An Ideologically Driven Plan To Target Nonprofits?

Walter Olson

Looks like someone has leaked details to the New York Post about a plan led by appointees of Treasury Secretary Scott Bessent to go after the tax exemptions of major nonprofits perceived as being at ideological odds with the Trump administration. These include George Soros’s Open Society Foundations, the Southern Poverty Law Center (SPLC), and the Council on American-Islamic Relations (CAIR); civil penalties and “massive back payments” are also envisaged. (Separately, the federal government is also pressing a criminal case against SPLC based on particular factual contentions unlikely to have a parallel for most other groups.) Treasury would be the lead agency in an attempt at mass revocation because it houses the Internal Revenue Service (IRS).

The legal basis for such a wide crackdown is unclear, and the IRS is not supposed to apply an ideological line in revoking tax exemption. One possible fig leaf, though hardly big enough to cover a scheme like this, is a Trump executive order last year targeting nonprofits operating with a “substantial illegal purpose.” (See also.) Trump has described some of these as “bogus” charities, and Vice President J.D. Vance has inveighed against several leading nonprofits as being like a “cancer.” But epithets of that sort convey no real legal content, except perhaps as evidence of animus later before a court. 

The Post tosses in a reminder of one incidental irony here: “When Bessent stepped down as chief investment officer for Soros Fund Management in 2015, Soros staked his new firm with a cool $2 billion.” How sharper than a serpent’s tooth it is to have a thankless child!

Also quoted is Samuel Handwerger, a University of Maryland tax policy professor and forensic accountant. “If I were assessing real-world exposure for these organizations,” he told the Post, “I would rank it: bank de-risking first, donor and grantmaker chill second, examination costs third, and actual revocation a distant fourth.”

Handwerger also “warned that expanding executive power to target specific groups sets a dangerous precedent. “Every administration inherits the precedents of the last one. Organizations across the political spectrum have an interest in the answer (to this question), and many of them have not yet noticed that.” 

Exactly. Cato has long covered lawfare against nonprofits and threats to their independence, both from the left (California, New York, and assorted AGs) and from the right (Missouri AG and multiple instances over the past two years). One reason for being vigilant is that, as I wrote back last October, it’s “an old story in the law: Protect your opponents’ rights, and when the wheel turns, you may find that you’ve protected your own as well.” Already at that point, Lawson Bader of Donors Trust, an important figure in conservative philanthropy, had stood up publicly “for the right of Open Society, Ford, and other liberal foundations not to be targeted for investigation and harassment when there is no actual evidence of illegality against them.” 

Earlier this summer, Cato convened a panel on how protecting the freedom to give protects everyone’s liberty and the creative and beneficial forces unleashed by America’s philanthropic sector, by far the world’s largest. Joining Bader on stage was John Palfrey, president of the John D. and Catherine T. MacArthur Foundation, known for supporting many progressive causes, as well as Maria Santos Bier and me from Cato. 

You can watch that panel or read more about it here. The Treasury/​IRS scheme, as outlined in the Post report, is dangerous and constitutionally suspect.