FAQs about Section 501(p) of the Internal Revenue Code 

1. What triggers suspension of an organization’s tax-exempt status under 501(p)?  

501(p) provides three routes to automatic suspension of an organization’s tax-exempt status:  

• Route C: An organization is designated or identified as supporting or engaging in terrorism pursuant to another lawfully authorized Executive Order. (26 U.S.C. §501(p)(2)(C)) This designation may be made in or pursuant to an Executive Order issued “under the authority of any Federal law” that designates or identifies an organization as “supporting or engaging in terrorist activity” or as “supporting terrorism”.[6] The executive order must refer to 501(p).

2. How often has 501(p) been used?  

Rarely. Congress added 26 U.S.C. §501(p) to the U.S. tax code in 2003, after the events of September 11, 2001. Since then, only nine organizations have had their status suspended under 501(p). All nine had been designated as SDGTs and thus their status was automatically suspended under Route B. 

3. What role does the IRS have in suspending tax-exempt status under 501(p)? 

The IRS does not carry out any of the above designation processes, nor does it conduct an investigation before suspending a designated organization’s tax-exempt status. Instead, upon designation of an organization under one of the three routes above, the IRS automatically suspends the nonprofit’s tax-exempt status. Suspension is effective on the date of the first publication of the designation. (26 U.S.C. §501(p)(3)) 501(p) does not require the IRS to provide notice before suspending an organization’s tax-exempt status. The IRS does publish a list of organizations that have their exempt status suspended under 501(p) and notes that contributions to such organization are not deductible during the period of suspension. (26 U.S.C. §501(p)(7))

4. What are the consequences for an organization if its tax-exempt status is suspended under 501(p)? 

If an organization is designated or identified by the Executive Branch under 501(p), its tax-exempt status is automatically suspended. Suspension begins on the date of designation and lasts until the designation is rescinded. During that period, the organization must pay income tax in accordance with federal income tax laws.

The consequences of the underlying designation may be more serious. If the organization is designated under Route A as an FTO, or under Route B as an SDGT, it faces significant restrictions. It is subject to sanctions, its assets are frozen, and transactions with the organization are prohibited.

5. What are consequences for donors and others who engage with an organization if its tax-exempt status is suspended under 501(p)?  

Donors cannot claim deductions for charitable contributions to the organization during the period of suspension. ((26 U.S.C. §501(p)(4))) 

Depending on the underlying designation, contributions and other support to such organizations may be subject to other restrictions. If the organization is designated under Route A as an FTO, or under Route B as an SDGT, donors, service providers, and others face criminal liability for sanctions violations if they engage in transactions with the organization, including by making any contribution of funds, goods, or services. Provision of “material support” ^vii to an FTO is a felony offense (18 U.S.C. §2339B), and those who provide “material support” to an SDGT can themselves be designated SDGTs. (Executive Order 13224 §1(a)(iii)(C)) 

6. Can an organization challenge the suspension of its tax-exempt status under 501(p)?  

While 501(p) restricts the ability of nonprofits to challenge the suspension of their exempt status, they have multiple options for redress.   

Section 501(p)(5) precludes challenges to a 501(p) exempt status suspension “in any administrative or judicial proceeding relating to the Federal tax liability” of the organization. (26 U.S.C. §501(p)(5)) However, organizations can challenge the underlying terrorism-related designation that led to the suspension.  

All nine nonprofits that have had tax-exempt status suspended under 501(p) were first designated as SDGTs, triggering the automatic suspension of their tax-exempt status (see Route B, described above). Nonprofits have challenged their SDGT designations and associated sanctions, including on due process grounds, and as a result have secured significant protections in the SDGT designation process itself. For example, courts have found that the government cannot freeze a nonprofit’s assets without a warrant based on probable cause and without providing the charity meaningful notice and opportunity to defend itself (see Kindhearts (2009), Al-Harmain (2011)).  

While thus far all nonprofits that have had their tax-exempt status suspended under 501(p) were designated as SDGTs, the Executive Branch could designate nonprofits under another route that triggers 501(p) suspension. In such a situation, the nonprofit could similarly challenge the underlying designation. For example, federal law lays out a process for challenging designation as a foreign terrorist organization (FTO), either through a petition for administrative review with the Secretary of State (8 U.S.C. §1189(a)(4)(B)) or for judicial review by the D.C. Circuit (8 U.S.C. §1189(c)). In such cases the court may set aside designations that are arbitrary and capricious, unconstitutional, exceeding statutory authority, or unsupported by the administrative record, among other grounds. (8 U.S.C. §1189(c)(3)) 

Even where federal law does not specify such a process, a designated nonprofit could likely still challenge the designation in federal court, whether on due process, First Amendment, or other grounds. A designated entity might also challenge the constitutionality of provisions of 501(p) itself. For example, a court might find 501(p)(2)(C) that allows designation for “supporting” terrorist activity or terrorism void for vagueness, since it does not define “supporting” and so arguably does not provide sufficient notice to nonprofits about what activity is unlawful (see Johnson v. United States (2015)).  

If it is found that an organization was erroneously designated, 501(p) provides that the nonprofit will be provided a credit or refund, with interest, with respect to any overpayment of income tax to the IRS during the period of suspension. (26 U.S.C. §501(p)(6)) 

7. Should 501(p) be reformed?  

Yes. 501(p) does not address a real problem and should be eliminated or amended. The IRS has a separate longstanding process for revoking the tax-exempt status of nonprofits that engage in substantial unlawful activity. Since the enactment of 501(p) in 2003, only nine organizations have had their tax-exempt status suspended under 501(p). All nine were designated SDGTs—a designation which itself results in immediate economic sanctions.  

While only nonprofits designated as SDGTs have historically had their tax-exempt status suspended under 501(p), 501(p)’s breadth could allow it to be invoked in other situations. To reduce the possibility of abuse, Congress should at a minimum limit the suspension of exempt status under 501(p) to organizations like SDGTs that are sanctioned under a terrorism-related Executive Order issued under the authority of IEEPA or the UN Participation Act (Route B above). Congress should also reform terrorism related designation processes, including the SDGT designation process, to provide greater due process and other protections.  

Further Reading: 

Congressional Research Service, Suspending the Tax-Exempt Status of Terrorist and Terrorist Supporting Organizations: H.R. 6408 in Context (June 2024) 

Michael Waalkes, Caroline D. Ciraolo, and Melissa Wiley, Challenging an Exemption Suspension Based on Terrorist Org Designation, Tax Notes Federal (May 2025) 

Sharon L. McCarthy, Victor Suthammanont, and Michael Waalkes, Examining the Authority for Suspending Tax-Exempt Status Under Section 501(p), Tax Notes Federal (December 2025) 

For more information contact Elly Page (epage@uscnl.org) or Nick Robinson (nrobinson@uscnl.org). Visit USCNL.org. 

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[1] The INA defines “engaging in terrorist activity” to comprise six categories of activities related to “terrorist activity,” including committing or inciting to commit a terrorist activity with intent to cause injury or death; planning, soliciting funds for, or soliciting another to commit a terrorist activity; and committing an act “that the actor knows, or reasonably should know, affords material support” for a terrorist activity or a designated terrorist organization. (8 U.S.C. §1182(a)(3)(B)(iv)) The INA defines “terrorist activity” to include a number of unlawful actions, including hijacking or sabotage of any conveyance, certain kidnappings, assassinations,  using any explosive, firearm, or “dangerous device”, as well as a threat, attempt, or conspiracy to undertake any of these underlying actions. (8 U.S.C. §1182(a)(3)(B)(iii)).

The INA refers to a separate definition of “terrorism” under the Foreign Relations Authorization Act, which defines the term as “premeditated, politically motivated violence perpetrated against noncombatant targets by subnational groups or clandestine agents.” (22 U.S.C. §2656f(d)(2)).

[2] See EN 1 on the INA definition of “engages in terrorist activity.”

[3] IEEPA provides authority to the President to “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat.” IEEPA gives the President broad powers to freeze any asset or block a financial transaction in “any property in which any foreign country or a national thereof has any interest.” U.S. persons cannot do business with entities or individuals sanctioned under IEEPA.

The UN Participation Act limits such sanctions only to those used to enforce measures approved by the UN Security Council and in relation to foreign countries, nationals, or persons within foreign countries.

[4] Executive Order 13886, issued by President Donald J. Trump in 2019, modified Executive Order 13224, including by expanding the government’s authority to sanction non-U.S. entities and individuals.

[5] Executive Order 13224 defines “terrorism” as: “[A]n activity that

(i) involves a violent act or an act dangerous to human life, property, or infrastructure; and

(ii) appears to be intended

(A) to intimidate or coerce a civilian population;

(B) to influence the policy of a government by intimidation or coercion; or

(C) to affect the conduct of a government by mass destruction, assassination, kidnapping, or hostage-taking.”

[6] Section 501(p)(2)(C) refers to the same definitions of “engaging in terrorist activity” and “terrorism” relied upon for designation of Foreign Terrorist Organizations and terrorist organizations under the Immigration and Nationality Act under Route A (see EN 1). Notably, neither definition requires a connection to foreign persons or conduct outside the U.S. Additionally, Section 501(p)(2)(C) does not define “supporting.”

This briefer was produced for informational purposes only and does not constitute legal advice or substitute for legal counsel.