The FENCE Act amends the Internal Revenue Code to add a new disqualification for 501(c)(3) organizations. It creates a new subparagraph that blocks tax-exempt status for nonprofits that engage in a pattern or practice of providing financial assistance, benefits, services, or other material support to individuals unlawfully present in the United States.
The bill also preserves protections that do not require citizenship verification and that allow religious organizations to operate according to their beliefs. The amendments take effect on enactment, with no retroactive provision stated.
At a Glance
What It Does
Adds a new disqualification to 501(c)(3) eligibility: organizations that engage in a pattern or practice of providing financial assistance or other material support to unlawfully present individuals are not eligible for tax exemption. It also clarifies that citizenship verification is not required and that religious organizations are not compelled to act against their beliefs.
Who It Affects
Existing and prospective 501(c)(3) organizations, including charities and foundations, regulators at the IRS, and donors who rely on tax-exemption status to support charitable giving.
Why It Matters
This creates a measurable standard tied to charitable activity rather than broad political or social goals. It signals a stricter approach to tax-exemption eligibility around immigration-related giving and requires nonprofit governance to scrutinize aid patterns.
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What This Bill Actually Does
The bill rewrites a portion of the tax code that governs which organizations can claim 501(c)(3) status. It adds a new requirement: a nonprofit cannot have a pattern or practice of providing financial help or other material support to people who are unlawfully present in the United States.
If an organization engages in such a pattern, it could lose its tax-exempt status. The new rule is characterized as a disqualification under the 501(c)(3) provisions, and it links the organization’s eligibility directly to the nature of its aid activities rather than other kinds of uses of funds.
The text also explicitly says the rule does not require proof of citizenship or immigration status, and it protects religious organizations from being forced to act against their religious beliefs. Importantly, the amendments take effect on enactment, with no separate phase-in period described.
The design here is to deter or limit charitable activities that provide material support to unlawfully present individuals if such activities would jeopardize tax-exemption. For compliance teams, the bill introduces a new governance burden: nonprofits will need to assess whether their programs could be perceived as providing such support and ensure their aid patterns do not meet the defined threshold.
For donors and regulators, the act provides a clearer, enforceable line about what constitutes disqualifying conduct in relation to tax-exempt status. The bill stops short of detailing enforcement procedures or penalties beyond the loss of 501(c)(3) status, leaving those questions to existing IRS mechanisms.
The Five Things You Need to Know
The bill adds a new disqualification to 501(c)(3) eligibility for pattern or practice of aiding unlawfully present individuals.
It specifies that proof of citizenship or immigration status is not required and that religious organizations are not forced to violate beliefs.
The amendments apply upon enactment with no retroactive effect.
Nonprofits that engage in such patterns risk losing their tax-exempt status.
The bill applies to current and future 501(c)(3) organizations seeking or maintaining tax-exempt status.
Section-by-Section Breakdown
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Short Title
This act may be cited as the Fixing Exemptions for Networks Choosing to Enable Illegal Migration Act, or the FENCE Act. The title is purely ceremonial but signals the policy aim of tying exemption status to compliance with the new pattern-or-practice standard.
Amendments to 501(c)(3) eligibility
Section 2 amends paragraph (3) of section 501(c) to add a new subparagraph (D). This subparagraph prohibits a pattern or practice of providing financial assistance, benefits, services, or other material support to individuals who are unlawfully present in the United States. The text preserves that the organization does not need to confirm citizenship or immigration status and does not force religious organizations to violate their beliefs. The practical effect is to bar from 501(c)(3) status any organization whose aid activities demonstrate a pattern the IRS reasonably could view as supporting unlawful presence.
Effective date
The amendments made by Section 2 take effect on the date of enactment of the Act. There is no retroactive provision described in the text, so existing determinations would continue under current law until the effective date unless amended by the IRS in its standard rulemaking or enforcement actions.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- IRS and Treasury regulators gain a clear, enforceable standard for evaluating 501(c)(3) eligibility when an organization pattern-or-practices aid to unlawfully present individuals.
- Compliant nonprofit organizations have clearer expectations and a more level playing field, especially those that already avoid providing targeted aid in this space.
- Donors seeking assurance that their tax-davored giving does not support unlawful presence may benefit from stronger governance signals and accountability.
- Faith-based and other organizations can tailor policies to maintain religious liberty while avoiding prohibited patterns of assistance.
- Governance teams within nonprofits receive a concrete framework for risk management and reporting around charitable programs.
Who Bears the Cost
- Organizations that currently provide or fund patterns of aid to unlawfully present individuals may risk losing their 501(c)(3) status.
- Small or community-based charities with broad charitable programs could incur higher compliance costs to audit and adjust their operations.
- Fundraising and donor relations teams may face increased scrutiny or need to reframe messaging to avoid triggering the new standard.
- Legal and compliance staff will bear additional responsibilities to interpret and implement the new pattern-or-practice rule.
- Regulatory agencies could see an uptick in requests for guidance or clarifications as nonprofits adjust to the new framework.
Key Issues
The Core Tension
The central tension is between enforcing immigration-related restrictions through tax-exemption rules and preserving nonprofits’ ability to carry out charitable work without fear of losing status or chilling beneficial programs.
The bill introduces a pattern-or-practice standard that can be difficult to apply consistently across organizations with diverse programs. Because the law relies on a determination by the organization’s actual practices and what the IRS reasonably should know, there is room for interpretation about what constitutes a disqualifying pattern.
This creates a potential enforcement gap for small charities or programs that provide intermittent aid, as well as a risk of chilling effects where organizations curtail charitable activity to avoid potential non-compliance.
A core tension is balancing the integrity of tax-exempt status with legitimate charitable work that may touch vulnerable populations. The absence of a precise, objective threshold for “pattern or practice” could lead to disputes about whether particular aid practices are disqualifying.
The bill also preserves protections for citizenship verification and religious liberty, but in practice, nonprofits must carefully document the nature and consistency of their aid work to shield themselves from unintended consequences.
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