Congress is aware that of the urgent need to change the law forcing Americans who were held hostage by terrorists or wrongfully detained by a foreign government to pay penalties for failing to pay taxes while in captivity, The Washington Post reported on Saturday. However, efforts to change the law are mired in a disagreement over another legislation. Republicans in the House merged the tax penalty removal with legislation that would make it easier to suspend the tax-exempt status of NGOs suspected of aiding and abetting terror groups such as Hamas.
Jason Rezaian, a Washington Post columnist, faced a $6,000 tax penalty upon his return to the United States in 2016 after enduring 544 days of captivity in Iran. In an interview, Rezaian clarified a misconception about the proposed legislation. He explained that the IRS already has an established policy of waiving penalties for individuals held hostage by non-state actors, such as Hamas, the Islamic State, or Boko Haram.
Rezaian pointed out that the new bill’s primary purpose is to extend this leniency to those captured by foreign governments, like Russia or China. This insight suggests that the bill’s sponsor may have mischaracterized its intended impact, particularly in relation to Hamas hostages who are already covered under existing IRS practices.
Ways and Means Committee Chair, Rep. Jason T. Smith (R-Mo.) told The Post that Hamas is holding seven American hostages in Gaza, four of whom are believed to be alive, and when they are released, God willing, they are going to face substantial tax penalties.
In May, the Senate unanimously approved legislation to shield freed hostages from IRS penalties for failing to file or pay taxes during their captivity. The House Ways and Means Committee followed suit last Wednesday, unanimously advancing a similar bill.
But the House committee combined the hostage tax relief measure with a separate provision. This addition would streamline the process for the government to revoke the tax-exempt status of nonprofit organizations suspected of supporting terrorism.
Ironically, due to an obscure procedural maneuver intended to expedite the hostage bill’s passage, this combination likely derailed its chances of becoming law. The procedural complexity introduced by merging the two issues has effectively stalled the legislation’s progress.
According to The Post, the Senate employed an uncommon legislative technique known as a “deeming resolution” to advance the hostage provision. This unanimous declaration stated that upon the bill’s passage in the House, it would automatically be considered approved by the Senate as well. However, this expedited process becomes void if the House makes any alterations to the bill.
The House’s version differs from the Senate’s due to the addition of a section concerning nonprofits. This new provision has drawn criticism from free speech advocates and pro-Hamas groups. They worry it could be used to suppress organizations with opposing viewpoints or impede humanitarian efforts in regions controlled by terrorist groups, particularly in light of the Israel-Hamas war in Gaza. This controversial addition likely imperils the bill’s prospects in the Senate.
S.4057, “Stop Tax Penalties on American Hostages Act of 2024,” introduced by Senators Chris Coons (D-Del) and Thom Tillis (R-NC), postpones certain tax filing deadlines for US nationals and their spouses who are unlawfully or wrongfully detained abroad or held hostage abroad. It also allows for a refund and abatement of penalties and fines paid by detained individuals.
“Our hearts break for the hostages kidnapped by Hamas on October 7, 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,” Congressman Smith said. “At the same time, US-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.”
