House Moves Forward With Dangerous Proposal Targeting Nonprofits

This week, the U.S. House Ways and Means Committee moved forward with a proposal that would allow the Secretary of the Treasury to strip any U.S. nonprofit of its tax-exempt status by unilaterally determining the organization is a “Terrorist Supporting Organization.” This proposal, which places nearly unlimited discretion in the hands of the executive branch to target organizations it disagrees with, poses an existential threat to nonprofits across the U.S. 

This proposal, added to the House’s budget reconciliation bill, is an exact copy of a House-passed bill that EFF and hundreds of nonprofits across the country strongly opposed last fall. Thankfully, the Senate rejected that bill, and we urge the House to do the same when the budget reconciliation bill comes up for a vote on the House floor. 

The goal of this proposal is not to stop the spread of or support for terrorism; the U.S. already has myriad other laws that do that, including existing tax code section 501(p), which allows the government to revoke the tax status of designated “Terrorist Organizations.” Instead, this proposal is designed to inhibit free speech by discouraging nonprofits from working with and advocating on behalf of disadvantaged individuals and groups, like Venezuelans or Palestinians, who may be associated, even completely incidentally, with any group the U.S. deems a terrorist organization. And depending on what future groups this administration decides to label as terrorist organizations, it could also threaten those advocating for racial justice, LGBTQ rights, immigrant communities, climate action, human rights, and other issues opposed by this administration. 

On top of its threats to free speech, the language lacks due process protections for targeted nonprofit organizations. In addition to placing sole authority in the hands of the Treasury Secretary, the bill does not require the Treasury Secretary to disclose the reasons for or evidence supporting a “Terrorist Supporting Organization” designation. This, combined with only providing an after-the-fact administrative or judicial appeals process, would place a nearly insurmountable burden on any nonprofit to prove a negative—that they are not a terrorist supporting organization—instead of placing the burden where it should be, on the government. 

As laid out in letter led by ACLU and signed by over 350 diverse nonprofits, this bill would provide the executive branch with: 

“the authority to target its political opponents and use the fear of crippling legal fees, the stigma of the designation, and donors fleeing controversy to stifle dissent and chill speech and advocacy. And while the broadest applications of this authority may not ultimately hold up in court, the potential reputational and financial cost of fending off an investigation and litigating a wrongful designation could functionally mean the end of a targeted nonprofit before it ever has its day in court.” 

Current tax law makes it a crime for the President and other high-level officials to order IRS investigations over policy disagreements. This proposal creates a loophole to this rule that could chill nonprofits for years to come. 

There is no question that nonprofits and educational institutions – along with many other groups and individuals – are under threat from this administration. If passed, future administrations, regardless of party affiliation, could weaponize the powers in this bill against nonprofits of all kinds. We urge the House to vote down this proposal.