October 19, 2021

Volume XI, Number 292


October 18, 2021

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Whistleblower Protections for Nonprofit Employees

The tax code affords major benefits to nonprofits, including exemption from the corporate income tax and the deductibility of charitable donations, which approximately 37 million taxpayers avail themselves of annually. These advantages, combined with limited liability provided by state corporations law and eligibility for grants, have led to a significant expansion of the nonprofit sector. More than 1.56 million nonprofits are registered with the Internal Revenue Service, and the nonprofit sector comprises approximately 5% of US gross domestic product. The nonprofit sector employs over 12 million workers and revenue for registered nonprofits amounted to $2.54 trillion in 2015. In addition, nonprofits receive more than 30% of their overall revenue from government grants and contracts, amounting to over $750 billion yearly.

To maintain tax-exempt status, non-profits must not run afoul of IRS rules, including the following prohibitions:

  • Using a nonprofit to influence the outcome of any public election;

  • Operating a nonprofit for commercial purposes or to benefit private interests;

  • Misusing grant funds to provide excessive compensation or benefits for nonprofit executives;

  • Generating income for purposes unrelated to an organization’s main, charitable purpose; and

  • Spending a substantial amount of time or resources on lobbying for or against legislation.

Until recently, federal law provided minimal protection to whistleblowers at nonprofits who suffer retaliation for reporting violations of the requirements for maintaining tax-exempt status. But with the enactment of the whistleblower protection provision of the Taxpayer First Act of 2019 (TFA), Congress provided whistleblowers at nonprofits with a robust remedy to combat retaliation. In particular, Section 1405(b) of the TFA prohibits any “employer” or “officer, employee, contractor, subcontractor, or agent” of an employer from retaliating against a whistleblower for disclosing violations of IRS regulations, including regulations governing nonprofits.

TFA Protected Whistleblowing

The TFA protects a broad range of disclosures about potential violations of IRS rules or tax fraud. It protects not only disclosures to the IRS but also internal disclosures, including an employee’s disclosure to a supervisor or “any other person working for the employer who has the authority to investigate, discover, or terminate misconduct.”  In particular, TFA protected conduct includes:

  • Providing information to a supervisor regarding underpayment of taxes or any conduct that the employee reasonably believes constitutes a violation of the internal revenue laws or any provision of federal law relating to tax fraud;

  • Participating in an internal investigation about tax fraud or other violations of internal revenue laws;

  • Reporting tax fraud or other violations of internal revenue laws to the IRS, Comptroller General, Congress, Treasury Secretary, or Treasury Inspector General for Tax Administration (TIGTA); or

  • Testifying, participating in, or otherwise assisting in any IRS administrative or judicial action relating to an alleged underpayment of taxes or any violation of the internal revenue laws or any provision of federal law relating to tax fraud.

Examples of protected disclosures by nonprofit whistleblowers include reporting:

  • An organization spending a substantial amount of its time and resources on lobbying – a nonprofit organization generally should devote five percent or less of its overall activities to lobbying to safely remain within the IRS’s prohibition on substantial lobbying;

  • An organization engaging in political activity meant to influence the outcome of any public election – this includes making public statements in support of or in opposition to any candidate for public office, as well as political campaign contributions;

  • An organization not being organized and operated mainly for charitable purposes – a nonprofit organization must mainly engage in charitable, tax-exempt activities; and/or

  • An organization operating to benefit private interests, including for the personal benefit of the creator or their family, shareholders, or other individuals.

Proving TFA Whistleblower Retaliation

A TFA whistleblower can prevail by showing that they engaged in protected whistleblowing, they were subjected to a retaliatory adverse action, and the whistleblowing was a contributing factor to the employer’s decision to take the adverse action.

The TFA prohibits a wide range of retaliatory acts, including discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower in the terms and conditions of employment. The catch-all category of retaliation (“in any other manner” discriminating against a whistleblower) includes non-tangible employment actions, such as “outing” a whistleblower in a manner that forces the whistleblower to suffer alienation and isolation from work colleagues. See Menendez v. Halliburton, Inc., ARB Nos. 09-002, -003, ALJ No. 2007- SOX- 5 (ARB Sept 13, 2011). An employment action can constitute actionable retaliation if it “would deter a reasonable employee from engaging in protected activity.” Id. at 20.

The “contributing factor” causation standard is favorable for whistleblowers. It merely requires a showing that protected activity only played some role, and even an “[in]significant” or “[in]substantial” role suffices. Palmer v. Canadian Nat’l R.R., ARB No. 16-035, ALJ No. 2014-FRS-154, at 53 (ARB Sept. 30, 2016) (emphasis in original). Examples of circumstantial evidence that can establish “contributing factor” causation include:

  • Temporal proximity;

  • The falsity of an employer’s explanation for the adverse action taken;

  • Inconsistent application of an employer’s policies;

  • An employer’s shifting explanations for its actions;

  • Animus or antagonism toward the whistleblower’s protected activity; and

  • A change in the employer’s attitude toward the whistleblower after they engage in protected activity.

Once the whistleblower proves that their protected conduct was a contributing factor in the adverse action, the employer can avoid liability only if it proves by clear and convincing evidence that it would have taken the same adverse action in the absence of the whistleblower engaging in the protected conduct.

Remedies for Prevailing TFA Whistleblowers

A prevailing TFA whistleblower is entitled to make-whole relief, which includes:

  • Reinstatement;

  • Double back pay with interest;

  • Uncapped “special damages,” which courts have construed as encompassing damages for emotional distress and reputational harm; and

  • Attorneys’ fees, litigation costs, and expert witness fees.

Litigating a TFA Whistleblower Retaliation Case

TFA whistleblower retaliation claims are filed initially with the US Department of Labor. The statute of limitations for a TFA whistleblower retaliation claim is 180 days from the date that the employee is first informed of the adverse action. If OSHA determines there is reasonable cause to believe a violation occurred, OSHA can order relief, including reinstatement of the whistleblower.

Either party can appeal OSHA’s determination by requesting a de novo hearing before the Department of Labor’s Office of Administrative Law Judges, but an employer’s objection to an order of preliminary relief will not stay the order of reinstatement. Once a TFA retaliation claim has been pending before the Labor Department for more than 180 days, the whistleblower can remove the claim to federal court and try the case before a jury.


The whistleblower protection provision of the TFA provides robust protection for whistleblowers at nonprofits, which ultimately benefits nonprofits, their donors, and the general public. By encouraging employees to report potential violations, nonprofit management will benefit from early detection of fraud or other tax violations and have an opportunity to rectify those violations.

© 2021 Zuckerman LawNational Law Review, Volume X, Number 203

About this Author

Jason Zuckerman, Whistleblower Litigation Attorney, Washington DC  Law Firm

Described by the National Law Journal as a “leading whistleblower attorney,” Jason Zuckerman litigates whistleblowe r retaliation, whistleblower rewards, wrongful discharge, and other employment-related claims. His practice focuses on representing senior executives and senior professionals in high-...

(202) 262-8959
Katherine Krems Zuckerman discrimination, sexual harassment, whistleblower retaliation

Katherine Krems represents employees in discrimination, ...

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