Nonprofit Tax Code Weaponization Alert

Patrick G. Eddington

Get ready for another one of those “Congress is trying to pull a fast one” stories … and if you work for or financially support one or more nonprofits, you’ll want to read on. Congressional sources have informed Cato that an extremely controversial tax code bill that could be used to target politically disfavored nonprofits that has already passed the House may get a Senate vote this week. First, some important background information.

The very same day (April 15) the House was voting on the atrocious Foreign Intelligence Surveillance Act (FISA) “reform” bill, it also passed the very innocuous sounding H.R. 6408, the purpose of which is “To amend the Internal Revenue Code of 1986 to terminate the tax‐​exempt status of terrorist‐​supporting organizations.”

The bill’s author, Rep. David Kustoff (R‑TN), issued a press release when his bill passed the House that claimed the following:

Recent reports indicate there are U.S.-based nonprofits that are suspected of providing support and funding to terrorist groups.

The gentleman from Tennessee offered exactly zero evidence to support the statement, a fact confirmed by the Charity and Security Network, itself a nonprofit.

Yet despite failing to produce any data from the FBI, DHS, or the Office of the Director of National Intelligence (ODNI) to back up his claim, Kustoff managed to convince his House colleagues to pass a bill that would allow the Secretary of the Treasury to designate a US nonprofit as a “terrorist supporting organization,” if it is found to have provided “material support or resources” or “training” or “expert advice or assistance” to a designated foreign terrorist organization per 18 U.S.C. § 2339A.

The actual target of this legislation is not ISIS or Al Qaeda, but nonprofit groups that are supportive of a cease‐​fire in the Israel‐​Hamas war or who are otherwise rhetorically supportive of the Palestinians or even seeking to provide humanitarian aid to people in Gaza.

As Matthew Petti at Rea​son​.com recently wrote, “Under the proposed bill, murky innuendo could be enough to target pro‐​Palestinian groups. But it likely wouldn’t stop there.” I agree, and there’s already a well‐​documented and thoroughly dishonorable history to this practice that should serve as a warning about the very dark place this current episode may take us.

Just shy of five years ago, I provided a little bit of a history lesson on previous episodes involving the political weaponization of the tax code or business or organizational records by Congress. In that instance, it was the infamous House Un‐​American Activities Committee (HUAC) strong‐​arming then‐​President Franklin D. Roosevelt into giving the committee access to tax and business records on individuals and organizations HUAC believed were Soviet controlled or influenced. As I noted then:

Between 1938 and 1975 (when it was finally abolished by Congress), HUAC either attempted to obtain or actually utilized sensitive personal information on American citizens to conduct anti‐​communist persecutions that destroyed the professional and personal lives of thousands of citizens.

This time it appears that Congress wants to outsource the tax status‐​centric political repression to the executive branch, specifically the Treasury Department. But whether it’s a presidential administration or Congress itself doing it, demanding the tax, business, or organizational records of a civil society organization that takes unpopular political positions to chill the speech or activities of that organization is pure political repression.

Indeed, Arab and Muslim Americans have lived under a state of de facto political siege since the 9/11 attacks, something I and many other scholars have written about at length. If Kustoff’s bill becomes law, it will not only likely intensify government repression against Palestinian Americans, it will also set a dangerous legislative and policy precedent that could be used against other nonprofits deemed a “terrorist supporting organization” even in the absence of concrete, verified evidence to that effect.

Is that the kind of thing we want the Treasury Department to do? Is that the kind of country we want to live in?