WASHINGTON—The Trump administration is considering an executive order that would list some nonprofit organizations as having terrorist ties, a move that would suspend their tax-exempt status immediately and could cripple their operations.

Trump officials have been working for months on the order, according to people familiar with the matter. The order is still being deliberated and may end up not being finalized or signed by Trump, the people said.

Such an executive order would use an untested tax code section and escalate the administration’s scrutiny of tax-exempt groups, possibly targeting some of Trump’s antagonists and political opponents. Applying the terrorist label would impose much more immediate consequences on groups than the slower procedures typically used by the Internal Revenue Service to examine and penalize tax-exempt organizations for legal violations.

It wasn’t clear how many groups and which ones could be targeted in any executive order.

Trump signed a national-security memorandum last year that directed the IRS to ensure that no tax-exempt groups are engaged in domestic terrorism or political violence and encouraged referrals to the Justice Department. Officials have highlighted their efforts publicly, but they have talked little about using Section 501(p) of the tax code.

“We are examining where tax-exempt status has been exploited, which charitable entities have become financial conduits for foreign-influence activity, and how those entrusted with stewardship of these organizations have instead enabled violence,” Treasury Secretary Scott Bessent said in July. “Where the evidence leads, we will not hesitate to follow.”Trump administration officials have recently been turning to IRS experts to help evaluate the potential implementation of the executive order, according to a person with direct knowledge of the matter and a memo reviewed by The Wall Street Journal.

Another person with knowledge of the discussions said administration officials have been reviewing bank records of nonprofits and other documents to help craft the executive order and determine which groups should be considered as engaging in terrorism or supporting it.

Officials are reviewing Section 501(p)(2)(C), which gives the president authority to label these groups in an executive order as supporting or engaging in terrorist activities, according to some of the people familiar with the matter. Following that designation, those groups would automatically have their tax-exempt statuses suspended, a move that could damage their finances and dry up donations.

There are already nine organizations that have had their tax exemptions suspended for alleged terrorist ties. Those decisions flowed from sanctions designations by federal agencies such as the Treasury Department, not from the kind of direct presidential determination the White House is considering, lawyers said.

A White House official said any discussions about a potential executive order are speculative. The White House told reporters last April that no such action was being drafted or considered. The Treasury Department and IRS didn’t respond to requests for comment.

IRS rules normally require the agency to follow procedures to revoke or suspend nonprofit groups’ tax-exempt status. That includes a detailed audit, formal notice and the right to go into court. A 501(p) designation can’t be challenged on tax grounds; the organization would likely need to sue to demonstrate that it doesn’t have terrorist links.

The Federal Bureau of Investigation, IRS and Treasury Department have been working together to investigate tax-exempt groups for terrorism connections since last year, according to internal records reviewed by the Journal.

“We’re seeing a new enforcement infrastructure being connected across agencies,” said Carolyn Schenck, a former IRS official who is now at law firm Caplin & Drysdale. “None of these tools is new. What is new and potentially very consequential is putting them together around the same organizations and the same conduct.”If the administration uses section 501(p) to suspend a group’s tax-exempt status, the group would likely need to sue and allege that the designation was arbitrary and capricious in order to get a court to reverse the decision, Schenck said. That could be challenging because some of the government’s evidence could be considered classified.

But during those lawsuits, affected groups would be taxed on any net income and contributions to them wouldn’t be tax deductible.

“A president who cites it is openly choosing to use the tax system against a designated group, and that choice draws scrutiny,” said Kevin Frankel, a former New York assistant attorney general. “Its distinct value is reaching organizations outside the foreign-terrorism and sanctions systems, which in practice means domestic groups.”Since the start of Trump’s second term, the administration and its allies have been searching for ways to investigate and penalize some nonprofit organizations.

Trump has ordered Bessent to use the Treasury’s terrorism and financial-intelligence office to examine groups’ financial flows and try to trace any illicit funding streams.

The Justice Department indicted the nonprofit Southern Poverty Law Center for allegedly defrauding contributors by secretly paying informants. SPLC has denied the charges. Trump allies in Congress and in state governments have referred nonprofits to the administration for potential revocation or suspension of their tax-exempt status.

During interagency meetings late last year, White House deputy chief of staff Stephen Miller asked administration officials why more efforts hadn’t been made to probe nonprofit groups that Miller believed had ties to terrorist organizations, such as antifa, according to a meeting participant. Trump designated antifa as a domestic terrorist organization through an executive order last September. Antifa is a loose collective, rather than a formal tax-exempt organization.

Republicans on the House Ways and Means Committee have been referring groups to the IRS for investigation of foreign terrorist ties. Texas Republican Gov. Greg Abbott penned a letter to Bessent late last year requesting the suspension of the Council on American-Islamic Relations’ tax status and alleged that the organization has its own ties to terrorist networks. The group has denied the charges.

The potential Trump order stems from policies created after the Sept. 11, 2001, attacks. President George W. Bush signed an executive order that allowed the administration to designate select people and groups, including nonprofit organizations, as being linked to terrorism, enabling a freezing of their assets.

Later in Bush’s first term, Congress gave presidents the power to certify through an executive order that some nonprofits were tied to terrorism and for that designation to automatically lead to groups having their tax-exempt status suspended. That law also allows the State Department to designate groups as terrorist affiliates, which can also suspend tax exemption.