The nonprofit world has been in a state of panic since late November when the U.S. House of Representatives passed the Stop Terror-Financing and Tax Penalties on American Hostages Act — otherwise known as the “nonprofit killer bill.” With Republicans now in control of both the House and Senate, the legislation has a strong chance of becoming law.
When originally proposed, the bill — HR 9495 — had overwhelming bipartisan support and minimal opposition from civil society. But after Donald Trump and the Republicans won control of the White House and Congress, most Democrats and much of the nonprofit world were quick to paint it as the sword of Damocles. Those lining up in opposition include the National Council for Nonprofits, the Independent Sector, the AFL-CIO, a coalition of 55 Jewish nonprofits, and the Council on American-Islamic Relations.
This reaction makes some sense given the propensity of President Trump and his allies to accuse nonprofits of supporting terrorism. The accused so far include top universities, international scholar-exchange groups, climate activists, civil-rights organizations, literary societies, Palestinian-relief organizations, and Jewish peace activists.
Threats to civil society are real and perhaps inevitable in any polarized country. But the sword of Damocles already exists in current law, and HR 9495 does not sharpen it. In fact, it slightly blunts the current law’s already dangerous edge.
Put into place by President George W. Bush following the September 11, 2001, terrorist attacks, that law — Executive Order 13224 — allows the Department of Treasury secretary to declare that a domestic nonprofit supports terrorism. The result of such a declaration? Indefinite revocation of tax exemption, no more deductible contributions, an immediate freeze of the nonprofit’s assets, and criminal prohibitions against anybody doing business with the nonprofit. The sword drops when the treasury secretary, in consultation with the secretary of state and the attorney general, declares that a nonprofit supports terrorism.
Bush was so concerned with national security after 9/11 that his executive order pointedly dispensed with any warning, opportunity to respond, or proof that the declaration was valid. The new legislation amends the Bush-era law by adding a modicum of due process intentionally excluded from his executive order.
Concern that HR 9495 further expands a law that already gives the Treasury Department unlimited power is irrational — even if the real fear is about who wields the power rather than the power itself. In reality, a despot seeking to silence nonprofits would be weakened, not empowered, by HR 9495.
Under the Radar Threat
One reason people misunderstand the current law is that it is used infrequently against U.S. nonprofits and allows only foreign groups to be declared “terrorist organizations.” That doesn’t mean the law isn’t a threat to domestic nonprofits, which, like foreign groups can support terrorist organizations. In fact, the Treasury Department has used current law to shut down at least 10 U.S. nonprofits accused of supporting foreign terrorists. Most had Islamic names, and the actions evoked barely a whisper of protest from the nonprofit world.
The most recent domestic nonprofit shutdown occurred on October 15, 2024, when the Treasury Department declared that the group Samidoun supports the Popular Front for the Liberation of Palestine, a designated foreign terrorist organization. Samidoun, an international Palestinian prisoner-rights organization with chapters in the United States, received deductible donations through its fiscal sponsor, the Alliance for Global Justice. The Treasury Department’s declaration means that Samidoun has effectively been shuttered, with virtually no possibility of regaining its former status.
The most that Samidoun can do under current law is plead its case to Treasury’s Office of Foreign Assets Control, known as OFAC. Without the right to know from the Treasury Department which terrorists it allegedly supported, or how or when it provided that support, Samidoun must persuade OFAC that the declaration is wrong or that Samidoun tried to recover any support provided and has taken steps to prevent a recurrence.
Samidoun may request a meeting with OFAC officials, but the agency need not oblige. Samidoun could also petition the District of Columbia Court of Appeals, but review there is limited to the administrative record — documents gathered by the Treasury Department to make its case — and does not require disclosure of classified information supporting its declaration.
That is the sum and substance of the law today. If there really is a “nonprofit killer bill,” this is it.
By contrast, if HR 9495 had been the law on October 15, Samidoun would have been entitled to 90 days advance notice of the Treasury Department’s intent to declare that it supports terrorism. That notice would have included the name of the foreign terrorists Samidoun allegedly supported and, as stated in the bill, a “description of such material support or resources to the extent consistent with national security.”
During the ensuing 90 days, Samidoun would have been given an opportunity to prove it did not support foreign terrorists, or that it had tried to recover support provided unknowingly. If the department persisted, Samidoun could have requested a meeting with an IRS appeals officer. That process would have been entirely informal and without sworn testimony, but the appeals officer would not have been under Treasury Department supervision or control.
If the IRS appeal proved unsuccessful, Samidoun would have been entitled to review in a federal district court, rather than the single appellate court under current law. District court review is HR 9495’s most significant improvement because, unlike in an appellate court, the nonprofit is entitled to see the evidence before a hearing, subpoena witnesses, present sworn testimony, and cross examine Treasury Department witnesses.
The Treasury Department’s power to effectively close a nonprofit by a simple declaration remains a dangerous reality. The agency still isn’t required to disclose classified information, and the district court hearing would occur only after damage to the organization’s reputation and donor base is done and perhaps irreversible.
Nevertheless, its ability to fend off a financial death penalty is clearly better under HR 9495. The bill modestly restricts the Treasury Department’s nearly 25-year-old power to revoke a nonprofit’s tax exemption without any warning or review. While HR 9495 isn’t perfect, its passage would decrease, not increase, the chances of authoritarian actions the nonprofit world fears.