Language targeting nonprofit exempt status pulled from budget bill for now

Language that would put nonprofits’ tax-exempt status in jeopardy without due process has been deleted from the House reconciliation budget bill (H.Con.Res.14). The bill moved out of committee Sunday night, May 18. 

The House Budget Committee voted 17-16 along party lines, with Republicans voting in the majority. Four Republicans who opposed the bill in committee on May 16 voted “present” last night. The bill now moves to the House Rules Committee, where changes can be offered as amendments. 

The language deleted would have allowed the U.S. Secretary of the Treasury to designate a nonprofit as a terrorism supporting organization and pull its tax-exempt status. Organizations would need to litigate to get the status reinstated. The deleted verbiage would have enabled administrations to weaponize the federal government by targeting charitable organizations based on ideological grounds. 

However, nonprofit advocates are warning that the language, or similar language, could be placed back into the bill. There is discussion that the section on nonprofits is being rewritten in such a way that the parliamentarian will have a difficult time removing it. 

The bill would also impose new taxes on essential employee benefits offered by many nonprofits, making it harder to attract and retain the talented, mission-driven staff the sector depends on. 

The deleted provision raised significant concerns across the nonprofit sector, as it could have potentially allowed any administration current or future to target charitable organizations that do not align with White House priorities. The removal represents a meaningful step toward safeguarding the nonprofit sector from potential governmental overreach in the tax bill, according to Shannon McCracken, president and CEO of the Nonprofit Alliance. 

“While we welcome this initial step, the current tax bill still places an unfair burden on America’s charitable organizations by paying for tax cuts on the backs of local charities at a cost of more than $50 billion. The legislation makes it harder to raise money from companies, foundations, and high-net worth Americans – all at a time when federal grants and contracts are being cut. This directly impacts critical community services and other essential nonprofits that rely heavily on public funding,” McCracken said in a statement. 

“We urge continued vigilance, as the H.R. 9495 (from the last session on Congress) language originated in the Ways and Means Committee and could resurface at any point in the legislative process,” she said “Nonprofits must continue educating members of Congress about the value of the sector and the critical importance of maintaining independence and nonpartisanship. There remains significant work to be done to permanently protect against harmful provisions and to address other concerning measures still present in the bill.”