Reflections on HR 9495 and Risk
Some thoughts:
1. HR 9495 is a terrible bill, on its face and in its intent.
2. It affirms the authoritarian intentions of the incoming administration.
3. It confirms that the Democratic party (15 of whom voted for the bill this week, and 52 of whom voted for it the prior week) has many members who will support those authoritarian intentions if it gives them a chance to intimidate supporters of the Palestinian people and silence critics of Israel’s atrocities in Gaza.
4. If you have doubts about #3, note that the provisions in this bill are identical to HR 6408, which passed the House in April by a vote of 382 to 11. If your response to that is “it wasn’t Trump at the time,” then I’d say: (1) granting authoritarian powers to the favored party’s administration is still authoritarianism, and (2) please consult April Trump vs. Biden polls and consider whether this was a foreseeable outcome.
5. Whether or not nonprofits and other defenders of common sense are successful in mobilizing to defeat the bill in the Senate, our advice to nonprofits will remain the same as it was before this bill was introduced.
Why is it terrible? (And why was it terrible when the House passed it seven months ago?)
Like a lot of "statement legislation," it is a solution in search of a problem. Under 18 U.S. Code § 2339A, it is already a criminal act to provide "material support or resources" to "terrorist organizations." And IRC Section 501(p) already lets the executive branch suspend any organization that is determined to be a terrorist organization. And of course, if any of the organizations actually were terrorist organizations or supported terrorism (a statement I think no one acting in good faith believes applies to any of the exempt organizations targeted by this bill), those organizations would have an unlawful purpose, which is already disqualifying for tax exemption under IRC Section 501(c)(3). This law is obviously not needed to combat actual terrorism or even organizations that provide support to terrorism.
Nevertheless, this law would expand IRC Section 501(p) to give the Secretary of the Treasury the power to designate organizations as “terrorist supporting” organizations (i.e. organizations that provide “material support and resources” above a de minimis amount to a terrorist organization).
The definition of “material support and resources”:
Providing any property, tangible or intangible, or service, including currency or monetary instruments or financial securities, financial services, lodging, training, expert advice or assistance, safehouses, false documentation or identification, communications equipment, facilities, weapons, lethal substances, explosives, personnel (1 or more individuals who may be or include oneself), and transportation, except medicine or religious materials. 18 U.S. Code § 2339A. (Training and expert advice or assistance are given similarly broad definitions).
The new provisions under this bill provide procedures that the administration would have to follow including (a) the standards for determining that the organization gave material aid to a foreign terrorist organization, (b) notifying the organization of this determination, (c) providing an opportunity to show that this determination was in error, (d) providing an appeals process within the Independent IRS Office of Appeals, and (e) providing for judicial review. But yes, some of the terms above are quite broad and it’s not hard to imagine that organizations that support protesters or fund organizations that provide humanitarian relief will be targeted using the broad language in this proposed new law or in existing statutes.
Is it bad that the Treasury Secretary can label an organization a “terrorist supporting” organization and suspend their exempt status? Yes, of course. However, the troubling reality is that the executive branch already had broad powers to impose civil penalties, criminal penalties (including imprisonment), and injunctive relief (including the power to freeze accounts). So, relatively speaking, if this administration uses the full breadth of its power against nonprofit organizations, the concerns go far beyond 501(c)(3) status (both before and after this bill).
What all this means:
• In a world where laws still matter and courts still perform their essential function, any organization can defend its exemption by showing that it doesn't actually support terrorism, which is an obviously easy showing if we still have some semblance of rule of law.
• The reason for fear: we all see the judges that were appointed by the last Trump administration and we have another four years of additional judges for the new Trump administration to appoint. The rule of law has been significantly eroded and is expected to erode further. There are definitely worlds where this tool is used aggressively by this administration and the IRS appeals process and courts fail to protect exempt organizations because of that erosion. This is now one more way for organizations to be persecuted and intimidated in a world where the protections of our legal system are uncertain.
So why is our advice to nonprofits the same as it was before?
For one, see above: in the grand scheme of the executive branch’s powers to attack progressive organizations using anti-terrorism legislation, it’s a relatively small piece of the puzzle. I also struggle to see this administration funding the IRS sufficiently to handle the activity that will come through the IRS Appeals office if it fully utilizes it. The IRS is underfunded and understaffed and struggles with its existing functioning – it is difficult for us to see it as an agency that is effectively supported and built up enough by the incoming administration to be weaponized.
But more importantly, our advice continues to be the same because nonprofits, with and without this bill, are operating in an environment where you need to assume meaningful risk just to try to do the right thing. Well-funded right-wing groups (including many enjoying the same benefits under 501(c)(3) or 501(c)(4)) are pursuing and financing litigation against organizations trying to combat discrimination or teach history. The large majority of states’ Attorneys General, with broad common law authority to regulate charities, are politicized agents of the right and could take all manner of actions against nonprofits for political reasons. Perhaps we are being naïve about HR 9495, but this new tool is not rising to the top of our list of threats.
As always, progressive organizations need to:
• Focus on good governance – an organization without documented processes for making decisions as it carries out its mission is always much more vulnerable than an organization with a Board, officers, and staff following best practices.
• Remember that the government and legal apparatus will not always be on your side – in fact, under the past administration and this one, part of being a progressive organization means being in opposition to the government and legal order. While our advice as lawyers is to follow the law and our role is to help clients manage legal risk, the law, historically and currently, can represent a tool of oppression and not protection. The risk of being accused of violating unfair laws is something organizations may decide they need to take on to support what is right.
• If you’re taking legal risks, take them for the right reasons. Lawyers often get a bad rap for treating risk as intolerable. And sometimes we deserve it. But I think the right approach for lawyers is to start with the question: “Why are you thinking about taking this legal risk?”
o When that legal risk is really being taken to enrich insiders or related for-profits, to appease donors’ financial interests, to allow the organization to short its staff, or to get the tax benefits of a charity without actually doing any good, then I think it’s good to be the “lawyer in the room” and say “Sorry, if you’re taking this risk, it’s against our advice.” And more often that not, the biggest risks I see nonprofits trying to take fall in those categories.
o But when that risk is for the ultimate goal of achieving the mission of the organization and that mission is to protect the most vulnerable and oppose inhumanity, then lawyers should approach it a bit differently. We always need to say what the law is, and what is illegal, and we can’t advise someone to break the law. But where the law is full of gray areas and reasonable arguments can be made, our job is to empower our clients to achieve their mission in the best way possible. And to use creativity to find approaches that we can reasonably find in compliance with the law, flag the potential downsides, and counsel clients on how to minimize them. Walking out the door in the morning involves risk, especially for progressive organizations, but there is still much to be done if we can live with that risk.
I think the nonprofit sector will remain a place where we can do that, both before and after HR 9495 (if it becomes law). Hopefully we can all maintain our resolve and energy (and our funders do not get frightened off), even as the picture is made bleaker by laws like this, the hostility of elected officials on the one side to pass them, and the failure of elected officials on the other side to stop them.
