Brian Schwartz and Richard Rubin report in the Wall Street Journal, White House Weighs Executive Order Attaching Terrorist Label to Some Nonprofits:
“The Trump administration is considering an executive order that would list some nonprofit organizations as having terrorist ties, a move that would suspend their tax-exempt status immediately and could cripple their operations.
Trump officials have been working for months on the order, according to people familiar with the matter. The order is still being deliberated and may end up not being finalized or signed by Trump, the people said.
Such an executive order would use an untested tax code section and escalate the administration’s scrutiny of tax-exempt groups, possibly targeting some of Trump’s antagonists and political opponents. Applying the terrorist label would impose much more immediate consequences on groups than the slower procedures typically used by the Internal Revenue Service to examine and penalize tax-exempt organizations for legal violations.
The statute in question is section 501(p), which is as follows:
(p) Suspension of tax-exempt status of terrorist organizations
(1) In general. The exemption from tax under subsection (a) with respect to any organization described in paragraph (2), and the eligibility of any organization described in paragraph (2) to apply for recognition of exemption under subsection (a), shall be suspended during the period described in paragraph (3).
(2) Terrorist organizations. An organization is described in this paragraph if such organization is designated or otherwise individually identified—
(A) under section 212(a)(3)(B)(vi)(II) or 219 of the Immigration and Nationality Act as a terrorist organization or foreign terrorist organization,
(B) in or pursuant to an Executive order which is related to terrorism and issued under the authority of the International Emergency Economic Powers Act or section 5 of the United Nations Participation Act of 1945 for the purpose of imposing on such organization an economic or other sanction, or
(C) in or pursuant to an Executive order issued under the authority of any Federal law if—
(i) the organization is designated or otherwise individually identified in or pursuant to such Executive order as supporting or engaging in terrorist activity (as defined in section 212(a)(3)(B) of the Immigration and Nationality Act) or supporting terrorism (as defined in section 140(d)(2) of the Foreign Relations Authorization Act, Fiscal Years 1988 and 1989); and
(ii) such Executive order refers to this subsection.
(3) Period of suspension. With respect to any organization described in paragraph (2), the period of suspension—
(A) begins on the later of—
(i) the date of the first publication of a designation or identification described in paragraph (2) with respect to such organization, or
(ii) the date of the enactment of this subsection, and
(B) ends on the first date that all designations and identifications described in paragraph (2) with respect to such organization are rescinded pursuant to the law or Executive order under which such designation or identification was made.
(4) Denial of deduction. No deduction shall be allowed under any provision of this title, including sections 170, 545(b)(2), 642(c), 2055, 2106(a)(2), and 2522, with respect to any contribution to an organization described in paragraph (2) during the period described in paragraph (3).
(5) Denial of administrative or judicial challenge of suspension or denial of deduction. Notwithstanding section 7428 or any other provision of law, no organization or other person may challenge a suspension under paragraph (1), a designation or identification described in paragraph (2), the period of suspension described in paragraph (3), or a denial of a deduction under paragraph (4) in any administrative or judicial proceeding relating to the Federal tax liability of such organization or other person.
(6) Erroneous designation
(A) In general. If—
(i) the tax exemption of any organization described in paragraph (2) is suspended under paragraph (1),
(ii) each designation and identification described in paragraph (2) which has been made with respect to such organization is determined to be erroneous pursuant to the law or Executive order under which such designation or identification was made, and
(iii) the erroneous designations and identifications result in an overpayment of income tax for any taxable year by such organization,
credit or refund (with interest) with respect to such overpayment shall be made.
(B) Waiver of limitations. If the credit or refund of any overpayment of tax described in subparagraph (A)(iii) is prevented at any time by the operation of any law or rule of law (including res judicata), such credit or refund may nevertheless be allowed or made if the claim therefor is filed before the close of the 1-year period beginning on the date of the last determination described in subparagraph (A)(ii).
(7) Notice of suspensions. If the tax exemption of any organization is suspended under this subsection, the Internal Revenue Service shall update the listings of tax-exempt organizations and shall publish appropriate notice to taxpayers of such suspension and of the fact that contributions to such organization are not deductible during the period of such suspension.
As I have written elsewhere, maybe Congress should think twice before delegating such extraordinary and discretionary powers to the executive branch:
[O]rganizations designated as terrorist groups lose their exemption from tax under section 501 of the Code—rendering them liable for net income tax—and the Code expressly forbids such organizations from challenging such a designation. The authority to identify an organization as a “terrorist organization” lies exclusively with the Executive Branch. Although I am not suggesting, of course, that the benefits of tax exemption ought to apply to bona fide terrorist organizations, and one could easily imagine reasonable applications of this statute, it is also not hard to imagine dangerous applications of this statute in the hands of the wrong person.
The solution for these risks is, in most cases, straightforward—either repeal the portions of the statute that grant the President unilateral authority to exercise discretion over who may be subject to these taxes or attach meaningful, judicially enforceable prerequisites that ensure that the President’s authority is bounded and not left to executive discretion.
