S-497-119
Read twice and referred to the Committee on Finance.
Sponsored by Bill Hagerty (R-TN)
What it does
This bill would strip federal tax-exempt status under IRC Section 501(c)(3) from nonprofit organizations that engage in a "pattern or practice" of knowingly providing financial assistance, benefits, services, or other material support to individuals the organization knows or reasonably should know are unlawfully present in the United States. The bill includes two explicit carve-outs: organizations would not be required to verify immigration status, and organizations would not be required to act in violation of their religious beliefs.
Who benefits
Taxpayers who oppose federal tax subsidies (via exemptions) flowing to organizations that serve unauthorized immigrants. Immigration enforcement advocates who argue tax policy should not indirectly support unauthorized presence. Competing nonprofits that do not serve unauthorized immigrants and would face no new restrictions. Federal and state governments that would collect additional tax revenue from organizations losing exempt status.
Who is hurt
Nonprofit organizations — including religious charities, food banks, homeless shelters, legal aid societies, health clinics, and disaster relief organizations — that currently serve mixed-status or undocumented populations and rely on 501(c)(3) status for donations and grants. Unauthorized immigrants who depend on these services for food, shelter, medical care, and legal assistance. U.S. citizen and lawful resident family members of unauthorized immigrants who use the same nonprofit services. Donors to affected nonprofits who would lose the charitable deduction for contributions. Nonprofit employees and volunteers whose organizations could lose funding and operational capacity.
Supporters argue
Supporters argue that federal tax-exempt status is a government subsidy — effectively a taxpayer-funded benefit — and that it is reasonable public policy to deny that subsidy to organizations that knowingly facilitate unauthorized immigration. They contend that existing law already bars 501(c)(3) organizations from engaging in substantial illegal activity, and this bill simply clarifies and enforces that principle with respect to a specific, identifiable pattern of conduct. They further argue the bill includes meaningful protections: it does not require organizations to conduct immigration checks, and it exempts religiously motivated conduct, limiting its burden on faith-based charities.
Opponents argue
Opponents argue that revoking tax-exempt status from charities providing food, shelter, and medical care would cause direct harm to vulnerable people — including children and the elderly — regardless of immigration status, and that many affected services (e.g., emergency medical care, disaster relief) are provided without any practical ability to screen recipients. They contend the "reasonably should know" standard is vague and could chill charitable activity well beyond its intended targets, as organizations may preemptively restrict services to avoid IRS scrutiny. They further argue the bill creates an unequal enforcement burden on nonprofits serving low-income and immigrant communities compared to those serving wealthier populations.
Constitutional context
The Taxing and Spending Clause (Art. I, §8, cl. 1) gives Congress broad authority to set conditions on tax exemptions. The Fifth Amendment's Due Process Clause may be implicated by the "reasonably should know" standard, which critics could argue is unconstitutionally vague. The bill does not raise direct realization or wealth-tax questions addressed in Moore v. United States (2024), but the tax-vs.-penalty distinction from NFIB v. Sebelius (2012) is tangentially relevant to whether denial of exempt status constitutes a punitive exaction.
Checks and balances
Congress would expand IRS authority to revoke nonprofit tax-exempt status based on immigration-related conduct; the IRS and federal courts serve as checks through administrative review and judicial appeal of revocation decisions.
Historical precedent
In Bob Jones University v. United States (1983), the Supreme Court upheld the IRS's revocation of a university's 501(c)(3) status based on racially discriminatory policies, establishing that tax-exempt status may be conditioned on compliance with public policy — the closest direct analogue to conditioning exemption on immigration-related conduct.