- 7.25.45 Suspension of Exempt Status Under IRC 501(p)
Part 7. Rulings and Agreements
Chapter 25. Exempt Organizations Determinations Manual
Section 45. Suspension of Exempt Status Under IRC 501(p)
Under IRC 501(p), if an exempt organization is designated as a terrorist organization as described in IRC 501(p)(2), its exempt status under IRC 501(a) is suspended. Contributions to such an organization are not deductible during the period that the organization is suspended.
In the event of suspension, the Service is required to publish a notice of the suspension and the non-deductibility of contributions and update its listings of exempt organizations. IRC 501(p)(7). Procedures for monitoring terrorist designations and preparing announcements are set forth in IRM 220.127.116.11, EO Touch-and-Go Determination Case Procedures. Procedures for updating the Exempt Organizations Business Master File (EOBMF) and Publication 78 are set forth in IRM 18.104.22.168, Cumulative List (Publication 78).
If an exempt organization is designated as a terrorist organization as described in IRC 501(p)(2),
Its exempt status under IRC 501(a) is suspended; i.e., it is treated as a taxable organization. IRC 501(p)(1).
Contributions to it are not deductible. IRC 501(p)(4).
The organization cannot apply for exemption if it has not yet been recognized as tax-exempt. IRC 501(p)(1).
The suspension begins on the date of first publication of the terrorist designation. IRC 501(p)(3).
The suspension ends on the first date that all designations under IRC 501(p)(2) with respect to the organization are rescinded pursuant to the appropriate law or executive order. IRC 501(p)(3). Thus, if an organization was designated as both a foreign terrorist organization (FTO) and a specially designated global terrorist (SDGT), (both described in greater detail below), its suspension would continue as long as either designation remained in effect.
The suspended organization (or any other person) cannot challenge the suspension, terrorist designation, period of suspension, or denial of a deduction in a federal tax proceeding. IRC 501(p)(5). The suspended organization may bring actions to challenge the designation against the agencies that designated the organization.
If a terrorist designation described in IRC 501(p)(2) is later determined to be erroneous, then the organization has at least one year to request a tax refund. IRC 501(p)(6).
IRC 501(p)(2) sets forth three different types of designations or individual identifications of terrorists by the federal government.
Terrorist designations are usually made pursuant to economic sanctions or pursuant to Department of State programs. The Office of Foreign Assets Control (OFAC) of the Treasury Department administers economic sanctions against certain foreign countries, terrorists, international narcotics traffickers, or, inter alia, persons engaged in proliferation of weapons of mass destruction. Sanctions include prohibitions on U.S. persons from conducting any transactions with or providing any services to designated persons (individuals or entities) and the blocking or "freezing of assets" within U.S. jurisdiction.
OFAC maintains a list of persons (individuals and entities) subject to any of the economic sanctions programs that it administers. This list is published periodically as Appendix A to 31 C.F.R. Chapter V and as the Specially Designated Nationals and Blocked Persons list at:
The organizations on the OFAC list are identified as FTOs, SDGTs, and/or specially designated terrorists (SDTs), as discussed below.
The OFAC list also includes "blocked" persons, whose assets are blocked pending investigation pursuant to Section 106 of the U.S.A. Patriot Act of 2001, designated as "BPI-PA." Such status is not considered as a terrorist designation under IRC 501(p)(2).
IRC 501(p)(2)(A) encompasses terrorist designations pursuant to section 212(a)(3)(B)(vi)(II) or 219 of the Immigration and Nationality Act [8 U.S.C. 1182 or 1189].
Under section 219, the Secretary of State has the authority to identify certain organizations as FTOs. See also 31 C.F.R. 597.309.
While the Secretary of State identifies the FTOs, OFAC administers the economic sanctions program. As such, all FTOs are included in OFAC’s list of Specially Designated Nationals (SDN). In October 2001, all FTOs were also identified as SDGTs pursuant to E.O. 13224 and the International Emergency Economic Powers Act, 50 U.S.C. 1801 et seq.
Under section 212(a)(3)(B)(vi)(II), the State Department publishes a Terrorist Exclusion List (TEL). The updated list is available as a fact sheet on the State Department Web site at:
IRC 501(p)(2)(B) encompasses terrorist designations pursuant to an executive order which is related to terrorism and issued under the authority of the International Emergency Economic Powers Act [IEEPA, 50 U.S.C. 1701-1706]. IRC 501(p)(2)(B). Under IEEPA, the President may issue an executive order when he finds that there is a threat to the national security, foreign policy, or economy of the United States.
One such executive order is E.O. 13224 (Sept. 23, 2001), " Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism." Through this order, the President found that grave acts of terrorism and threats of terrorism, including the September 11, 2001, attacks, constituted an unusual and extraordinary threat to the national security and foreign policy of the United States. Persons (individuals or entities) designated pursuant to this executive order are identified as SDGTs. OFAC administers this order and promulgates regulations for the economic sanctions program it establishes. These regulations can be found at 31 C.F.R. 594.
Another such executive order is E.O. 12947 (Jan. 23, 1995), " Prohibiting Transactions with Terrorists Who Threaten to Disrupt the Middle East Peace Process," amended by E.O. 13099 (Aug. 20, 1998), which included additional names. An SDT is a person designated under E.O. 12947 or other person determined to pose a significant risk of violence disruptive of the Middle East peace process (including under E.O. 13099). 31 C.F.R. 595.311.
The OFAC Specially Designated Nationals (SDN) and Blocked Persons list includes persons subject to sanctions for their involvement with certain foreign governments, narcotics trafficking, diamond trading, and, inter alia, proliferation of weapons of mass destruction. For instance, an SDN is essentially a person determined to be acting for the government or authorities exercising control over a designated foreign country subject to sanctions, or an organization owned or controlled by the government or by an SDN. 31 C.F.R. 500.306. A specially designated narcotics trafficker (SDNT) is a person determined to play a significant role in international narcotics trafficking. 31 C.F.R. 598.314. While such designations may not be pursuant to an executive order which is related to terrorism, the particular executive order should be carefully considered if an exempt organization receives such designation.
IRC 501(p)(2)(C) encompasses terrorist designations pursuant to an executive order issued under the authority of any Federal law if--
the organization is designated or otherwise individually identified in or pursuant to such executive order as supporting or engaging in terrorist activity (as defined in section 212(a)(3)(B) of the Immigration and Nationality Act [8 U.S.C. 1182(a)(3)(B)]) or supporting terrorism (as defined in section 140(d)(2) of the Foreign Relations Authorization Act, Fiscal Years 1988 and 1989 [22 U.S.C. 2656f(d)(2)]); and
such executive order refers to IRC 501(p).
As of the publication date of this IRM section, no terrorist designations have been made under IRC 501(p)(2)(C). Should the President issue an executive order meeting these criteria, the President would identify the responsible agency for making designations and administering the executive order’s program.