Here is the tl;dr
The “poison pill” in H.R. 9495 that could hurt progressive nonprofits lies in the expanded authority to terminate the tax-exempt status of “terrorist-supporting organizations.” While the intent appears focused on combating terrorism, the language and implementation could lead to unintended consequences, particularly for nonprofits engaging in politically sensitive or controversial activities. This is why 100’s of leading nonprofits have signed letters opposed (We Oppose H.R.9495 | Council on Foundations | We Oppose H.R. 9495 – Independent Sector ).
Jump to bottom for a longer description on H.R. 9495
How Trump could use H.R. 9495 to hurt the Nonprofit Sector
For Immigration Nonprofits:
- Tenuous ties to “open-border” ideologies:
- Claim: “Certain immigration nonprofits, by advocating for more permissive border policies, inadvertently facilitate the entry of individuals who might have ties to terrorist organizations, thus supporting terrorism.”
- Flaw: This reasoning relies on a distant, unproven connection between immigration advocacy and terrorism support.
- Allegations of “abetting” undocumented immigrants with potential terrorist links:
- Claim: “By providing aid to undocumented immigrants, these nonprofits might unintentionally assist individuals with undisclosed terrorist affiliations, thereby indirectly supporting terrorism.”
- Flaw: This assumes a lack of proper screening and vetting processes, which most reputable nonprofits already employ.
- Misinterpreting humanitarian work as “material support”:
- Claim: “Providing food, shelter, or legal assistance to immigrants can be seen as material support for individuals who might have terrorist connections, even if the nonprofit is unaware.”
- Flaw: This misapplies the concept of material support, which typically requires intentional and knowledge-based assistance to terrorist organizations.
For Public Radio Nonprofits:
- Cherry-picked broadcasting of “anti-administration” or “pro-terrorist” content:
- Claim: “Public radio nonprofits, through their editorial choices, promote a narrative that undermines national security efforts or sympathizes with terrorist ideologies, thereby supporting terrorism.”
- Flaw: This justification would target freedom of the press and the editorial independence of public radio, ignoring the diversity of content and viewpoints typically presented.
- Unfounded accusations of receiving “suspicious” funding:
- Claim: “Certain public radio nonprofits have received donations from individuals or organizations with potential ties to terrorism, which could be used to disseminate terrorist-supporting content.”
- Flaw: This relies on unverified, potentially baseless accusations and ignores the transparent funding structures of most public radio nonprofits.
- Criticism of “lax” vetting of commentators or guests:
- Claim: “By not thoroughly vetting all commentators or guests, public radio nonprofits risk providing a platform for individuals with terrorist sympathies, thus indirectly supporting terrorism.”
- Flaw: This exaggerates the likelihood of such occurrences and disregards the thorough vetting processes typically in place for on-air guests.
What happens if a Nonprofit loses 501 designation?
When a nonprofit loses its tax-exempt status under IRC Section 501(p) due to being designated a terrorist organization, the organization may face significant operational and financial challenges, depending on the federal actions taken. Here’s a breakdown:
1. Can the Organization Continue to Operate?
- Technically, Yes: The organization can still function as a legal entity unless other federal or state authorities revoke its corporate registration or impose additional restrictions.
- Practical Limitations:
- It loses eligibility for tax-exempt benefits, such as exemption from federal income tax and state-level exemptions.
- Donations to the organization are no longer tax-deductible for donors, which can drastically impact fundraising efforts.
2. Are the Organization’s Assets Frozen?
- If Designated by OFAC: If the nonprofit is added to the Specially Designated Nationals (SDN) List by the Office of Foreign Assets Control (OFAC):
- Yes, Assets Are Frozen: All assets under U.S. jurisdiction are blocked, and U.S. persons are prohibited from conducting transactions with the organization without a specific license from OFAC.
- No Automatic Freezing Under IRC Section 501(p): Suspension of tax-exempt status alone does not automatically freeze the organization’s assets. However, an OFAC designation often accompanies the IRS action in terrorism-related cases.
3. Additional Restrictions:
- Contributions and transactions involving the organization could be subject to sanctions.
- The organization is likely to face scrutiny in financial dealings, including banking restrictions, due to its designation.
4. Operational Challenges:
- Banking and Financial Services: Banks and financial institutions may refuse to process transactions or hold accounts due to the risk of sanctions violations.
- Public Perception: The stigma of being associated with terrorism could severely damage the organization’s reputation, making it difficult to sustain operations.
What is the Stop Terror-Financing and Tax Penalties on American Hostages Act (H.R. 9495)?
H.R. 9495 is a legislative proposal introduced in the 118th Congress to address two primary goals:
- Relief for U.S. Nationals Held Hostage Abroad:
- The bill provides tax relief and reimbursement of penalties for Americans who are unlawfully detained or held hostage overseas.
- Combatting Terror Financing:
- It seeks to terminate the tax-exempt status of organizations supporting terrorism.
Key Provisions of the Bill
1. Tax Relief for Hostages and Wrongfully Detained Individuals
- Postponement of Tax Deadlines:
- The bill allows U.S. nationals detained abroad to postpone filing tax returns, paying taxes, and performing other tax-related acts during their detention.
- Refunds for Penalties:
- Individuals who were penalized for late tax filings or payments during their detention would be eligible for refunds.
- Who Qualifies:
- U.S. nationals identified as wrongfully detained or hostages, as determined by the Robert Levinson Hostage Recovery and Hostage-Taking Accountability Act.
2. Termination of Tax-Exempt Status for Terrorist-Supporting Organizations
- Expands on existing provisions in the Internal Revenue Code:
- Automatic Suspension: Organizations found to have materially supported terrorism lose their tax-exempt status.
- Notice and Cure Period: Organizations are notified and given 90 days to prove they did not provide support or to recover and certify the return of any funds or resources.
- Review and Oversight:
- Designations are reviewed by the IRS Independent Office of Appeals.
- U.S. district courts have exclusive jurisdiction to handle challenges.
How Does It Work?
- Tax Relief Process:
- Individuals who qualify are identified by the State Department and the Hostage Recovery Fusion Cell. This list is shared with the Treasury.
- Penalties assessed during the detention period are refunded or abated.
- Future tax deadlines are adjusted automatically for individuals identified as hostages or detainees.
- Terrorist Organization Designations (this is the dangerous bit):
- The Secretary of the Treasury designates organizations that have supported terrorism based on evidence.
- Organizations may challenge the designation via IRS appeals or federal courts.
- If the designation is rescinded, the organization may regain its tax-exempt status.
