July is National Picnic Month, and anyone who has ever tried to organize one knows the challenge: You plan carefully, the weather doesn’t cooperate, and somehow someone always forgets the main dish. Congress heads into its August recess having left several important items on the ground — appropriations unfinished, key nonprofit priorities still waiting for their moment, and a sector that has spent much of 2026 doing what it does best — making do, showing up, and serving its communities regardless of what Congress does or doesn’t deliver. This month, we’re taking stock of where things stand before the recess lull gives way to a very busy fall.
Reconciliation 3.0 and the FY2027 Funding Fight
On July 22, the House narrowly passed H.Con.Res. 113, the budget resolution unlocking the Reconciliation 3.0 process, by a vote of 216-214, with two Republicans and one independent joining all Democrats in opposition. The $95 billion framework includes $73 billion for defense and intelligence, $12 billion in farm assistance, and $10 billion in grants designed to incentivize states to adopt voter ID and citizenship verification requirements under the SAVE America Act. No Democrats voted in favor.
The Senate path is far from clear. Senate Majority Leader Thune (R-SD) has said the Senate will not simply take up the House resolution, noting political concerns from Senate Republicans and a desire for higher defense spending. Meanwhile, the Byrd Rule, which blocks non-budgetary policy changes from the reconciliation process, may force Republicans to restructure the SAVE Act provisions as a grant program encouraging states to adopt voter ID requirements rather than mandating them directly.
On the appropriations front, there is cause for optimism. The House passed a clean continuing resolution (H.R. 9770) on July 22 extending government funding at current levels through December 4, 2026. The House has now advanced all 12 FY2027 appropriations bills through full committee and passed three on the floor, but significant differences remain between the House and Senate on spending levels and policy riders. With August recess approaching and the Senate yet to act on any full-year bills, a full-year deal before December 4 will require serious bipartisan negotiation. We will continue monitoring developments that could affect funding for programs the charitable sector depends on.
The OMB Proposed Rule’s Far-Reaching Consequences for Nonprofits
On May 29, 2026, OMB published a sweeping proposed rule titled “Regulation for Federal Financial Assistance,” which would overhaul 2 C.F.R. Part 200, the Uniform Guidance governing how federal grants and cooperative agreements are administered across more than 40 federal agencies. While OMB frames the changes as improving transparency, accountability, and oversight, the substance of the rule tells a different story. The proposed rule would require pre-award approval from senior political appointees before competitive grants are issued, embed DEI prohibitions and other administration executive order priorities directly into grant terms and conditions, and give agencies broad discretionary authority to terminate awards at any time if they no longer align with the president’s policy priorities. The rule could affect up to $1 trillion or more in annual federal grant funding. Public comments closed July 13 and drew nearly 500,000 responses — an extraordinary level of public engagement, with the vast majority opposed.
Congressional pushback is growing and, notably, is no longer limited to Democrats. All 47 members of the Senate Democratic Caucus signed a letter calling on OMB to rescind the proposed rule arguing it exceeds OMB’s statutory authority and unlawfully substitutes the president’s policy preferences for Congress’s role in directing federal spending. In the House, Reps. Jamie Raskin (D-MD), Suzan DelBene (D-WA), and Lori Trahan (D-MA) led more than 120 colleagues in a letter warning the rule would undermine scientific peer review and introduce political considerations into federal grantmaking. Additionally, Reps. Laura Gillen (D-NY) and Brian Fitzpatrick (R-PA) wrote a bipartisan letter raising concerns that the proposed rule would impact critical, lifesaving cancer research funding. On the other side of the Capitol, Senate Appropriations Committee Chair Susan Collins (R-ME) wrote a letter requesting an extension of the comment period and urging the agency to withdraw provisions she warned would harm small and rural communities and scientific research. With the comment period now closed and OMB targeting an October 1 effective date, Independent Sector is monitoring the rulemaking closely and will continue to advocate for a grant process that serves communities, not political agendas.
Ways and Means Advances 4 Bills Impacting the Nonprofit Sector
On July 22, the House Ways and Means Committee advanced four bills that would meaningfully reshape how nonprofits operate, in a markup chaired by Rep. Jason Smith (R-MO) framed around transparency, preventing foreign influence in American elections, and protecting religious freedom. The package included H.R. 9772, the Foreign Funding Transparency Act; H.R. 9771, the Stopping Foreign Influence in Elections Act, which would tax nonprofit contributions tied to foreign nationals at escalating rates before pulling tax-exempt status; H.R. 9721, the Fiscal Sponsorship Transparency Act, requiring fiscal sponsors to publicly disclose detailed information about each sponsored project; and H.R. 9722, the Fair Treatment of Religious Organizations Act, barring the IRS from weighing religious beliefs about marriage, sexuality, or gender identity against tax-exempt status. Democrats offered nine amendments during the markup — all defeated on party-line votes — and all four bills advanced with every Republican in support and every Democrat opposed.
For Independent Sector, the concern isn’t just with any single bill — it’s with the pattern. As our Director of Public Policy and Government Relations Ben Kershaw outlines in our analysis of the markup, several provisions could have significant unintended consequences for legitimate charitable activity, including potentially prohibiting a charity that receives a single foreign contribution from participating in lobbying coalitions. With all four bills now out of committee on party-line votes, the next step is the House floor where, without any Democratic support, leadership will need to keep its narrow majority unified to pass them. Should they clear the House, they would then face a much steeper climb in the Senate, where 60 votes are needed to overcome a filibuster. We will continue to track these bills and advocate for the sector’s interests as the process moves forward.
A Win for PSLF Is a Win for Nonprofits
On June 30, 2026 — one day before its scheduled July 1 effective date — U.S. District Judge Myong J. Joun of the District of Massachusetts vacated the Department of Education’s controversial new PSLF employer eligibility rule, ruling it contrary to law, arbitrary and capricious, and a violation of the First Amendment. The decision resolved two consolidated lawsuits, Commonwealth of Massachusetts v. U.S. Department of Education and National Council of Nonprofits v. McMahon, brought by a coalition of 22 states, the District of Columbia, five cities and counties, nonprofit employers, and employee associations. A federal judge in Washington, D.C. issued a separate ruling vacating the same rule the same day.
In his decision, Judge Joun held that Congress never granted the Department of Education authority to rewrite the definition of “public service job” as a condition of loan forgiveness, and that the rule could not be used to compel organizations to align their conduct with the current administration’s policy preferences. As Joun put it: “Administrations change with elections; criminal laws do not.” The vacatur applies nationwide, meaning the rule’s proposed changes to qualifying employer eligibility are entirely off the table — for now.
This is a significant win for the charitable sector. PSLF remains one of the most powerful recruitment and retention tools available to nonprofit employers, and Independent Sector fought hard against this rule from the moment it was proposed. No PSLF restrictions are currently in effect, and the Department should continue forgiving student loans under the program as it always has. The Department may still appeal, and employers and public service workers should monitor further litigation — but unless a higher court revives the rule, the employer eligibility standard remains exactly what it has always been.
Form 990 Is Getting Its Biggest Makeover in Nearly 2 Decades
On April 23, 2026, the U.S. Department of the Treasury announced that the IRS intends to revise Form 990, the annual information return filed by most tax-exempt organizations, in what would represent the most significant overhaul of nonprofit reporting requirements since 2008. Treasury’s stated focus is greater transparency and stronger oversight, particularly around disclosure of government grants and contracts and fiscal sponsorship arrangements, which it described as higher-risk areas for misuse of funds and reduced public accountability. No changes have been finalized, and Treasury and the IRS are expected to publish formal proposed regulations and open a public comment period before anything takes effect, though no specific timeline has been announced.
The direction, however, is clear and the charitable sector is watching closely. While framed as a transparency initiative, the announcement signals a broader shift: Form 990 is increasingly viewed not only as an informational return but as a tool for enforcement and public oversight. Combined with the administration’s broader posture toward organizations engaged in DEI, immigration advocacy, and public policy work, these changes raise real questions about how expanded disclosure requirements could be used — and against whom. Independent Sector will continue monitoring the rulemaking process and will alert members when a public comment period opens. In the meantime, nonprofits that receive government grants, manage fiscal sponsorship arrangements, or operate in areas of heightened federal scrutiny should take this opportunity to review their governance and documentation practices now, before proposed rules arrive.
See You in Phoenix — Register Now for Independent Sector’s National Summit 2026
Registration is open for Independent Sector’s National Summit (ISNS) 2026, taking place October 13–16 in Phoenix. ISNS brings together nonprofit and philanthropic leaders from across the country for expert-led sessions designed to sharpen your skills, deepen your policy knowledge, and build the partnerships that move the sector forward. Whether you’re looking to strengthen your organization’s leadership, expand your coalitions, or simply connect with peers who understand the work, ISNS is where those conversations happen. With the summit now less than three months away, don’t wait — register today and secure your spot.
Travis Swanson is the Government Relations Manager at Independent Sector
