UPDATE 11/13/24 – The Stop Terror-Financing and Tax Penalties on American Hostages Act has failed to pass the House with the 2/3rd majority needed under the suspension of the rules. Representative Lloyd Doggett, D-Texas, said after the vote “All of us support stopping terrorism, [But] if he [President-elect Trump] is on a march to make America fascist, we do not need to supply Donald Trump with any additional weapons to accomplish his ill purpose.”
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The “Stop Terror-Financing and Tax Penalties on American Hostages Act” (H.R. 9495), which puts in place a mechanism for revoking tax exemptions for organizations found to provide material support to terrorists, has been put on a fast-track in the House. The Act is a blending of what were previously two separate pieces of legislation, one that provides tax relief to American hostages held by terror groups or unjustly imprisoned abroad, which has broad support, and the second that provides Treasury with additional powers to revoke exemptions from organizations for being terrorist supporters, which is more controversial. Some commentators believe that combining the popular tax relief for hostages with the unpopular expansion of Executive branch powers is designed to make it harder for members of Congress to vote no on the legislation.
The Stop Terror-Financing Part of the Legislation.
The bill provides for a procedure for the Secretary of the Treasury to designate a tax-exempt organization as a terrorist supporter. The Secretary first issues a statement or notice to a tax-exempt organization that it intends to designate the organization as a terrorist supporting organization in 90 days unless the organization can “cure” the issues identified. The notice itself must contain the name of the terrorist organizations to which the exempt organization provided material support or resources and a description of the material support or resources that were provided. The tax-exempt organization may “cure” the designation within the 90 day period by demonstrating to the Secretary that the organization either did not provide such support or that it made reasonable efforts to have the support returned accompanied by a promise that the organization will not provide and further support to terrorist organizations. If the tax-exempt organization fails to cure the designation to the satisfaction of the Secretary, the Secretary will designate the organization as a terrorist supporting organization and revoke the organization’s tax exemption. The legislation provides for administrative review by the IRS Independent Office of Appeals and ultimately allows for appeal of the designation to the United States District Courts.
The Critics.
The ACLU penned a letter in opposition to the legislation signed by 120 nonprofit civil liberties, religious, reproductive health, immigrant rights, human rights, racial justice, LGBTQ+, environmental, and educational organizations to The House of Representatives on September 20, 2024. “The diverse group expressed deep concerns about the bill’s potential to grant the executive branch extraordinary power to investigate, harass, and effectively dismantle any nonprofit organization — including news outlets, universities, and civil liberties organizations like ours — of tax-exempt status based on a unilateral accusation of wrongdoing.” The ACLU made a very important point that merely the threat of revocation and the cost of defending against such action is enough to put a chilling effect on the speech and activities of exempt organizations. Further, issuance of a notice, even if in error, can cause donors to flee and result in fatal reputational harm. The ACLU states that this legislation may be just the first in a concerted attack on civil society.
To read the full letter click here.
