Senior Administration officials, including President Trump himself, have threatened the tax-exempt status of non-profits that criticize him, his allies, or his policies. Under current law, the authority of the IRS to punish these groups is limited. But the administration and its allies in Congress now are moving to make it easier to penalize tax-exempts they do not favor.
They’d do it by expanding the definition of terrorism and, at the same time, revoking the tax-exemption for groups that allegedly support such activity in broad, but unspecified ways. Trump has already begun to move in that direction through executive orders and regulatory changes. Congressional Republicans are pushing legislation to achieve the same ends.
“The Enemy Within”
Trump threatened tax-exempt organizations in April, when he targeted Harvard and other universities. These efforts ramped up following the recent killing of Trump’s political ally Charlie Kirk. Vice President JD Vance threatened to revoke the tax-exemption for two well-known foundations that, he alleged, are part of the “the NGO network that foments, facilitates and engages in violence.”
Vance did not limit his threat to organizations that commit violence or explicitly encourage it. He went much further. His words came in the context of Trump’s threats to battle what he calls the “enemy within.” Related Trump initiatives include sending troops to several large cities governed by Democrats, ordering the Department of Justice to indict perceived political enemies, and arbitrarily cutting federal funding to universities.
Vance’s explicit threat bumps into a legal barrier: The IRS currently has little authority to lift tax-exempt status from organizations simply because Trump objects to their views. It cannot revoke their tax-exempt status for engaging in or supporting speech protected by the First Amendment, including offensive speech.
“Criticism of a policy response by a political leader is not a basis for revocation. [It is] just free speech,” Catholic University law professor Roger Colinvaux told me.
A non-profit could lose its tax-exempt status if it is a criminal enterprise or explicitly encourages others to commit a crime or act of terrorism. Section 501(p) of the revenue code prohibits listed organizations engaged in international terrorism from receiving a tax-exemption.
Even with a plausible claim, lifting a group’s tax-exempt status is no simple matter. It “requires a long process, with appeal rights within the IRS and to any of several courts…after exhaustion of administrative remedies,” says Ellen Aprill, Scholar in Residence at UCLA School of Law.
Domestic Terrorists
Nonetheless, Trump is moving aggressively to expand his administration’s power to act against tax-exempts, including by threatening to revoke the tax-exempt status of those that fund a wide range of groups critical of him or his policies.
He signed a September 22 executive order designating the political protest movement Antifa as a domestic terrorist organization. Antifa is a loosely defined affiliation of self-described anti-fascist groups. But it is not an organization and its participants are hard to identify. Yet, the executive order targets “individuals associated with and acting on behalf of Antifa.”
A September 25 presidential memorandum defines domestic terrorists as groups that “wage a violent assault against democratic institutions, constitutional rights, and fundamental American liberties.”
The memo gets into much deeper water when it adds, “Common threads animating this violent conduct include anti-Americanism, anti-capitalism, and anti-Christianity; support for the overthrow of the United States Government; extremism on migration, race, and gender; and hostility towards those who hold traditional American views on family, religion, and morality.”
The document does not define “violent assault” or “hostility.”
Indirect Finance
It goes on to say, “The Commissioner of the Internal Revenue Service (Commissioner) shall take action to ensure that no tax-exempt entities are directly or indirectly financing political violence or domestic terrorism.”
Thus, the order appears to give the IRS power to target anyone who shows “hostility towards those who hold traditional American views on family, religion, and morality?”
It also leaves wide open the question of what “indirectly financing” means. Imagine a tax-exempt foundation funds a grantee that primarily focuses on health care. Would the foundation be in jeopardy of losing its tax-exempt status if an employee criticizes Trump’s immigration policy on social media. Under Trump’s broad interpretation, perhaps.
The Education Department already has proposed new regulations that go ever further. They’d strip access to a student loan forgiveness program from employees of non-profits that engage in “activities that have a substantial illegal purpose.”
But the rule isn’t about, say, money laundering. Instead, it includes prohibitions against “aiding and abetting violations of federal immigration laws” or “supporting terrorism.” Non-profit executives worry that, for example, it could apply to organizations that provide legal assistance to undocumented workers.
New Laws
It is far from certain whether these presidential orders could hold up in court absent statutory authority. But Trump’s congressional allies are trying to address that.
Legislation introduced on Capitol Hill last year would give the Treasury Secretary the power to suspend an organization’s tax-exempt status by designating it a “terrorist supporting organization.”
What exactly do “terrorist” or “supporting” mean? The bill is vague, but one thing is clear: It would give the Treasury Secretary (who currently also is the IRS commissioner) broad discretion to decide.
An organization would get 90 days’ notice that it was being designated a terrorist supporting organization and could appeal.…But to the same Treasury Secretary who made the initial determination. There is no requirement that the Secretary present any evidence for his decision.
Foundations and other non-profits might eventually prevail in what could be protracted legal battles over their tax-exempt status. But litigation would be expensive and cost the support of donors, whose ability to deduct their contributions would be uncertain.
Just the threat may be enough to encourage tax-exempts to mute their criticism of the Trump and his agenda. And that, after all, might be the point.
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