There are a few issues involved here.
First, applying for non-profit status is technically a request, it is not an automatic permanent status. The IRS has signaled its intent to review NIL collectives, as the IRS does NOT think that these are charitable organizations. While the IRS may not chase down PAST "charitable contributions" to disallow them back to the date of entity formation, any contributions past the disallowance date would no longer be charitable contributions.
Second, UM (and other schools) have decided not to push the issue, and to just create an organization that will survive any such change in 501(c) status. While I do not think it may be very costly to make the entity transition, it may be that UM doesn't want to "confuse" donors. In other words, if your donations are PREDICATED on them being charitable contributions, maybe you would stop giving if the IRS pulls the 501(c) status. But if everyone knows the (probable) deal from Day 1, that your contributions are NOT deductible, then nobody has a reason to STOP giving in the future, based on IRS guidance.
Third, AND I DO NOT CARE ABOUT ANYONE'S PERSONAL POLITICS, the TCJA of 2017 (effective 2018) has not been helpful for charitable giving. Without going into mind-numbing detail, most tax-filers below a certain AGI level will see NO BENEFIT from charitable giving, since the standard deduction has been raised so high. This is not to say that VERY wealthy individuals cannot benefit on tax returns from charitable giving, but many people in that category IF THEY ARE CONTRIBUTING TO COLLECTIVES are not as motivated by tax savings as much.
From 2018 forward, charitable giving has declined in most years. We can "blame COVID" for such stats in 2020 and 2021, but there was also a big decline in 2018 (the first year the TCJA was effective) and a small increase in 2019 (small when compared to the rate of inflation) that was due to the strong economy in 2019. In the most recent year, the percentage increase in donations was outstripped by the inflation rate. The point is that the TCJA has certainly impacted charitable giving at "lower income" levels (below $500K), though the TCJA has had almost no impact on the charitable giving of the wealthy (above $1M in income).
As that impacts collectives? It means, Juan and Jose Mas will continue to contribute, regardless of tax-exempt status and the ability to deduct on their income tax return. And for those of us who would like to deduct such contributions, most of us are likely to NOT benefit from the tax deduction anyhow.
That's just tax math, having nothing to do with anyone's feelings on the issues.
