H.R. 9495 would authorize the treasury secretary to designate nonprofits as supporters of terrorism and strip them of their tax-exempt status.
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The U.S. House passed a bill Thursday that would authorize the treasury secretary to designate nonprofit organizations as supporters of terrorism and strip them of tax-exempt status.
The Stop Terror-Financing and Tax Penalties on American Hostages Act, or H.R. 9495, passed by a vote of 219-184 largely along party lines, with 15 Democrats supporting the bill and one Republican voting in opposition.
If it passes the Senate and is signed into law, H.R. 9495 would give the treasury secretary, a position appointed by the president, the authority to designate a nonprofit as a “terrorist supporting organization” if they determine it provided material support or resources to a terror group within the past three years of the designation. The secretary would also have the authority to revoke an organization’s tax-exempt status and decide when the designation would end.
H.R. 9495 also proposes an amendment to the Internal Revenue Code to postpone tax deadlines and reimburse late fees for Americans who are wrongfully detained or held hostage abroad. The Senate unanimously approved a similar measure earlier this year and is not expected to face any opposition as a standalone bill.
Proponents of the nonprofit designation portion of the bill, or H.R. 6408, champion it as a way to strengthen the government’s stance against supporters of terrorism.
“The financing of terrorism and extremism should not have preferential treatment under the U.S. tax code. I think this should be a no-brainer,” Rep. David Kustoff said on the House floor Thursday.
The American Civil Liberties Union, NAACP, Greenpeace USA, and Planned Parenthood are among the groups that oppose the measure. In a letter sent to congressional leaders earlier this week, the coalition said the bill “creates a high risk of politicized and discriminatory enforcement.” It also argues the executive branch already has “extensive authority” to prohibit transactions with entities that it deems are connected to terrorism.
“The potential for abuse under H.R. 6408 is immense as the executive branch would be handed a tool it could use to curb free speech, censor nonprofit media outlets, target political opponents, and punish disfavored groups across the political spectrum,” the letter read.
‘Death spiral’ for nonprofits
Kia Hamadanchy, senior policy counsel at ACLU, told USA TODAY on Thursday that the bill enables authority that is “ripe for abuse” and could be devastating for nonprofits, including humanitarian aid organizations, advocacy groups, news outlets, and universities.
“This is not an authority that the executive branch should have no matter who the president might be,” Hamadanchy said.
In addition to federal corporate taxes, organizations will pay a steep price in “stigma,” he said, noting donors and banks will likely not want to finance designated groups out of fear of being associated with terrorism support as well.
“When you do this to somebody without any sort of due process, for a lot of organizations, it’s going to cause a death spiral,” Hamadanchy said.
Federal law currently prohibits knowingly providing material support to foreign terrorist organizations, and the Internal Revenue Service has a process in place to revoke an organization’s tax-exempt status. Section 501(p) of the Internal Revenue Code “provides for the automatic suspension of the tax-exempt status of an organization upon designation or identification by the federal government of the organization as a terrorist organization.”
The IRS defines a terrorist organization as a group that is designated or identified as supporting or engaging in terrorist activity. To revoke tax-exempt status, the IRS says it conducts an examination of the organization, issues a letter to the group proposing revocation, and then allows the organization to “exhaust the administrative appeal rights that follow the issuance of the proposed revocation letter.”
Kustoff, the Tennessee Republican congressman who had introduced the legislation last November, said earlier this year that the government’s ability to crack down on tax-exempt organizations that support terrorism was “inadequate.”
“Doing so, under current law, requires a time-consuming bureaucratic process that has sometimes prevented federal authorities from acting,” Kustoff said in April.
H.R. 9495 loses Democratic support
A similar version of the nonprofit designation bill had received sweeping support in the House in April with 179 Democrats voting in favor, but it died in the Senate. The House voted 256-145 on H.R. 9495 last week with 52 Democrats in support of it, but it failed because it required a two-thirds majority.
The ACLU said members of Congress received over 100,000 messages from constituents urging their representatives to oppose the bill. While it passed with a simple majority when it was brought back Thursday, only 15 Democrats voted in favor.
Rep. Eric Sorensen was among a group of Democrats to switch his vote to no on Thursday after supporting the bill last week.
“Over the past week, we have heard from constituents and nonprofit leaders expressing their concerns with H.R. 9495. They pointed out how the bill could unfairly target nonprofits and public charities, making them vulnerable to politically motivated attacks and undermining their ability to serve our communities,” the congressman from Illinois said in a statement Thursday.
With the Senate’s current Democratic majority, H.R. 9495 may not become law this session but Hamadanchy said nonprofits are worried the bill will return next year when Republicans have control of both chambers of Congress.
“There’s been concerns with the material support statutes and how they’ve been applied in a criminal context going back to the Bush administration,” Hamadanchy said. “Any time we try to pass laws addressing terrorism, if you’re not careful, there can be all sorts of unintended consequences.”
