Towards a Constitutional Revocation of Terrorism's Tax Exemption
9 Pages Posted: 20 Dec 2023
Date Written: December 9, 2023
Abstract
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.
Keywords: tax, tax exemption, nonprofit, terrorism,
JEL Classification: k34, I18, Z18
Suggested Citation: Suggested Citation