Extremist Groups Abuse Tax Exemptions. Here’s What We Can Do About It.

On a hand-painted helipad deep in the Sonoran Desert, a small consumer drone whirs to life. This aircraft is part of a citizen-run program to identify and monitor migrants crossing the U.S.-Mexico border. The initiative, known as SEIDARM, was a pet project of Arizona militia leader and anti-immigrant activist Glenn Spencer until his death in January.

While never implemented, SEIDARM consisted of a complex network of seismic sensors to detect movement and summon drones to track migrants. In 2018, Spencer estimated that he had spent over $1 million developing the technology. He financed SEIDARM using personal funds and donations to his militia, known as American Border Patrol, which has been designated as a hate group by the Southern Poverty Law Center (SPLC). Notably, SEIDARM and other initiatives have been facilitated by generous tax breaks on account of the militia’s nonprofit status.

Spencer’s militia and its associates have engaged in violent activity and intimidation tactics, often targeting migrants in southern Arizona. As perpetrators of violence, agents of American Border Patrol, armed with firearms and sometimes dogs, have illegally detained dozens of migrants. Militia affiliates have intimidated these and other victims by filming and photographing them without consent, and then disseminating the images online. In a widely known 2011 incident, Spencer was convicted of disorderly conduct, threatening and intimidation, and assault after he threatened to attack an individual whom he believed was a smuggler. Specific allegations of Spencer’s vigilantism and confrontations with migrants continued until at least 2012.

Despite this misconduct, American Border Patrol exploited federal and state tax breaks from 2002 until 2017. Spencer’s militia was federally recognized as a 501(c)(3) charitable nonprofit and classified under National Taxonomy of Exempt Entities (NTEE) code “R,” which denotes groups dedicated to promoting civil rights. Other 501(c)(3) organizations assigned the NTEE “R” designation include the SPLC, the National Association for the Advancement of Colored People, and the Anti-Defamation League (ADL). In Arizona, the militia was recognized as a charitable nonprofit by the Arizona Corporations Commission (ACC.)

American Border Patrol was just one of at least 90 extremist groups that have registered as tax-exempt charities with the Internal Revenue Service. Other militias along the U.S.-Mexico border, such as Arizona Border Retreat, Texas Border Volunteers, and the Minuteman Project, have also taken advantage of tax exemptions. In recent years, factions of the Oath Keepers and III%—also known as the Three Percenters—have begun leveraging nonprofit statuses to evade taxes on property, income, sales, and employment.

Over a 10-year period, Spencer’s militia generated $11,225,498 of taxable income, notwithstanding nonprofit status. By granting tax-exempt status to American Border Patrol, the IRS forfeited approximately $3,186,669. The militia received additional state tax breaks as a nonprofit recognized by the ACC. This loss from offering 501(c)(3) designation to just one hate group suggests that the U.S. government has been subsidizing extremist activities to the tune of millions of dollars each year.

Extremist organizations reporting low annual incomes benefit the most from tax exemptions. American Border Patrol, for example, reported hundreds of thousands of dollars of taxable income annually between 2002 and 2017 but still suffered net losses during six years of operation. It is conceivable that the militia may not have survived without government-issued tax breaks.

Federal and state regulators like the IRS and ACC are responsible for reviewing applications for nonprofit statuses. To be legally considered tax exempt by the IRS, applicants must affirm their entity’s compliance with U.S. Code § 501. To qualify under § 501(c)(3), the prospective organization must be organized or operated for purposes defined as “religious, charitable, scientific, testing for public safety, literary or educational, foster national or international sports competition, or for the prevention of cruelty to animals or children.” The vast majority of requests for federal tax exemption are approved, with just 66 of nearly 100,000 filings being denied in a recent year.

Approved charities must adhere to certain tax-exempt standards, beyond simply affirming a commitment to charitable objectives and operating as not-for-profit organizations. For example, applying entities are restricted from engaging in activities that excessively benefit private interests and from interfering heavily in political affairs. Among these standards, organizations are forbidden from claiming tax exemptions for activities that would not align with the organization’s stated charitable mission.

Regulatory violations may jeopardize an organization’s tax-exempt status, and evidence suggests that various extremist groups are guilty of serious infractions. For example, extremist organizations have misrepresented their primary objectives, falsely claiming to prioritize veteran’s support or community outreach. American Border Patrol is a prime example of misrepresentation, considering the militia’s stated purpose to “monitor the border on regular [sic] basis and to educate the public about border control issues and solutions.” Notwithstanding Spencer’s development of SEIDARM and long-standing efforts to prevent migration into the United States, the militia has demonstrated a propensity for hateful rhetoric and vigilantism against undocumented people. Evidence suggests that affiliates of the Oath Keepers and Three Percenters have similarly misrepresented their purposes to gain tax-exempt status, namely via the Oath Keepers Educational Foundation and American Patriot Vanguard Iii MC.

In addition, the ADL uncovered evidence indicating that leaders of various extremist groups registered with 501(c)(3) and 501(c)(4) statuses have used their organizations as vessels for personal enrichment. Inaccurate reporting is also a concern, wherein tax-exempt entities may deceive regulators to maintain nonprofit statuses.

Despite their detriments, declining tax exemptions to extremist organizations raises the possibility of infringing on applicants’ First Amendment rights. While denying such tax breaks on account of ideology is reminiscent of divisive attempts to address domestic terrorism, government entities can avoid becoming mired in constitutional debates while discouraging violent behavior.

The IRS and other regulators should instead deny applications from extremist organizations when such tax breaks could enable violent behavior. This proposal would guarantee that rejections are not based on any group’s claimed mission or ideology. Ensuring that entities whose members have predilections for violence are not subsidized with tax breaks is the least the United States can do to prevent violent extremists from abusing tax-exempt status. Historically, the U.S. government has demonstrated negligence by enabling groups whose members are directly responsible for violence, including against the federal government on Jan. 6. Still allowing rejected tax-exempt applicants to organize would absolve the government of responsibility for financing violence while permitting extremist rhetoric under the First Amendment, as recommended by Mary McCord. 

To identify applications submitted by extremist organizations and audit existing tax-exempt entities, federal regulators must be tactful. The IRS should immediately institute a more thorough screening process to identify cases of misrepresentation of intent by groups that have demonstrated a propensity for violence. In addition, the IRS is obligated under 26 U.S.C. § 6033 to review existing tax-exempt designations regularly and should investigate evidence of misrepresentation, personal enrichment, and inaccurate reporting. The IRS should increase the frequency of audits to an annual occurrence from the current triennial cycle. In addition, the agency should also devise a system to flag tax-exempt entities as suspicious if reports of possible violent activity arise in the interim periods. To fund this increase in comprehensive audits, the IRS can utilize existing resources or redirect some of the $45 billion appropriated to the agency specifically for compliance monitoring in the recent Inflation Reduction Act. While a federal response should precede individual state action, regulators across the U.S. should also scrutinize extremists receiving tax breaks in their jurisdictions.

In light of violence perpetrated by tax-exempt entities, a blue-ribbon commission should be appointed within the IRS to investigate nonprofit organizations whose members have been charged for participation in the Jan. 6 insurrection. Such an inquiry would contextualize the significance of § 501 designations in enabling violence and guide further steps to prevent violent actors from exploiting tax breaks.

Moving forward, researchers and policymakers must acknowledge instances of government-assisted extremism and address legislative shortcomings. The IRS has declined to comment when asked about instances of extremist organizations receiving tax-exempt status to date. The ACC, which granted tax breaks to Glenn Spencer’s border militia, responded by saying that there is virtually no scrutiny for prospective nonprofits in Arizona.

President Biden in September condemned far-right extremism as a threat to democracy. In this spirit, his administration must bar violent extremists from exploiting tax-exempt statuses on the dime of American taxpayers.