The US House of Representatives has passed H.R. 9495. It seems innocuous enough. The first part of the introductory summary says that the bill “postpones certain tax filing deadlines for U.S. nationals and their spouses who are unlawfully or wrongfully detained abroad or held hostage abroad. It also allows for a refund and abatement of tax penalties and fines paid by detained individuals.” Then comes the second part: “The bill terminates the tax-exempt status of terrorist supporting organizations.” Objection: the bill wouldn’t do that, the Secretary of the Treasury would.
The sponsors of the bill say that it allows the government to avoid a “time-consuming bureaucratic process”, which is an alarming way for members of Congress to refer to the due process of law. Penalizing a nonprofit for supporting terrorists sounds like a good idea, but the executive branch already can stop businesses connected to terrorism and it’s already a federal crime for nonprofits to provide material support to terrorists. So, why write another bill?
This bill gives the Secretary of the Treasury the power to remove the tax-exempt status of a nonprofit organization if the secretary finds it to be a “terrorist supporting organization.” There are clauses giving the organization the ability either to defend itself or to certify that the issues have been remedied, but those clauses include the following caveat: certification shall not be treated as valid if the organization making it has provided any other such certification during the preceding 5 years. So, hypothetically speaking, if an unscrupulous government official were to accuse an organization falsely twice in five years, the second time would stick whether or not it was valid.
Such an unscrupulous person could attack political opponents and burden them with crushing legal fees and a loss of donors. Such costs could cause the end of the targeted nonprofit. It would also damage the remaining organizations in the sense that they would cut back on activities in an attempt to avoid all of that.
Consider the likely players here. President-elect Trump has nominated hedge fund manager Scott Bessent as Secretary of the Treasury. Bessent was one of President-elect Trump’s most prominent fund raisers. That plus an enormous amount of loyalty to Mr Trump appear to be his two strongest qualifications. Add that to the Project 2025 plan to fire government employees and increase the number of presidential appointments to the IRS, and you get an IRS loaded with people who basically would take their direction from the president.
Think there won’t be politicized enforcement? With 14 attorneys general calling for news outlets to be investigated for “material support” of terrorism already, one could say that the groundwork is already being laid. “Terrorist” designations could be slapped on any organization that is in conflict with the administration.
Five of the bill’s sponsors sent a letter to the current commissioner of the IRS last April. Among the questions they asked were the following:
- What processes does the IRS use to determine whether a tax-exempt organization is, in practice, engaged in the exempt purpose it described at the time of application?
- If in practice a tax-exempt organization operates to promote conduct that is counter to public policy, is that grounds for revocation of tax-exempt status?
- Does the IRS conduct randomized reviews of organizations with existing tax-exempt status to determine whether such organizations are satisfying the legal requirements of such status?
- Does the IRS accept and investigate referrals of organizations that members of the public believe are primarily engaged in conduct that is outside their stated exempt purpose? Please describe the process for submitting such a referral.
The sponsors appear to be thinking ahead to how to attack a nonprofit, and whether “counter to public policy” is sufficient grounds to revoke nonprofit status. If that answer is yes, then don’t be surprised if “counter to public policy” (whatever that means) becomes synonymous with “terrorist supporting activities”.
If this were to happen, it would not be the first time that the IRS was used as a president’s personal enforcer. But it would certainly be the most devastating and widespread such use in history, and it would be extremely difficult to roll back.
As reported by the Office of the Clerk of the United States House of Representatives, Rep Pingree voted No and Rep Golden voted Yes. The bill’s next destination is the US Senate.