Lawmakers Clash Over Whether to End Tax-Exempt Status for ‘Hate Groups’

Lawmakers on Capitol Hill clashed Thursday over what, if anything, to do about nonprofits that some critics call “hate groups,” with Democrats saying it should be easier strip their tax-exempt status.

“If we say hate can have no safe harbor in the United States, the next thing we have to say is that hate groups can find no comfort in the U.S. tax code,” Democratic Illinois Rep. Brad Schneider said during a hearing of the House Ways and Means Oversight Subcommittee.

Republicans countered that such efforts were thinly veiled attempts to silence conservative voices.

“The IRS should not be used as a political tool to discriminate against organizations with differences of viewpoints and policies,” said Republican Illinois Rep. Darin LaHood.

A 2016 Chronicle of Philanthropy analysis found that 60 organizations labeled as hate groups by the Southern Poverty Law Center were registered as tax-exempt nonprofits.

The hearing also underscored the difficulty Congress would face in trying to strip certain groups of tax-exempt nonprofit status. Navigating the First Amendment and other constitutional protections is one concern; the persistent decline in IRS nonprofit resources, oversight, and enforcement is another.

In fiscal year 2018, about 1.6 million organizations filed Form 990 returns, said Marcus Owens, a tax lawyer and former director of the IRS exempt organizations division. “In that year, the IRS closed only 2,816 examinations of organizations that filed those returns.”

He added: “The IRS has systematically dismantled the enforcement structure that was in place for 25 years.”

Owens said one way to approach the issue would be to expand the capacity of the IRS oversight offices for nonprofits. Another more radical proposal would be to establish a new regulatory agency focused solely on nonprofits and charities, similar to agencies that exist in Canada and Britain.

Eugene Volokh, a legal scholar with the UCLA School of Law, told lawmakers he feared any attempt to strip hate groups of tax-exempt status, no matter how well-meaning, could be weaponized against more benign groups in the future. He pushed lawmakers to avoid creating “viewpoint-based rules” for nonprofits.

“There is a constitutional right not to be discriminated against based on viewpoint,” said Volokh. “I think some on this committee would not trust a Trump administration to administer viewpoint-based rules, just as some would not trust a Bernie Sanders administration to do so.”

Michael Theis writes about data and accountability for the Chronicle, conducting surveys and reporting on fundraising, giving, salaries, taxes, and more. He recently wrote about a report urging nonprofits to step up advocacy efforts . He has also surveyed pay packages at charities and found wide disparities in base salaries and bonuses among nonprofit causes. Email Michael or follow him on Twitter .