Revoking Terrorism’s Tax Exemption

War and hysteria come together.  But there is a worthwhile attempt to police civil society for national security reasons working its way through the House right now.  HR 6408 would impose due process requirements before and after the Service revokes an organization’s tax-exempt status for providing material support to terrorists.  Which is what the Presidents and their universities are accused of, by the way.  We previously blogged about it here.  Here is an abstract from a recently posted paper on the subject: 

This essay concerns impositions and restrictions on civil society occasioned by or during perilous times most in need of charities and other civil society stakeholders.   I use “impositions” to describe normatively  justifiable laws, and “restrictions” to describe unjustifiable ones.  IRC 501(p) is an excellent exemplar because it demonstrates how impositions on civil society can morph into or facilitate restrictions.  Currently, IRC 501(p) is devoid of notice and opportunity to respond before the IRS can revoke an organization’s tax exempt status for supporting terrorists.  It is too much restriction as it relates to domestic tax-exempt organizations.  For that reason, perhaps, the Service has only rarely revoked tax exemption under that provision.  

A recent House proposal (the Proposal), H.R. 6408, 118th Cong. 1st Sess. (2023), 169 Cong. Rec. H5855-56 (Nov. 14, 2023), seeks to remedy the lack of due process in 501(p).  It might also signal an intention to revoke tax exemption under IRC 501(p) more often.  On balance, the Proposal improves 501(p) relative to unconstitutional processes under current law, even if those restrictions are rarely imposed.    We should perhaps applaud the effort because it attempts to balance national security and civil liberties relative to civil society.  To explain that conclusion, the essay provides a brief primer on the foreign terrorist designation process, and how a near fatal designation is effectively immune from administrative process and judicial review.  The gist of current IRC 501(p) is that an organization’s tax subsidy – its exemption and receipt of charitable contributions – can be summarily choked off for essentially unreviewable national security reasons.  The Proposal improves on the status quo, but it  might also signal an intention to designate domestic exempt organizations more often.  The question, then, is whether the proposal sufficiently balances the perceived need to do so against fundamental civil rights as they relate to civil society.   

darryll k. jones