Committee passed legislation closes loopholes in the tax code, protects Americans’ First Amendment rights, and raises penalties for the unauthorized disclosure of taxpayer information.

WASHINGTON, D.C. – Yesterday, the Ways and Means Committee advanced legislation to protect election integrity and prohibit foreign money from being funneled through tax-exempt organizations to influence U.S. politics. The Committee’s investigation into whether Section 501 of the U.S. tax code is being abused has uncovered loopholes which allow foreign nationals to inject money into the American political system. These foreign sourced donations can be key resources for organizations in the American political system that play a large role both in campaigns and policy debates in the United States. 

The five bills approved by the Committee shutdown workarounds where foreign nationals were influencing American politics and policies, shine sunlight on foreign based funding being funneled through nonprofits, add transparency on grants made by tax-exempt organizations to foreign entities, prohibit tax-exempt entities from being used to fund state and local election organizations, and increase the penalties for the unauthorized disclosure of taxpayer information.

In his opening statement, Ways and Means Committee Chairman Jason Smith (MO-08) highlighted the scope of the Committee’s investigation into tax-exempt organizations and concerns surrounding their potential financial support for antisemitism, terrorism, and undue influence in American politics – much of it funded by untraceable foreign money or donations from American citizens who are unaware of what their dollars are actually funding:

“This committee has been concerned with the proliferation of tax-exempt organizations that receive generous benefits under section 501 of the U.S. tax code engaging in activities that may not be in line with the spirit or the letter of the law. Our investigation into this issue ranges from the antisemitic activities and harassment of Jewish students we see occurring on college campuses today, to the nexus between tax-exempt organizations and terrorism, to concerns over the level of community benefit being provided by tax-exempt nonprofit hospitals, to the undue influence of foreign money in U.S. elections and domestic policy debates.

“Today, we are considering five pieces of legislation to address those concerns as well as correct a deficiency in our current laws about the illegal disclosure of taxpayer information.”

In advance of considering this legislation, the Committee held a hearing on foreign money in American elections that exposed the ways in which foreign donors could abuse the tax code to donate money to tax-exempt organizations with the intent of influencing U.S. elections. In August 2023, the Committee issued a request for information to solicit public input on existing rules and regulations governing tax-exempt organizations and foreign sources of funding for these organizations and what, if any, policy changes Congress should consider.

The Foreign Grant Reporting Act (H.R. 8290)

Introduced by Rep. Lloyd Smucker (PA-11), H.R. 8290 requires U.S. tax-exempt organizations to provide additional information about grants issued to foreign recipients. 

The bill passed the Committee 38-0. 

• Currently, all tax-exempt organizations are required to disclose detailed information about domestic organizations to which they gave more than $5,000 each year. 
• However, tax-exempt organizations provide far less information about foreign grantees on IRS Form 990, making it nearly impossible to determine their foreign grant recipients. 
• During a Ways and Means hearing last November, we heard concerns about American-based tax-exempt organizations with potential financial links to terrorist organizations.
• Another concerning example is EcoHealth Alliance, a tax-exempt organization that received a grant from the National Institutes of Health and then outsourced the grants laboratory work to the Wuhan Institute of Virology in China. 
• This bill closes the foreign grant reporting loophole by applying the same rules to foreign grants that already apply to domestic grants. 

Read the one pager here.

The End Zuckerbucks Act (H.R. 8291)

Introduced by Rep. Claudia Tenney (NY-24), co-chair of the Election Integrity Caucus, H.R. 8291 forbids funding from 501(c)(3) organizations to state and local election organizations for the purpose of election administration. 

The bill passed the Committee 23-17.

• During the 2020 election cycle, Mark Zuckerburg donated hundreds of millions to two tax-exempt entities that appear to have distributed funds and services to election offices in a manner that favored one political party over another.
• Third-party funding of our elections by donors who may be ideologically driven takes advantage of the tax code and undermines the public’s confidence in our election process.
• This bill prohibits 501(c)(3) organizations from providing funding to state and local election organizations.
• Government-run election administration should be funded by governments, not wealthy donors.

Read the one pager here.

The American Donor Privacy and Foreign Funding Transparency Act (H.R. 8293)
Introduced by Rep. David Schweikert (AZ-01), H.R. 8293 establishes strong privacy protections for American donors and sheds light on the foreign funding of tax-exempt organizations. 

The bill passed the Committee 23-16.

• This bill is a combination of two concepts: one that protects donor privacy from government intrusion and another that requires tax-exempt organizations to disclose aggregate data on the foreign donations they receive. 
• This bill protects American donors’ privacy by preventing federal agencies from collecting or requiring the submission of information on the identification of any U.S. citizen donor to a tax-exempt organization.
• Foreign donors are currently allowed to donate to U.S. tax-exempt organizations with little transparency, making it difficult to track the influence of foreign money in American politics. Americans deserve to know whether the political or policy ads blanketing U.S. airwaves are funded by foreign governments or actual American grassroots.
  • Under current law, there is little transparency into whether a foreign national contributed to a tax-exempt organization that subsequently donated to political campaigns and committees.
  • For example, there are reports of a tax-exempt organization named the Energy Foundation that claims to be U.S.-based but also appears to have operations primarily in China and is run by the former deputy director general of China’s National Center for Climate Change Strategy. The group has spent millions promoting ‘green’ energy policies that would make the U.S. more dependent on Chinese resources.
• This bill brings transparency to the foreign funding of tax-exempt organizations by requiring the annual disclosure of certain information about donations from foreign sources, including the total combined amount of funding received from foreign sources, the citizenship of these sources, and the total amount of donations from each country.

Read the one pager here.

The No Foreign Election Interference Act (H.R. 8314)

Introduced by Rep. Nicole Malliotakis (NY-11), H.R. 8314 prevents the flow of foreign money into political committees through tax-exempt organizations. 

The bill passed the Committee 39-1.

• Under current law, foreign nationals are prohibited from donating money to U.S. political campaigns. However, there are no restrictions on foreign nationals flowing money through tax-exempt organizations that then move money into Super PACs that are involved in American elections.
  • Swiss billionaire Hansjorg Wyss has donated tens of millions of dollars to tax-exempt organizations that then sent money to super PACs which supported Democrats and opposed Republicans. The New York Times reported that Wyss donated to the Sixteen Thirty Fund, which gave over $60 million to super PACs and is one of the “leading dark money spenders on the left.”
• The bill prohibits American tax-exempt entities that receive contributions from foreign nationals from donating to any political committee for eight years after receiving a contribution from a foreign national.
  • The first two disqualified contributions would result in a fine totaling 200 percent of the donation amount. A third disqualified contribution would result in automatic revocation of the organization’s tax-exempt status.

Read the one pager here.

The Taxpayer Data Protection Act (H.R. 8292)

Introduced by Chairman Smith (MO-08) and co-sponsored by every Ways and Means Republican member, H.R. 8292 deters the unauthorized disclosure of taxpayer information, helping prevent a repeat of the IRS contractor who stole and leaked thousands of tax returns, including those of former President Trump.

The bill passed the Committee 40-1. 

• Starting in 2019, an IRS contractor, Charles Littlejohn, stole taxpayer data and leaked it to The New York Times and ProPublica. The organizations subsequently published a significant amount of confidential tax information in a series of articles. 
• In 2023, the U.S. Department of Justice charged Mr. Littlejohn, with one count of disclosing tax return information without authorization – despite him having stolen and leaked the return and return information of thousands of taxpayers.
• Despite the volume of taxpayer information stolen and the disclosures to two distinct organizations, Mr. Littlejohn was only charged with one count of unauthorized disclosure. As a result, he received the maximum sentence under current law of a $5,000 fine and 5 years in prison. 
• This bill raises the maximum fine for an unauthorized disclosure up to $250,000 and up to 10 years imprisonment, or both for the unauthorized disclosure of taxpayer information. 
• In addition, the legislation ensures that each taxpayer impacted by a disclosure will count as a separate and distinct violation of the law. 

Read the one pager here.