Proposed Rule: Regulation on Federal Financial Assistance

Last Updated: June 3, 2026

Overview

On May 29, 2026, the Office of Management and Budget (OMB) issued proposed regulations to revise the Uniform Guidance, which governs federal financial assistance across all federal agencies. OMB states that the proposal is intended to improve transparency, accountability and oversight; clarify that subtitle A operates as an OMB regulation; and reduce recipient burden. Provisions within the proposed rule provide clarifications and new requirements for pass-through entities; prohibitions on nonprofit operations and program delivery; new administrative requirements for applicants and recipients; restrictions on language access and applicant accessibility; and prohibitions on foreign collaborations and the use of federal funds abroad.

If finalized as proposed, organizations that receive federal funding may need to reassess how they structure programs, manage costs, and carry out mission-driven work. Together, these proposals could create significant legal uncertainty and require organizations to weigh the costs of compliance against their capacity to advance their missions.

Comments are due July 13, 2026. OMB states this rule will take effect on October 1, 2026, so provisions will apply to all federal awards issued in fiscal year 2027 and beyond.

This proposal comes after Biden-era changes to Uniform Guidance, which the Council commented on in 2023.

Guidance Would Become Regulations

OMB is proposing to make its Uniform Guidance into federal regulation, rather than just guidance that agencies could interpret flexibly. This means that when OMB updates these rules, the changes would automatically apply across the federal government without each agency needing to go through its own separate process.

Impact on philanthropy: The shift from guidance to a binding regulation gives federal agencies little flexibility in how they apply these provisions, meaning organizations can no longer rely on agency discretion to navigate requirements that conflict with their operations.

Changes to Eligibility and Merit Review

These proposals would:

Broaden applicant-risk review so agencies may consider financial capacity; prior performance; audit findings; publicly available evidence of questionable practices; compliance with foreign gift and contract disclosure requirements; and memberships or affiliations linked to organizations with public safety or national security concerns or that are engaged in activities that violate federal law or advocate for the overthrow of the U.S. government.
Clarify that federal agencies may restrict eligibility for federal funding among different types of nonprofit organizations (e.g., limiting eligibility to 501(c)(3) organizations only or expressly stating that 501(c)(4) organizations are not eligible).
Strengthen agency merit review requirements and establish a new pre-issuance review process, consistent with Executive Order 14332, that will require senior appointees to review proposals selected for funding before awards are made, including to ensure that discretionary awards advance the President's policy priorities.

Impact on philanthropy: The expanded criteria for applicant-risk review and involvement of political appointees rather than subject matter experts in pre-award review decisions could make the grant approval process less predictable for organizations, as it is unclear how determinations about whether a proposal aligns with administration priorities will be made or applied consistently. This also allows for increased politicization in the federal grants process. Organizations may face eligibility restrictions or heightened scrutiny based on affiliations or activities unrelated to the specific award.

Changes to Award and Subawards Structure and Pass-Through Entity Oversight

These proposals would:

Eliminate fixed amount awards and fixed amount subawards.
Encourage agencies to structure awards as multi-year grants when consistent with program objectives, using budget periods longer than one year in lieu of annual re-competition.
Require pass-through entities to ensure that subrecipients do not take actions that could significantly damage the reputation of the pass-through entity, the awarding federal agency, or the Federal Government.
Require pass-through entities to classify related-entity transactions, including transfers to affiliates, subsidiaries, or other related organizations, as either subawards or contracts rather than treated as internal allocations. Pass-through entities must also report subawards on SAM.gov and confirm subrecipient and contractor determinations for all downstream entities.

Impact on philanthropy: Multi-year grants would allow organizations to accomplish complex community-oriented work, launch pilot programs, and track measurable outcomes.

Other proposals would increase reporting requirements for federal grant recipients. In addition, pass-through entities such as community foundations and other charitable organizations that re-grant federal dollars may face new compliance obligations in how they structure and report grants to subrecipients.

The reputational harm provision could also put pressure on pass-through entities to limit awarding grants to organizations engaged in activities that do not align with the Administration’s priorities.

Prohibit Use of Federal Awards to Promote or Support Unlawful Diversity, Equity, and Inclusion (DEI), “Gender Ideology,” or Disparate-impact Liability

These proposals would:

Require federal agencies to ensure that federal awards are not used to "fund, promote, encourage, subsidize, or facilitate" DEI or Diversity, Equity, Inclusion and Accessibility policies, principles, or practices that violate any applicable federal anti-discrimination laws. This includes “racial preferences or other forms of racial discrimination,” including activities where race or intentional proxies for race are used as selection criteria for employment or program participation.
Establish a government-wide policy directing agencies and pass-through entities to ensure awards are administered in a manner that does not promote or support theories of disparate-impact liability, consistent with Executive Order 14281, based on federally protected characteristics such as race, sex, or age.
Prohibit the use of federal award funds to promote "gender ideology" as defined in an Executive Order 14168. Additionally prohibits use of federal funds to support certain healthcare needs of transgender children.
Require that all federal announcements, applications, and award information be provided in English and in U.S. dollars.

Impact on philanthropy: Organizations whose programs touch on equity, inclusion, or gender-related issues may need to redesign federally-funded activities or risk losing awards. The English-only provision may limit accessibility for non-English communities and create barriers for organizations that serve linguistically diverse populations.

Restrict Federally Funded Activities and Programming

These proposals would:

Prohibit using federal funds for: voter registration; issue advocacy or public messaging that promotes or opposes a social, political, or public policy position unrelated to the award's statutory objectives or performance requirements; and efforts to influence state executive branch policymaking, rulemaking, or administrative actions unrelated to the objectives of the federal award.
Clarify that federal program goals and objectives must be consistent with the public interest and aligned with administration policies and priorities, and that program funds may not be used to subsidize political activities or initiatives unrelated to authorized public purposes.
Emphasize compliance with requirements reflected in this administration’s executive orders and Department of Justice guidance, specifically around “programs or initiatives that involve discriminatory practices, including…DEI programs.”
Narrow allowable costs in two ways: prohibiting the use of federal award funds to pay membership dues to organizations whose primary purpose is issue advocacy, and requiring prior approval for certain cost categories including conferences, public relations, and advertising.

Impact on philanthropy: Organizations engaged in voter registration, voter education, community organizing, or coalition membership may find that these activities and related ones are no longer allowable costs under federal awards. While these restrictions apply to federally funded programs, there are increased concerns about how tax-exempt organizations that receive federal funding spend any money, including non-federal dollars. This could expose recipients to increased oversight of their overall operations and programming.

Enforce Nondiscrimination and Viewpoint Neutrality Requirements

These proposals would:

Clarify that federal agencies and pass-through entities may not favor or penalize applicants based on their religious identity, affiliation, or practices. The same standard applies to applicants with no religious affiliation.
Require public entities that receive federal financial assistance not to discriminate based on viewpoint; content; subject matter; or political, ideological, or religious affiliation when providing services for events, meetings, or other expressive activities.

Impact on philanthropy: Pass-through entities may be required to evaluate faith-based partners the same as secular organizations when re-granting federal dollars. This could also increase scrutiny of pass-through entities and their decision-making with respect to subawards.

Strengthen Federal Authority to Suspend or Terminate Discretionary Awards

These proposals would:

Add a new paragraph allowing federal agencies and pass-through entities to issue written orders temporarily suspending all or part of a federal award for up to 90 days. During the suspension period, recipients must minimize costs, and upon cancellation or expiration, agencies should consider and seek to resolve budgetary or schedule impacts.
Allow a federal agency to terminate a federal award in part or its entirety if it determines the termination is in the interest of the agency, including if the award no longer reflects program goals, federal agency priorities, or the national interest.

Impact on philanthropy: Strengthening suspension and termination authority would make it significantly easier for agencies to terminate grants. Organizations would likely experience a repeat of suspensions and terminations the sector experienced in the early months of this Trump administration. However, if these provisions are finalized, it means there would be limited recourse for organizations that lose federal awards.

Prohibit Foreign Collaboration with Federal Funds, Including Through Indirect Costs

This proposal would prohibit recipients and subrecipients from using federal funds to support collaborations, agreements, programs, or activities with covered foreign countries or covered foreign entities, unless expressly authorized by federal statute or approved by the awarding federal agency. The restriction applies to federal funds used for programmatic activities, research, technical assistance, travel, or indirect costs allocable to covered foreign collaborations. Covered countries include countries designated by federal law, statute, or executive order as foreign adversaries, countries of particular concern, or countries subject to sanctions or restrictions related to national security, defense, or intelligence activities. The provision does not ban federal grant recipients from engaging in foreign collaborations using non-federal funds.

Impact on philanthropy: Organizations that work or partner with foreign governments, foreign entities, or international organizations may need to restructure partnerships or decline federal funding for activities that would fall within the scope of this restriction. This prohibition extends to indirect costs, which can complicate cost allocation.

Recipients Must Use E-Verify for U.S.-Based Award Labor

This proposal would require recipients and subrecipients to participate in the Department of Homeland Security's E-Verify program to confirm the employment eligibility of all employees and contractors hired in or performing work in the United States.

Impact on philanthropy: This requirement would create a new administrative obligation for all recipients and subrecipients. This would be particularly burdensome for smaller organizations with limited infrastructure.