Congress weighs handing Trump a dangerous new weapon

Bill to revoke tax-exempt status raises alarms

This week, the House is poised to vote on legislation that would, per the Washington Post, “make it easier for the incoming Trump administration to strip nonprofit organizations’ tax-exempt status.” 

The Stop Terror-Financing and Tax Penalties on American Hostages Act (H.R. 9495) is actually an agglomeration of two separate bills:

• One, a widely lauded set of technical reforms to ensure that Americans held overseas as hostages are not penalized for missing tax-filing deadlines. This makes perfectly good sense.

• Two, a controversial provision that would empower the Treasury Secretary to unilaterally revoke the tax-exempt status of any U.S. nonprofit that they accuse of funding terrorism. 

This second provision is unnecessary, lacks basic safeguards, and is at alarming risk of abuse. There are clear warning signs in recent remarks from the president-elect, as well as in how such laws have been abused abroad.

Creating additional powers to strip nonprofit status is unnecessary

I am far from unsympathetic to the suffering of hostages or the importance of cutting off terrorists from funding. I’ve testified before Congress on numerous occasions about ways to combat terror finance, including as a hearing witness on the specific issue of Americans kidnapped for ransom by terrorist organizations.

And I can tell you with confidence that this second provision is totally unnecessary.

The world’s leading terrorist organizations receive the bulk of their revenue from devoted state sponsors or from seizing control of territory where they can extract natural resources and extort the populace. Furthermore, terrorists are vastly more capable of raising funds in those countries where financial controls are lax or virtually nonexistent, illicit trade networks are disproportionately strong, or public sympathy for their activities is widespread.

Indeed, the U.S. Treasury Department explained in its 2024 National Terrorist Financing Risk Assessment that “the vast majority of U.S.-based tax-exempt charitable organizations face little or no risk of being abused for TF [terrorist financing]. This risk is substantially mitigated by the adoption of due diligence measures by charitable NPOs [non-profit organizations]” as well as by ongoing U.S. government efforts to expose and penalize sham charities operating abroad.

Finally, existing law and procedure are more than sufficient for tackling any possible isolated exception to these overarching dynamics. 

Of course, providing support for terrorism is already robustly criminalized under U.S. law. There is also explicit precedent that tax-exempt organizations may not engage in activities that are “illegal or contrary to public policy.” As the Congressional Research Service explains, the IRS already has sufficient authority under this precedent to revoke the tax-exempt status of any nonprofit engaged in funding terrorism — as well as to do so under the basic requirement nonprofits not engage in activities that fall outside of their enumerated tax-exempt purposes. The sponsors of this new provision have offered no persuasive proof that these existing processes are insufficient.

The bill removes basic safeguards

It does not take a leap of faith to imagine a counterterrorism provision of this sort being exploited to dangerous ends by the incoming administration. But this is a power that arguably shouldn’t be handed by Congress to the executive branch under any administration.

Under the existing system, if an American nonprofit was accused of supporting terrorism, the IRS would have to abide by certain reasonable procedures before it could revoke that entity’s tax-exempt status. Thus, even if public servants at the IRS made the wrong call — which has happened in some rare cases, to the detriment of nonprofits on both sides of the aisle — the nonprofit would be entitled to appeal in an independent forum before getting labeled a supporter of terrorism.

However, H.R. 9495 would flip that process on its head, effectively denying any meaningful due process until after the Treasury Secretary singlehandedly decides to impose such a toxic designation against any American civil society organization. There would be no opportunity provided under this bill for an IRS appeal or for its judicial review process until the damage had already been done.

The risks this poses, to civil society and to our nation’s democracy, are serious; that is why over 130 U.S. advocacy organizations oppose that part of the bill.

This power is at alarming risk of abuse

If Congress hands the incoming administration this substantial new power to unilaterally strip away nonprofit status — even with instructions to do so only if a genuine need arises — it risks this tool being abused for decades to come. In fact, we have every reason to believe that Donald Trump will wield such a weapon not against America’s enemies, but against his own critics. 

Throughout the course of the campaign, Trump promised retribution against his political opponents, including “Lawyers, Political Operatives, Donors, Illegal Voters, & Corrupt Election Officials.”

He has also threatened pro-immigrant nonprofits, pledging to prosecute “any radical left charity, non-profit, or so called aid organizations supporting these caravans and illegal aliens.”

He even went so far as to accuse President Biden himself of being “guilty of providing material support for terrorism,” a preposterously false accusation.

There would be few safeguards to prevent President-elect Trump from instructing the next Treasury secretary to attack nonprofits that are critical of his agenda — whether over civil liberties, immigration, abortion, or discouraging white nationalism — by unilaterally declaring them supporters of terrorism. The say-so of his hand-picked Treasury secretary would be enough to crush American nonprofits and to label them with the stigma of supposed support for terrorism without requiring a demonstration of real proof first. 

Anti-terrorism laws have been weaponized by autocrats around the world

Unfortunately, there’s lots of precedent for this exact thing happening in other countries. Anti-terrorism laws are a convenient cudgel to attack dissent within authoritarian regimes.

For example, Egypt jailed senior officials from one of the country’s most important mainstream human rights organizations, the Egyptian Initiative for Personal Rights, on sham terrorism charges nearly five years ago. The men were released after outcry from the U.S., E.U., Canada, France, and Germany but were still subject to asset freezes and travel bans for years.

Similar laws to combat terrorist financing have been abused by Serbia to go after the funding and sensitive records for a wide array of legitimate nonprofits and media organizations. Per the Office of the United Nations High Commissioner for Human Rights in 2020: 

Serbian authorities are using oversight powers designed to target the financing of terrorism to obtain banking information and information on financial transactions of more than 50 NGOs, media associations and other non-profit organizations. Those targeted stand out for their work on human rights, investigation of war crimes, monitoring of the government’s work, and other forms of investigative journalism.

---

I understand why members of Congress want to show their firm opposition to terrorist groups by supporting this bill. It’s an admirable instinct, but this bill will do next to nothing against actual terrorist financiers, while creating a powerful new weapon against U.S. civil society at a moment when our democracy is in genuine peril.

Members of the House should refuse to pass the dangerous section of this bill into law. 

And in the meantime, they could simply pass the meritorious half of the bill, granting tax relief to Americans held hostage abroad. In fact, senators have already reached a unanimous agreement to pass that half of the bill if only the House will send them a new clean version. If anything, it’s the insistence on cramming these two measures together as a wedge issue that is delaying tax-relief for unjustly detained Americans.

American civil society is calling on Congress to have its back right now. Will Congress listen?