House Votes To Let Treasury Kill Politically Disfavored Nonprofits

Administrative power over financial matters is a dangerous weapon for bypassing due process.

On Thursday, the U.S. House of Representatives passed a bill that frees Americans held hostage or unjustly detained overseas from the fear of crushing tax penalties upon returning home. Unfortunately, as is often the case with legislation, that's not all it does. The bill also lets the government designate nonprofit groups as supporters of terrorism, with minimal safeguards, and strip them of their tax-exempt status. It's good that lawmakers want to grant tax relief to people recovering from kidnapping ordeals, but we shouldn't further weaponize tax rules and financial power for political purposes.

Against Terrorism—and Due Process

Celebrating the passage of the bill, main sponsor Rep. Claudia Tenney (R–N.Y.) commented, "I am pleased this legislation passed the House, ensuring that Americans who have endured the horrors of being held hostage can return home without facing punitive tax penalties while also strengthening our stance against terrorism."

Tenney wasn't alone. The Stop Terror-Financing and Tax Penalties on American Hostages Act drew the votes of 204 Republicans and 15 Democrats. In opposition were 183 Democrats and one Republican (Kentucky's Rep. Thomas Massie).

As advertised, the bill provides that "the period during which an applicable individual was unlawfully or wrongfully detained abroad, or held hostage abroad, shall be disregarded in determining, under the internal revenue laws, in respect of any tax liability of such individual."

But rolled into the legislation is language originally from another bill that allows for the "termination of tax-exempt status of terrorist supporting organizations." The designation of organizations as such is left to the discretion of the Secretary of the Treasury, based on that official's judgment that a non-profit group has, in the last three years, provided "material support or resources" to what the U.S. government considers a terrorist organization. The language provides for a 90-day window during which time supposed "terrorist supporting organizations" can appeal the designation, but the burden is on them to prove that they're not guilty.

This bill "creates a high risk of politicized and discriminatory enforcement," according to a letter sent this week to House Speaker Mike Johnson (R–La.) and Minority Leader Hakeem Jeffries (D–N.Y.) by a coalition of civil liberties and activist groups including the ACLU and the Brennan Center for Justice. "The executive branch already has extensive authority to prohibit transactions with individuals and entities it deems connected to terrorism and nonprofit organizations are already prohibited from providing material support to terrorist organizations. In fact, it would be a federal crime for them to do so."

The Law Already Penalizes Supporting Terrorists

The letter is correct. Section 2339B of Title 18 of the United States Code already criminalizes knowingly providing "material support or resources to a foreign terrorist organization." But existing law requires that "a person must have knowledge that the organization is a designated terrorist organization" to have committed a crime. The burden of proof is on the prosecution in a court of law. The Stop Terror-Financing and Tax Penalties on American Hostages Act puts the onus on the accused to prove innocence. Yes, the penalty is "only" loss of tax-exempt status, as opposed to the criminal penalties already available under the law. But loss of such status is essentially a death penalty for most non-profit organizations.

"The potential for abuse under H.R. 6408 is immense as the executive branch would be handed a tool it could use to curb free speech, censor nonprofit media outlets, target political opponents, and punish disfavored groups across the political spectrum," adds the letter to Johnson and Jeffries. "Moreover, the addition of this authority to the tax code would allow the IRS to explicitly target and harass domestic nonprofits using its investigative authority."

Given the current state of international tensions and the outcome of the recent election, it's not surprising that the letter's signatories are overwhelmingly left-wing along with several Muslim groups. These organizations fear that their ideological inclinations and connections to Palestinian groups could put them in the federal government's crosshairs.

"The bill is driven by the current McCarthyite attacks on Palestine solidarity activism, but it empowers the executive branch to crackdown on charities broadly," objects Chip Gibbons, Policy Director for Defending Rights & Dissent.

Everybody Is at Risk When Due Process Is Discarded

But it wasn't that long ago that the Treasury Department was targeting conservative groups under the Obama administration. The Treasury Inspector General for Tax Administration confirmed in 2013 that the IRS "developed and used inappropriate criteria to identify applications from organizations with the words Tea Party in their names" and "expanded the criteria to inappropriately include organizations with other specific names (Patriots and 9/12) or policy positions."

The wheel of political fortune inevitably turns, and any law used to penalize one political faction now can be turned and aimed at new ideological targets in the future. There's no safe way to weaponize government and law against political opponents without risking becoming a target once new officials are in office.

The Dangers of Financial Regulatory Power

As it is, government has already become entirely too comfortable bypassing criminal law to punish people through the administrative state and, especially, its powers over financial matters. The law that forbids providing funds to designated terrorist organization also requires financial institutions to freeze the accounts of such groups and report them to the Treasury Department. President George W. Bush's Executive Order 13224 allowed the U.S. government to designate alleged terrorists and exclude them from the financial system. Section 311 of the USA PATRIOT Act targeted foreign financial institutions for penalties if they do business with people the U.S. government doesn't like. Operation Choke Point and similar programs sought to cut off legal but disfavored (by politicians) industries from financial services.

Financial regulation has become a parallel system for punishing people who get on the wrong side of government officials, with minimal safeguards for due process.

By all means, Congress should offer relief from ridiculous tax penalties to people returning home after months and years in captivity. But it shouldn't let the government punish organizations it claims according to bureaucratic whim are funding groups that have been named, by other bureaucrats, as engaged in terrorism.