October 8, 2025

Bringing you the latest news impacting our network from Congress and the Administration.

Federal Shutdown, New IRS Guidance on Non-Profits, & More

Federal Government Shutdown: Impacts and Outlook

As of today, the federal government shutdown has entered its second week, with no resolution in sight. The impasse stems from a standoff between Congressional Republicans, who support a short-term funding extension through November 21, and Democrats, who are demanding a permanent extension of Affordable Care Act premium tax credits as part of any deal. The shutdown is already straining nonprofits, which rely on federal contracts and grants to deliver essential services. Many are facing delays in payments and support, forcing some to consider short-term staffing changes and reductions or service cutbacks. Meanwhile, federal workers and military personnel are approaching missed paychecks, adding urgency to the situation.

Negotiations remain stalled despite repeated Senate votes and growing pressure from constituents and advocacy groups. The White House has floated the possibility of mass layoffs of federal employees as a way to increase leverage, but lawmakers on both sides have expressed concern about the long-term consequences of such actions. While some bipartisan discussions are underway, deep divisions persist over whether health care policy should be part of the shutdown negotiations, with cracks beginning to appear within the Republican caucus. Until a breakthrough is reached, nonprofits and communities that depend on federal support must prepare for continued disruption and uncertainty.

IRS to Issue New Guidance on Nonprofit Political Activity and Racial Discrimination Standards

The U.S. Department of the Treasury recently released its 2025–2026 Priority Guidance Plan, outlining regulatory updates the Department plans to issue or revise soon. Among those that could significantly affect nonprofit organizations are two initiatives: updated guidance on nonprofit nonpartisanship and new standards for evaluating racial discrimination in private schools seeking tax-exempt status.

The IRS plans to revisit the Johnson Amendment, which since 1954 has prohibited all 501(c)(3) organizations from participating in partisan politics, including endorsement of candidates. Recent statements from the IRS indicate that the agency may seek to overturn the amendment, thus ending the current prohibition on engaging in partisan activities. Additionally, the IRS will issue guidance on how public policy against racial discrimination applies to private schools seeking tax-exempt status. This will likely include consideration of recent court decisions, such as the Supreme Court’s 2023 ruling on affirmative action, and may establish clearer criteria for evaluating whether a school’s policies or practices violate anti-discrimination standards. Such changes are likely to affect eligibility for tax-exempt status and federal funding.

Additional items in the guidance impacting nonprofit organizations include proposed changes stemming from the 2025 budget reconciliation legislation, such as revisions to estate and gift tax provisions, a new income tax credit for donations to scholarship-granting entities, and updated rules around compensation limits for certain tax-exempt groups. Another key area of focus is the finalization of regulations governing donor advised funds (DAFs), which may influence how nonprofits manage and report charitable contributions.

Head Start Regional Office Closures Disrupt Services for Children and Families

On April 1, 2025, the federal government abruptly closed five of Head Start’s ten regional offices—Boston, Chicago, New York, San Francisco, and Seattle—impacting oversight and support for programs serving 318,000 children across 22 states and five U.S. territories. These offices are charged with administering grants, providing technical assistance, and ensuring the delivery of early childhood services tailored to local needs.

The closures, part of broader restructuring efforts at the U.S. Department of Health and Human Services, left many Head Start grantees without clear guidance or support, raising concerns about delays in funding and disruptions to essential services. Nonprofit providers continue to feel the effects of the closures, with some programs facing delayed payments, new administrative hurdles to access approved funding, and confusion over how to proceed with grant applications. This interactive map shows the impact on states of the closures.

What We're Reading

• How UPMC, Sanford, Sharp are trying to avoid charity care cuts - Modern Healthcare
• An update from Grantmakers in Health including details about changes to the H-1B visa program
• Telehealth providers, CHCs hit first by government shutdown - Modern Healthcare
• Hospital Medicaid pay cuts spread as state budget gaps widen

ICYMI: Webinar on  the Rural Health Transformation Program 

ATI Advisory is hosting a webinar on Thursday, October 9, 2025, at 3 pm ET called “$50B for Rural Health: Breaking Down the New HHS NOFO.” The free webinar will help nonprofits understand the strategic goals and allowable uses of funds for the new program, what HHS is signaling through this opportunity — and what states, providers, and partners should be preparing now. This session will provide an actionable overview of the HHS NOFO and where the greatest opportunities lie for rural health transformation. Registration is open now.

For more information, please contact Sarah Dobson, Senior Director of Public Policy and Advocacy, or Bill Kallestad, Senior Director, Public Policy and Advocacy, Disability Network.