Should Nonprofits Lose Tax Exemption Over “Hate Speech”?

House Democrats on the Ways and Means Committee said last week that 60 alleged hate groups, mostly socially conservative organizations, anti-immigration entities, and religious groups should be stripped of their tax-exempt status. They were presumably referring to the list of 60 alleged hate groups designated by the Southern Poverty Law Center (SPLC), a group that itself is controversial.

The Ways and Means Oversight hearing on September 19 focused on “How the Tax Code Subsidizes Hate.” Democrats said they were concerned about the government subsidizing groups that millions of Americans would find abhorrent. Republicans responded by saying they feared that First Amendment rights could be infringed ending some groups' tax-exempt status. Three witnesses implored Congress to do something against hate in this country. Two witnesses discussed if the IRS can deny tax-exempt status to hate groups.

W&M chairman Richard Neal said: "Our Tax Code is also no place for hate. Groups that propagate white supremacy, anti-Semitism, and hatred for the LGBTQ community, among others, do not deserve a government subsidy through tax exemption. Hate is not charitable, and it is not educational.”

"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.

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.

Chip Watkins, attorney with Webster, Chamberlain & Bean said: “As long as those organizations do not (apart from their advocacy) violate a ‘fundamental public policy,’ Bob Jones Univ. v. United States, 461 U.S. 574, 592 (1983), they may continue to qualify for exemption. This protects both the SPLC and those it accuses of hatred.”

Marcus Owens said: “It is my opinion that the provisions of the statute in question, section 501(c)(3) of the Internal Revenue Code, neither subsidize hate speech nor prohibit it.”

The IRS has expended few resources to investigate tax-exempt organizations engaging in hate speech, Owens said. Owens continued, “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.”

Oversight Subcommittee Chair John Lewis, D-Ga., said some charitable and educational organizations are using their tax exemption to promote hate based on race, gender, religion, sexual orientation, or ethnicity. “Their actions taint the good work of all tax-exempt organizations,” he said.

Lewis told reporters he planned to hold a second hearing soon addressing nonprofits and taxation, perhaps bringing in IRS Commissioner Charles Rettig to testify. Lewis said he also plans to introduce legislation addressing hate speech by EOs. “They shouldn’t have a tax exemption,” he said.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.


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