House Passes Terrorist Tax Exemption Revocation Bill

I swear, I have not seen this much panic and chicken little-ism in a long time.  There are too many media reports about the "nonprofit killer bill" to focus on any single one of them. The Bill amends IRC 501(p), allowing Treasury to summarily revoke tax exemption for charities accused of supporting terrorism.  The House passed the Bill just this morning by a vote of 219-184.  Opponents are on all sides.  Arabs, Jews, the ACLU, Alliance for Justice, OXFAM, just about everybody is telling us the sky will fall on Civil Society if Congress enacts HR 9495.  The only side that hasn't spoken up one way or the other are conservative nonprofits.  Not even a peep out of the Philanthropy Roundtable, for example.  I happen to think silence by conservative nonprofits is telling too.  They haven't spoken out against the Bill, but we don't see them arguing in support of it either. 

It's not that I believe Trump won't attack Civil Society. He'll go after migrant nonprofits and plenty of progressive nonprofits too.  Maybe even some universities.  But he can do that under current law, and probably easier than under the Bill.  The Bill adopts process that is entirely absent from current law that already allows Treasury to do what the Bill proposes.  But opponents' fears are not so far fetched that they should be easily dismissed.  Just yesterday, Ways and Means Chairman Smith reiterated a demand that Treasury revoke a fiscal sponsor's exempt status because it sponsored Samidoun, a nonprofit Treasury recently designated as a terrorist support organization. This isn't the first time House Republicans have demanded summary revocations.  But the Bill makes it more difficult to do so than it is right now. Trump will actually have more power to act like Putin under current law.

Two things are worth noting about Smith's letter, by the way.  It lends support to my oft repeated assertion that there is already unchecked authority to do what opponents fear HR 9495 will allow Trump to do.  Some people think the current process is "cumbersome" but the Bill does not make it less so. Treasury effectively revoked a domestic  organizations exemption a few  weeks ago under current IRC 501(p).  Without any hint of due process because 501(p) contains no such protections.  Second, the Bill's passage today is probably an indication that summary revocation of nonprofit tax exemption will become more common.  Though it should still have constitutional qualms, Treasury will have fewer of those qualms if the Bill becomes law.  

Summary revocation for political reasons is most certainly a deep cause for concern.  But I am not even sure the Bill clears away the current cumbersome process that might inhibit rash or politically-motivated actions.  It builds on top of a bunch of federal statutes implemented by a bunch of executive orders that require "consultations" but no due process.  The Bill adds process, certainly more than under existing laws.  I keep thinking its me, by the way.  That somehow I just don't understand the fears.  So I  went back yesterday and checked my research.  My paper needs some elaboration and I intend to work on it over the next two months but I don't expect changes to my preliminary conclusion -- that Treasury already has unchecked power to kill nonprofits the administration hates.  

So the choice, really, is between existing law effectively allowing summary revocation or HR 9495 which at least allows for pre- and post-deprivation process.  The biggest problem under the proposal is that an accused nonprofit has no right to see the evidence, though it is provided 90 days notice, a description of the material support allegedly provided, and an opportunity to dispute Treasury's determination or show that the support has been withdrawn and won't happen again.  Along with a post-deprivation administrative appeal that doesn't exist under current law either.  That is more than what is required under existing law.  It is fairly close to being constitutional except that it does not provide access to the evidence, an admittedly major problem. 

Maybe opponents prefer the status quo ante because the cumbersome process and the glaring constitutional problems have an in terrorem effect  on Treasury.  HR 9495 might lessen whatever reluctance Treasury has to revoke tax exemptions, particularly under an administration that adopts an authoritative stance against dissenting Civil Society. The last thing worth mentioning is that the Bill  might  also be fast tracked in the Senate because it is attached to a provision providing tax relief to Americans held hostage overseas.

darryll k. jones