S.3445/H.R.6800 Bill Summary

Summary of H.R.6800/ S.3554 introduced by Rep. David Kustoff (R-TN) and Sens. John Cornyn (R-TX) and Tim Sheehy (R-MT).

Current Law

It is a criminal offense to provide “material support or resources” to a foreign terrorist organization. “Material support or resources” includes providing funding, property, services, lodging, training, expert advice or assistance, safehouses, and other resources to terrorist organizations.

Section 501(p) of the tax code details the process by which a nonprofit’s tax-exempt status would be suspended due to terrorism. Section 501(p) applies to organizations that are designated or identified:

a) Under the Immigration and Nationality Act as a terrorist organization or foreign terrorist organization
b) In or pursuant to an Executive Order related to terrorism and issued under the authority of the International Emergency Economic Powers Act or the United Nations Participation Act
c) In or pursuant to an Executive Order issued under authority of the federal law if the organization is designated or otherwise identified as supporting or engaging in terrorist activity (as defined by the Immigration and Nationality Act) or supporting terrorism (as defined in the Foreign Relations Authorizations Act, Fiscal Years 1988 and 1989)

Only b) has ever been used to suspend an organization’s tax-exempt status.

Organizations designated as such may not be challenged in administrative or judicial proceedings, but there is a process for erroneous designations.

Critically, section 501(p) currently applies to only nonprofits acting as terrorist organizations. Fewer than 10 organizations have had their tax-exempt status suspended under 501(p); it is a rarely used section of the tax code. It has also been criticized for not including a process for a designated organization to challenge the designation and being unclear about the organization’s intent.

Changes Proposed in S.3445/H.R.6800

Amends section 501(p) by creating a new designation, “Terrorist Supporting Organization,” meaning any tax-exempt organization the Treasury Secretary designates as having provided material support or resources to a foreign terrorist organization in excess of a de minimis amount.
Allows the Treasury Secretary to strip Terrorist Supporting Organizations of their tax-exempt status.
Directs the Treasury Secretary to mail the organization a statement that it will receive such a designation; the terrorist organization the Secretary believes the tax-exempt organization supports; and a description of such material support “to the extent consistent with national security and law enforcement interests.” If the Secretary withholds the evidence used to make this designation, they must inform the organization of this determination. The organization can contest that determination with a U.S. district court.
Allows the tax-exempt organization 90 days to demonstrate to the Secretary that it did not provide material support or that it made reasonable efforts to have the material support returned (and certified it would not provide additional support). The Secretary then makes a decision about whether or not to rescind the designation and restore the organization’s tax-exempt status.
Provides for administrative review by the Internal Revenue Service Independent Office of Appeals.

Key Differences From Previous Bills

This legislation was also introduced in the 118th Congress, where it passed the House. Section 4 of H.R.9495 included nearly identical language to S.3445/H.R.6800. Key differences include:

S.3445/H.R.6800 includes language defining “material support or resources” according to U.S. code but explicitly excludes support provided with the approval of the Secretary of State with the concurrence of the Attorney General and humanitarian aid provided with the approval of the Office of Foreign Assets Control.
Like previous legislation, S.3445/H.R.6800 allows the Secretary to determine whether disclosure of certain evidence to the designated organization would be inconsistent with national security or law enforcement interests. Unlike previous legislation, the 119th Congress legislation includes a process for an organization to contest this determination with a U.S. district court.

Impact on Philanthropy

S.3445/H.R.6800 creates redundancies and confusion while also providing the Treasury Secretary broad discretion to designate a nonprofit a “Terrorist Supporting Organization” and strip it of its tax-exempt status with limited oversight.

The legislation runs counter to established due process protections. The burden of proof is placed on the organization, allowing it only 90 days to prove that it has not provided material support or resources to terrorist organizations. In addition, the Treasury Secretary is not required to share their full evidence or reasoning with the accused organization. Due process protections are always important, but they become even more critical when charitable organizations supporting communities in need are accused of activity as serious and harmful as supporting terrorism.