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House Passes Terrorism Bill Targeting Nonprofits, Despite Concerns About Overreach

Last week, the House of Representatives rejected H.R. 9495, Stop Terror-Financing and Tax Penalties on American Hostages Act, legislation that would allow the incoming administration to unilaterally shut down certain nonprofit organizations. This week, the bill was reintroduced by House Republicans, where it passed, 219-184. The vote was largely partisan, with 204 Republicans voting yea and 183 Democrats voting nay (an equal number of Republicans and Democrats—15 each—sat this one out).

You can see how your Representative voted here.

The Bill

The bill has two parts.

The first part would amend the tax code to postpone tax deadlines and provide tax relief (including abatement of penalties and refund extensions) for U.S. nationals who are unlawfully or wrongfully detained or held hostage abroad. That part of the bill had bipartisan support, and has already passed the Senate as a stand-alone provision.

The second part of the bill (formerly H.R. 6408) is more controversial. It’s touted as an antiterrorism measure, but the scope of the bill is causing concern. As written, it would allow the Secretary of the Treasury to revoke the tax-exempt status of “terrorist supporting organizations”—no evidence or explanation is required. Notably, status can be revoked even if the “support” is not intentional or connected to violence. If the tax-exempt organization couldn’t prove its case to the Treasury, it would have to go to court, essentially flipping the script on the current scheme.

The bill’s sponsors have indicated that the intention is to circumvent a “time-consuming bureaucratic process” under current law.

Currently, anyone who gives money, goods, or services to a U.S.-designated terrorist organization can be charged with a felony under the Antiterrorism Act and the International Emergency Economic Powers Act. If found guilty, those organizations aren’t entitled to tax-exempt status. But that requires a verdict, which necessarily means a trial.

There are other ways that a tax-exempt organization can be denied or lose its status under current law. Most tax-exempt organizations are required to file an annual return or notice with the IRS, and an organization that fails to meet this requirement for three consecutive years is subject to an automatic revocation of tax-exempt status. Additionally, the IRS can revoke status for violations of federal laws, including engaging in prohibited political activity. The IRS may be alerted to issues by the organization itself (for example, a filing indicating a change in exempt purpose), information included on an annual return, or the result of an audit.

The bill would allow the Treasury Secretary discretion to skip those steps, and, opponents argue, avoid due process.

Concerns

That sent off alarm bells for many organizations, especially considering the untested language in the bill. What constitutes a terrorist organization is generally defined in existing U.S. statutes as groups that have committed acts of terrorism and that pose a national security threat to the U.S. That includes groups like Hamas and Hezbollah.

But what constitutes “material support” is less clear. Some worry that the vague language could result in unfair and inappropriate targeting of any organizations that the administration deems to be a threat, including universities and members of the press. In that way, opponents argue, it would have the effect of muzzling free speech. Fighting back would take time and money, two things that nonprofits may not have to spare.

The American Civil Liberties Union (ACLU) has been very vocal in its opposition, stating that the bill “authorizes broad and easily abused new powers for the executive branch.” The potential for abuse, the ACLU wrote in a letter to Speaker of the House Mike Johnson (R-LA) and Democratic House Leader Hakeem Jeffries (D-NY), “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.”

More than 300 organizations signed the letter, including the American Federation of Teachers, the American Library Association, and Amnesty International USA.

Several religious organizations also signed on, including The United Methodist Church-General Board of Church and Society, Presbyterian Church (USA)-Office of Public Witness, and the United Church of Christ. By law, churches that meet the requirements of section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of exempt status from the IRS, nor required to file an annual return or notice with the IRS.

Last week, the United Philanthropy Forum, the Council on Foundations, Independent Sector, and the National Council of Nonprofits, released a joint statement in opposition to H.R.9495. In the statement, the organizations noted that “…we strongly support stopping bad actors from using nonprofit organizations to fund terrorism,” while noting that the language in the bill “creates redundancies and confusion while providing the executive branch with expansive new authority that could be abused.”

The statement continued, “Organizations suspected of violating the law are rightly subject to criminal investigation and prosecution. Section 4 of H.R.9495 may achieve the goal of expediting these cases, but it does so at the expense of fairness and transparency.”

Rep. Claudia Tenney (R-NY), a bill sponsor, said in a statement provided to Forbes about the legislation, “…this legislation requires the IRS to revoke the tax-exempt status of any organization that provides financial support or resources to designated terrorist groups. I am pleased this legislation passed the House, ensuring that Americans who have endured the horrors of being held hostage can return home without facing punitive tax penalties while also strengthening our stance against terrorism.”

Rep. Lloyd Doggett (D-TX), who serves on the Ways and Means Tax Subcommittee, the Joint Committee on Taxation, and the House Budget Committee, posted a statement on X (formerly Twitter), that said in part, “Working together with civic society groups and a few colleagues, we built the number of “no” votes significantly. Unfortunately, with Republicans in full control, our success must be measured not in preventing House approval, but in uniting 183 Democrats to send a strong message to the Senate to block this bill. And a strong message to Trump and his minions that we will not yield the right of way to a wannabe tyrant.”

It’s unclear whether the bill will be called for a vote in the Senate. A call to Sen. Majority Leader Chuck Schumer’s (D-NY) office seeking comment was not returned.

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