Trump Planning Sweeping Audit of Left-Wing Nonprofits
According to a late-August New York Post report, the Trump Administration is planning a “sweeping audit” of certain nonprofits and drafting a “blueprint” that could be used to revoke noncompliant organizations’ tax-exempt status. These audits reportedly target a group of “left-wing nonprofits,” including the Southern Poverty Law Center and the Open Societies Foundations. According to sources cited in the report, the initiative could result in civil penalties, back payments and revocation of Internal Revenue Code Section 501(c)(3) status, aiming to penalize nonprofits allegedly operating with a “substantial illegal purpose” or tied to “political violence, protests, or radical ideologies.”
The scope and timing of any sweeping audit are unclear, as Treasury has yet to make any public comments on this reported initiative, and the New York Post is the only outlet reporting on it. Democratic taxwriters have sent letters to the Internal Revenue Service and Treasury seeking to gain more clarity:
• Senate Finance Committee Ranking Member Ron Wyden (D-Ore.) and taxwriter Raphael Warnock (D-Ga.) sent a letter raising concerns about the report and questioning whether the agencies are seeking to accelerate enforcement for political considerations ahead of the midterms. The pair requested a series of documents, including the reported blueprint, by Sept. 15.
• Taxwriting Reps. Terri Sewell (D-Ala.) and Lloyd Doggett (D-Texas) also sent a letter raising concerns about IRS weaponization against nonprofits and renewing demands for documents from an April letter on the topic signed by nearly all Democratic members of the Ways and Means Committee.
Reps. Sewell and Doggett said that the agencies didn’t respond to their April letter, and these new letters may go unanswered as well. However, if Democrats win control of one chamber of Congress in November, the party could engage in oversight activities like this more forcefully next year by using committee gavels to compel responses.
Nonprofit Protections Bills
On Sept. 3, Taxwriting Reps. Terri Sewell (D-Ala.) and Lloyd Doggett (D-Texas) introduced the Protecting the Rights Of Organizations Fairly (PROOF) Act (H.R. 10258), which seeks to enhance nonprofit due process protections in IRS examinations to prevent an organization from losing its tax-exempt status without evidence of wrongdoing or a fair process. The bill would make several reforms to the examination process, including requiring the IRS to inform an organization of an audit and the legal authority for it, allowing an organization to dispute an examiner’s findings to a supervisor and ensuring a right to appeal any determinations.
Taxwriting Sens. James Lankford (R-Okla.) and Raphael Warnock (D-Ga.) previously put forward a provision incorporated into bipartisan tax administration legislation (S. 3931) that would codify nonprofits’ right to appeal IRS determinations. Given its bipartisan support and inclusion in a larger tax administration legislative vehicle that cleared the Finance Committee with near-unanimous support, the Lankford-Warnock amendment is better positioned for passage this year than a Democrat-only proposal like the PROOF Act.
Meanwhile, on the heels of Treasury’s nondiscrimination rules targeting schools’ tax-exempt status, Reps. Alma Adams (D-N.C.), Jamie Raskin (D-Md.) and 15 of their Democratic colleagues introduced a bill (H.R.10330) to strengthen due process protections for non-profit colleges and universities against IRS investigations. This proposal aims to create safeguards against politically charged investigations by requiring the IRS to provide notice of an audit, limit the scope of audits and ensure schools have an opportunity to respond, among other protections. As with the PROOF Act, the bill lacks bipartisan support, making any near-term consideration unlikely.
