talking to a legislator or talking to the public and telling them to talk to their legislator for it to even be called lobbying. So you can you. And it has to be about a specific piece of legislation. So you can invite, you can invite your congressperson to a gathering and talk to them about your mission. That, that is not considered lobbying. That's considered educating. So there's a lot that you can do if you actually are going to engage in lobbying. The IRS has two different tests. One is very. Not obscure, but ambivalent. So people usually suggest a one page. You tell them you're going to use a mathematical formula. And for organizations under $500,000, that's 20% of your budget that can be used on lab. So that's a lot if you're really. Yeah. Particularly considering lobbying is so carefully defined. So that leaves all 100%. You could, if you wanted to, you could spend your time doing op eds, you know, having community gatherings, telling, talking people about the issues. You can even talk to them about the some bills. But if you tell them how to vote on it, that might that or how. No, if you tell them to talk to their legislators about it or if it's a ballot measure, that could be considered lobbying. But remember, lobbying is legal and if you're beginning to do that much lobbying, lawyers would suggest getting a 501 affiliated organization. So there's lots of opportunity there. If that's important to your organization.

[Rob Harder]

That's interesting. Okay. This is very helpful because I think certainly when it's major elections that come through, that always just brings it all back in the foreground. Right. Where how much can you advocate for a particular candidate? And I think there's always seems like there's lots of controversy and confusion around that. So interestingly you mentioned lobbying is okay, but if I'm Hearing you right, 20% of your budget, that's all you can, can't go beyond 20%. But if you're 20% or below, sounds like you can lobby for whatever cause you have. Is that correct?

[Elizabeth "Betsy" Schmidt]

Larger organizations, it gets less than 20%. So. Got it. The maximum is a million. But you know, Somebody like the NRA has a 501C3 educational organization. They also have a 501C3 for that's much more political. They can do unlimited lobbying. You see that with Planned Parenthood. You see And I think that's part of the confusion, actually, is the public doesn't know. You know, if you get a letter from Planned Parenthood saying, talk to your legislator about abortion, you might think that's a charity talking to you. But unless they're breaking the law, that's probably their C4 sending you that letter.

[Rob Harder]

That's. So it's a difference between a 501 and a 501, which C4s are like for political action organizations, is that correct?

[Elizabeth "Betsy" Schmidt]

They're probably not C4s, but anyway, there are lots of tax exempt organizations. What's special about a C3 is that it gets two tax benefits. One is the organization itself is tax exempt, and the second is that we donors get a tax deduction for our gifts if we itemize our. Our taxes. And so that, you know, some people talk about that being an advantage to the donor. Sure it is. But it's also an advantage to the nonprofit because it incentivizes people to give money to them.

[Rob Harder]

We'll be right back.

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[Rob Harder]

Okay, and then you said something interesting. I think a lot of people would have questions about. So it sounds like an organization could either, if they start as a C3 and they really want to get. Become more, you know, politically active and become more advocates for whatever cause they're into, they could create their own C4. Now, I'm assuming those are separate entities, or would they have the same board? Or would they have to have a separate, complete. Different board, different entity, different bylaws, et cetera. How does that work?

[Elizabeth "Betsy" Schmidt]

Definitely have to be different entities. You could have. You could have overlapping boards, but the different entities with different bylaws, different articles of incorporation, different agreement with the state. And you can't mix the funds at all because the C3 has tax deductible funds. I mean, so you can't. I shouldn't say you can't mix them. They can contract with each other to do things, but you have to be very, very careful about keeping them separate.

[Rob Harder]

Interesting.

[Elizabeth "Betsy" Schmidt]

Okay.

[Rob Harder]

Yeah, I could see that'd be very confusing for a lot of people.

[Elizabeth "Betsy" Schmidt]

That's when you hire a lawyer. You don't do something like that with a hire.

[Rob Harder]

There you go. Their job security is still there for the lawyers that can parse all of that out. Okay, so let's talk about some of the major legal and regulatory changes. Perhaps from your perspective, have there been some major legal changes or regulatory changes this past year that have had a direct effect on the social impact sector of the nonprofit world?

[Elizabeth "Betsy" Schmidt]

You know, interestingly enough, there's been huge effects on the nonprofit world in rhetoric, in policy, but not a whole lot in law. And that's hard for people to understand because, you know, I can't remember what percentage is. A huge percentage of nonprofits get federal funding, and a lot of that federal funding has been pulled, and so it's spent the whole nonprofit sector into a tizzy. There are lawsuits over a lot of it, but very few of them. I checked the other day. As of November 15, there were 530 lawsuits against the Trump administration. They weren't all nonprofits, but a lot of them have been with the federal contracting. But those are so case specific. Some of them may have been solved, but most of them are still going. The one big beautiful bill was passed that is a new law. It basically just tweaks the charitable deductions. So, and I tell nonprofit leaders, you know, get a general idea of what the charitable deduction law is, but tell your donors to talk to their tax advisor. You don't want to be their tax advisor, so you don't have to know.

[Rob Harder]

That's great advice.

[Elizabeth "Betsy" Schmidt]

Yeah, but it didn't, it didn't make huge. It made changes for some wealthy organizations, but they'll have lawyers. They recently, in the last few weeks. And this will affect a lot of nonprofits if it doesn't. It's already being challenged by 21 states and lots of things. But they changed the rules of student loan forgiveness, that any getting student loans from now on can't do it for organizations that have illegal immigration policies. That's not defined very well. In other words, it's very vague. It has to do with those that encourage illegal protests organizations. I don't know of any organizations that deliberately do either one of those. But then that's part of the reason why it's being challenged. Gender affirming, care for minors. I can't remember what else. But again, that's not settled yet because it's being litigated. California did also pass an interesting law because the Trump administration has threatened to revoke tax exemption for what a lot of people think is political reasons. California's passed a law saying just because you lose your federal exemption doesn't automatically mean you lose your state exemption. So that would keep.

[Rob Harder]

Oh, interesting.

[Elizabeth "Betsy" Schmidt]

Yeah, let the qualify for things at the state level and talk to somebody who thought other states will follow suit with that.

[Rob Harder]

Yeah, well, here's the question, a follow up on that. That's an interesting. I not heard that, that the Fed. If you lose, quote, your federal recognition of a being a nonprofit tax exempt organization, you can still maintain a state level recognition that you're an exact tax exempt organization. Huh. Sounds like. Yes, you could split those out.

[Elizabeth "Betsy" Schmidt]

Right, right. Because so most states, once you've got the federal tax exemption, automatically give you a state exemption. Not all states. Some states you also have to apply. So it goes state by state. But in California, at least some of the nonprofits were getting it automatically, which meant that if they lost their federal, they'd automatically lose their state. But we now have a lot of disagreement as to whether, for example, organizations that help immigrants should be considered charitable or not. And what California is saying is we will say, yes, they are, even if the federal government changes its mind. So far, the federal government is, you know, they still have their, as far as I know, their 501C3 status. Another thing I tell people, you don't lose your 501c3 status overnight and you don't do it because the President says you've lost it. There is a procedure for it.

[Rob Harder]

Okay. Okay. That's all this is good information. Okay. So along those lines of new laws and things that are kind of in the air potentially coming down when it comes to emerging issues or potential future trends in the same area, what are some of those key items that you're keeping an eye on currently to follow.

[Elizabeth "Betsy" Schmidt]

Through and see what happens in these lawsuits that are still being litigated. One, of course, is whether how far we're going to allow people to do what is called dei, which is also not very well defined. But a few years ago, the Supreme Court said that colleges and universities can't give racial preferences in admissions. So the Trump administration is taking that and saying, wow, that really should be everywhere. You shouldn't have racial preferences or even racial considerations for anything. I mean, they really are being very broad about it. We don't know yet how far the Supreme Court will take that because they actually take each case in its facts. And so at some point, I heard somebody define DEI the other day as a merit based system. Because it's trying to get rid of invisible forces to keep people from competing equally. If that is the case, I mean, I think everybody, even the Supreme Court, would say, yes, we want a merit race system. So there's a limit somewhere to what this is. So I'll be watching that. The other, a lot of churches in particular, but even some people, conservative people, think that this saying that you can't endorse a candidate violates your First Amendment, your freedom of speech. In the past, the courts have said it doesn't, because for one thing, you can always create another kind of tax exempt organization. But also, if you really want to, to do that, you just don't take the subsidy of the exemption. But this Supreme Court is a new one and it may change that. So there's a case going through right now that the Trump administration wants to settle to allow churches to endorse candidates from the pulpit. And so when the Trump administration said, yes, we'll allow that, a group that, about freedom from religion, I can't remember the name of it, but some group tried to intervene. So that settlement hasn't been made yet, but we're definitely watching that. I think there may be changes in there, too. I don't know. Federal funding, that's a big issue right now. That's a huge issue. And also the government is still giving grants, but a lot of them, they're conditioning them on saying you won't do illegal dei and a few other things like that. And that's kind of scary for nonprofits. That's another place where I would say talk to an attorney or at least talk to an association of nonprofits like yours before you sign something like that, because there's a higher liability there. There's something called the False Claims act where you really could get in trouble if you've lied on your federal contract form. And I don't think people think they're lying, you know, but if it turns out that what they're doing is illegal dei, then they, they're vulnerable.

[Rob Harder]

There's a lot there now for leaders who want to stay current on these nonprofit laws, these trends that you just mentioned. A few of them, particularly if they read your book or going to read your book, and then after reading it, they want to find out a little bit more of how they can keep up on these things. What's the best way to do that? Where can they find more information after they've read your book and maybe heard this, this podcast and like, oh, my goodness, I want to learn more about all these things.

[Elizabeth "Betsy" Schmidt]

Well, I'm keeping a website called nonprofit rules.com and I'm trying to keep things up to date on that. There are also, there's a substack by a law professor, Daryl Jones called Jonesing on Nonprofits. There's a tax exempt blog, I think, anyway, if you look, Gene Tagake writes, he keeps all nonprofit tweets of the week. He tweets them every week.

[Rob Harder]

So there are really interesting, some really.

[Elizabeth "Betsy" Schmidt]

Good resources out there.

[Rob Harder]

Great. Well, I'll make sure to put those in my show notes so my listeners. You can get those and just click on those in my show notes again. Okay. So the book again is called Rules of the Road for Nonprofits. How can my listeners find out a little bit more about you and about the book?

[Elizabeth "Betsy" Schmidt]

Well, you can do it atthe nonprofit rules.com the book is available online at Georgetown University Press. And for your listeners, if they use the code TGUF, they can get a 30% discount.

[Rob Harder]

Hey, nice. Okay.

[Elizabeth "Betsy" Schmidt]

It's also available on, you know, Amazon, Barnes and Noble. And I also am encouraging people bookshop.org, but I'm also encouraging people to ask their local bookstores to carry it because I think that is a book that really can help. It's written for non lawyers. It's written for people who aren't trained in the law. And really most nonprofits can't afford lawyers except in emergency situations. Exactly. Once they get big enough to do commercial activity or 501C4, maybe you would. And I also sincerely believe that 99.9% of nonprofit leaders want to follow the rules. And one of the problems is they also want to make change. And when they're being told you can't do this, it's stymies them. So I'm really hopeful that this book can encourage people.

[Rob Harder]

Well, thanks for writing that. I think again, it's in the area of the law is just something I think most nonprofit leaders just don't either have the expertise. They've not done the study like you have. They're not in it every day because they're so busy running their nonprofit. This is actually a helpful tool to just understand what are the guidelines, what does the law say about certain things and how to make sure they can keep focused on their mission. And I like how we started today. You're just encouraging all leadership, stay true to your mission. And if you're doing that, for the most part, you're probably following the law. Exactly. So really appreciate you taking time to share about this, Betsy.

[Elizabeth "Betsy" Schmidt]

Thank you. I appreciate it. And it's for board members too.

[Rob Harder]

Oh yeah, good call on that. Absolutely. Board members that are listening to this and watching this show encourage you to pick it up. Again, all the information will be in my show notes, an interesting conversation about the law. So as always listeners, thank you so much for tuning in. We will see you next week. Hey friends.

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