Members of Congress agree they must change the law so that Americans held hostage or wrongfully detained by terrorist groups or foreign governments don’t owe penalties for failing to pay taxes while they’re captive. But their attempt to address that problem is stuck in a fight over other legislation.
By Jacob Bogage
and But the House committee packaged the hostage tax bill with a measure that would make it easier for the government to strip tax-exempt status from nonprofit groups over allegations of support for terrorism.
And because of an arcane procedural step Congress took to try to speed passage of the hostage bill, that move probably prevented it from becoming law.
The Senate used an obscure tool called a “deeming resolution” to approve the hostage provision — it unanimously declared that once the legislation passes the House, it would also be considered passed by the Senate. But if the bill is altered in any way in the House, the Senate’s action is moot.
The House bill, though, is different from the Senate’s because of the section on nonprofits. Free speech and pro-Palestinian advocacy groups oppose that provision, concerned that it could be leveraged to silence organizations with dissenting views or halt the work of humanitarian agencies that operate in areas controlled by terrorist entities, especially in the context of the Israel-Hamas war in Gaza. That opposition probably dooms the House bill’s chances in the Senate.
“Ways and Means, by adding an unrelated bill to it, guarantees that [the deeming resolution] won’t work and that we will either have to revise it, change it, send it back, or that we won’t get this done in this Congress,” Sen. Chris Coons (D-Del.), one of the hostage bill’s main supporters, told The Washington Post. “My hope is that the House will recognize they have a chance to just send this bill to us and it goes directly to the president’s desk.”
Ways and Means Committee Chair Jason T. Smith (R-Mo.), though, said in a meeting Wednesday that the two provisions were closely related. Terrorist group Hamas is believed to be holding seven Americans hostage in Gaza, four of whom are said to be alive. When they are released, they could face substantial tax penalties, Smith said.
“Our hearts break for the hostages kidnapped by Hamas on October 7th, including the Americans still being held captive. Russia and other nations continue to wrongfully detain other Americans abroad as well. The last thing these Americans and their families need are penalties from the IRS for a situation entirely outside of their control,” Smith said. “At the same time, U.S.-based organizations that enjoy not-for-profit status in our tax code while supporting terrorism or providing financial support to terrorist organizations should not be able to benefit from tax-exempt status.”
Groups that provide “support” to terrorist groups — defined in federal law as financial, material or logistical assistance, with exemptions for medicine and religious items — are already subject to having their nonprofit status revoked. They fall under the same provisions that regulate terrorist activity and financing, and those convicted under the statute could face a decades-long prison sentence. The House’s bill would create a new suspension and review process for nonprofit groups, according to the nonpartisan Congressional Research Service.
Smith’s committee advanced the legislation by a 38-0 vote; Democratic Reps. Lloyd Doggett (Tex.) and Don Beyer (Va.) said they voted for the bill in committee but hoped it could be amended to limit the use of the nonprofit provision.
But there’s very little time left in the congressional session, so the Senate probably will not be able to consider the bill this year, and lawmakers will have to start the process from the beginning in 2025.
The legislation would have a negligible impact on federal finances but has an significant effect on individuals returning home from captivity.
When Post columnist Jason Rezaian returned to the United States in 2016 after 544 days in Iranian captivity, he paid a $6,000 tax penalty. Rezaian said in an interview that Smith’s assertion that his bill will help people held hostage by Hamas is based on a misunderstanding: The IRS has a long-standing practice of forgiveness for people who are held hostage by non-state organizations, including Hamas and groups like the Islamic State or Boko Haram, Rezaian said. The goal of the new bill is to expand that to people held by foreign governments, like Russia or China.
“When I returned home from Iran in 2016 after being imprisoned for nearly a year and a half, I found that the IRS had charged me with thousands of dollars in penalties for not filing my taxes on time,” Rezaian wrote in The Post last month, after several Americans were released from captivity in Russia. “The usual penalties had compounded. I was sleeping less than three hours a night, repeatedly waking from nightmares that I was back in prison. During the day, I was distracted and having trouble concentrating. So I neglected to sit down and address the problem.”
Kia Hamadanchy, senior policy counsel at the ACLU, said he has been urging members of Congress to vote against the bill because of the component on nonprofits’ tax exempt status.
The law already provides ways to strip organizations of their tax-exempt status if they provide material support for terrorism, he said; the proposed legislation broadens the government’s powers to do so in ways that Hamadanchy fears could be weaponized against nonprofits that fall out of favor with future White House administrations.
“This is really a way of trying to stifle dissent and chill speech,” he said.
