Tax-exempt crackdown measure passes despite Democrat defections

WASHINGTON — The specter of the incoming Trump administration loomed large Thursday as Democratic support evaporated for a House bill that would give the IRS greater authority to revoke the tax-exempt status of nonprofits supporting terrorist organizations.

Only 15 Democrats voted for the bill, which passed 219-184, a drop from the 52 who voted for it just last week and an even sharper decline from the 179 who supported a similar bill in April. The American Civil Liberties Union and other groups, including ice cream maker Ben & Jerry’s, stepped up advocacy against the bill, which they said would allow President-elect Donald Trump to intimidate or retaliate against groups he doesn’t like.

House Ways and Means Chairman Jason Smith, R-Mo., criticized Democrats for their change in tune on the bill, citing earlier floor votes and a 38-0 vote in committee to approve the legislation. In addition to granting the IRS greater authority to revoke tax-exempt status, it would waive tax deadlines and penalties for Americans wrongfully detained or held hostage abroad.

“Despite that consistent showing of bipartisan support, the majority of our Democrat colleagues voted last week to block passage of this bill. Why? Because President Trump won the election,” Smith said on the floor ahead of the vote. “Every concern raised by Democrats has been addressed in this bill to ensure due process and to protect legitimate nonprofits.”

Still, the warnings about the potential abuse by the Trump administration proved compelling for Democrats, who abandoned the legislation in droves.

“If this administration were not so into revenge and into going after what they perceive to be their enemies, I would have been less inclined to be moved by those arguments,” Rep. Steny H. Hoyer said, referring to the incoming Trump administration.

The Maryland Democrat voted in favor of the legislation when it came to the floor last week. The measure came up short of the two-thirds majority needed to suspend the rules and pass. Leadership brought it up again Thursday under a rule, allowing it to pass with a simple majority.

Hoyer said he originally voted for the measure because he agreed with its intention, but the legislation needed a stronger appeals process for organizations targeted by the Treasury Department.

“If they’re helping terrorists. I want them not to get tax advantages. And, in fact, I want them, if they’re doing criminal stuff, to be prosecuted. But I don’t want that to be done in a Joe McCarthy style,” Hoyer said.

‘Overwhelming numbers’

The IRS already has the authority to strip tax-exempt status from organizations designated as terrorist groups, and so far has done so for nine organizations. The bill would extend the authority to nonprofits found to have provided “material support or resources” to terrorist groups during the previous three years.

Treasury would have to notify an organization of its intention to revoke its tax-exempt status and the nonprofit would have 90 days to dispute the designation, which would be assessed by the IRS Independent Office of Appeals. If the IRS rules against the nonprofit or the organization makes no effort to disprove the accusations within 90 days, the decision would take effect. District courts would have jurisdiction to review final determinations by the IRS.

Rep. Frank J. Mrvan, D-Ind., said he switched his vote after hearing from constituents in “overwhelming numbers” about the risk of abuse under the Trump administration.

Rep. Debbie Dingell, D-Mich., said she had voted for the bill last week because of a widely popular provision that would waive tax penalties for Americans held hostage overseas. Her constituents include Paul Whelan, the former Marine who was arrested in Russia in 2018 on charges of espionage and was released this summer as part of a U.S.-Russia prisoner swap.

“You can’t believe how hard it is for someone that’s been in prison as a hostage like he was, everything from getting a driver’s license to car insurance, so that’s how I voted last week,” Dingell said. “I didn’t realize what it had totally been combined with.”

Dingell said she would work to get standalone legislation providing tax relief for hostages passed.

With time running short and support deteriorating among Democrats, the combined bill is unlikely to see action in the Senate, where their party holds the majority.

But stand-alone legislation to relieve tax penalties on hostages enjoys broad bipartisan support in both chambers and could potentially be split off from the tax-exempt crackdown piece if the latter continues to fall flat with Senate Democrats.

A number of must-pass legislative vehicles remain in play for next month, including the defense authorization bill and a stopgap funding measure. Senators are already eyeing some tax measures including a disaster aid package to potentially ride along.

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(David Lerman contributed to this report.)

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