Obergefell and BYU’s Tax Exemption

On April 28, the Supreme Court heard arguments in Obergefell v. Hodges, which challenged both the constitutionality of state bans on same-sex marriage and of states’ nonrecognition of same-sex marriages performed in other states.

By the end of June, the Justices will have decided and we’ll know the constitutional status of same-sex marriage bans in the United States. But that doesn’t mean all questions will be resolved; in fact, an exchange between Chief Justice Roberts, Justice Alito, and Solicitor General Verrilli piqued the interest of a lot of people, especially those invested in religious educational institutions. 

During the course of oral arguments, Chief Justice Roberts said to General Verrilli:[fn1]

We have a concession from your friend that clergy will not be required to perform same-sex marriage, but there are going to be harder questions. Would a religious school that has married housing be required to afford such housing to same-sex couples?

A little later, Justice Alito followed up with this:

Well, in the Bob Jones case, the Court held that a college was not entitled to tax-exempt status if it opposed interracial marriage or interracial dating. So would the same apply to a university or a college if it opposed same-sex marriage?

General Verrilli responded,

You know, I—I don’t think I can answer that question without knowing more specifics, but it’s certainly going to be an issue. I—I don’t deny that. I don’t deny that, Justice Alito. It is—it is going to be an issue.

So is General Verrilli right? At least some corners of the media seem to think he is, that a ruling in favor of same-sex marriage will mark the end of religious schools’ tax exemption, if not of religious schools as we know them.[fn2]

Is that right?

I mean, it’s not inconceivable, though it’s virtually impossible in the short term, unlikely in the middle term, and maybe unlikely, period. To understand why, though, we need to briefly look at the Supreme Court’s decision in Bob Jones, and the context of that decision.

The super-short version: Bob Jones University is a fundamentalist Christian university. It was also racist: prior to 1971, it didn’t admit African-American students. Between 1971 and 1975 (at least), it admitted African-Americans who were single or who were married to other African-Americans, but the school’s sponsors believed that the Bible forbade interracial dating; as a result, it didn’t admit students in interracial relationships, and it expelled students who entered into such relationships or who advocated interracial marriage.

The IRS revoked the school’s tax exemption, and the Supreme Court upheld the revocation, notwithstanding the school’s sincere religious beliefs. The reason? It’s a little technical, but, boiled down, it’s this: qualifying as tax-exempt[fn3] derives from the common law of charities. Under the common law, an entity that violated the law or a fundamental public policy didn’t qualify as charitable. And racial discrimination by schools violated a fundamental public policy. Therefore, racist schools did not qualify as tax-exempt.

So that’s what Justice Alito invoked, and what the Solicitor General believed would be an issue.

And he may be right. But it’s worth digging into the context of the Bob Jones decision—and its subsequence use—a little bit before we come to that conclusion.

Brown v. Board of Education, which ended seperate-but-equal and effectively desegregated schools, was decided in 1954. Not every white family was happy that their kids would attend school with black kids, though, and a number of racially-discriminatory private grade schools popped up, effectively allowing white parents to avoid desegregation.

About ten years later, in 1965, the IRS paused its approval of tax exemptions for racially-discriminatory private schools as it tried to figure out whether it had authority to deny their applications or not. Two years later, it concluded that it could deny tax exemptions to discriminatory schools that had sufficient ties to the state, but that it didn’t have the legal authority to deny exemptions to truly private schools.

A group of African-American parents in Mississippi sued to prevent the IRS from granting tax-exemption to racially-discriminatory schools and, in 1970, a Mississippi district court issued a preliminary injunction. A year later, the IRS adopted court’s injunction (which legally only applied in part of Mississippi) as a nationwide standard. It took a couple iterations, but the IRS and the courts ultimately said that the effort of desegregation demonstrated that integrating schools was a fundamental public policy, and that policy was being thwarted by discriminatory private schools.

True, the Bob Jones decision expanded the scope beyond the world of public grade schools, but it followed pretty directly from the earlier IRS and court decisions—it involved education and racial discrimination.

Would that same logic carry over to schools that discriminate against students in same-sex relationships? There’s no compelling reason it couldn’t. But there are enough differences that I suspect it’s not as likely as some seem to believe.

I mean, there’s a real—and a long—history in the United States of discrimination against the LGBT community. And even if it isn’t now, I suspect that, in the near future, discrimination against gays and lesbians will violate a fundamental public policy.

But discrimination against the LGBT community didn’t play out in the form of separate schools, and people haven’t used discriminatory schools to somehow recreate a segregated educational experience. That is, schools aren’t a historic locus of discrimination here in the same way they were against African-Americans.

Moreover, until now, revocation for the violation of a fundamental public policy has been almost entirely limited to racial discrimination.[fn4]

And there’s more: the IRS’s Exempt Organizations group is on its heels after the Tea Party-gate brouhaha from a couple years ago. I suspect it’s in no mood to pick a fight, and I suspect it won’t be in the mood expand the scope of its public policy requirements in the near future.

Of course, I could be wrong, and if I am, BYU’s current policy on homosexuality looks pretty untenable, at least in light of Bob Jones. From BYU’s Honor Code:

Homosexual behavior is inappropriate and violates the Honor Code. Homosexual behavior includes not only sexual relations between members of the same sex, but all forms of physical intimacy that give expression to homosexual feelings.

So how worried should[fn5] BYU (and other conservative religious schools) be? My gut feeling: not very. At least, not yet. While the Solicitor General is theoretically right, the historical roots of Bob Jones don’t line up squarely with conservative religious schools’ policies on same-sex marriage.

Still, it will be interesting to see this play out over the next couple decades.

Bonus Question: Will the Church Lose Its Exemption If It Refuses To Perform Same-Sex Marriages?

No.

I mean, in 1975, the IRS issued a revenue ruling in which it claimed the authority to revoke a racially-discriminatory church’s tax exemption. But it has never tried to do so, and it never will. And even if it did try, I suspect it would face steep, steep constitutional hurdles.

Update: A friend pointed out that I oversimplified my characterization of Rev. Rul. 75-231, in the process providing an explanation that is not entirely accurate. And he’s right. Specifically, the IRS is dealing with discriminatory religious schools in the ruling. And in Situation 2, it talked about a religious school that wasn’t separately incorporated from its parent church (that is, it was using the parent’s exemption). The IRS viewed the school’s discriminatory policy as violating public policy, but because it wasn’t incorporated separately, it had no exemption to revoke. So the IRS would revoke the parent church’s exemption.

The policy-violating behavior, though, happened at the school, not the church, level. The IRS has never, to my knowledge, threatened or tried to revoke a church’s tax exemption as a result of the church’s racially-discriminatory behavior.

—

[fn1] While I’m going to abridge the exchange, it happens between pages 36 and 38 of the transcript.

[fn2] See, e.g., here, here, here, and here, among other places.

[fn3] (at least under section 501(c)(3); it’s neither here nor there, but I argue that other types of tax exemption are different)

[fn4] Interestingly enough, the one exception of which I’m aware has a Mormon connection: a couple years ago, the IRS denied an exemption for Principle Voices of Polygamy, a group that intended to education Americans about polygamy. The IRS denied the exemption because polygamy, it said, violates a fundamental public policy.

[fn5] Note that this should is meant descriptively, not normatively. Moreover, any concern assumes that BYU maintains its current policy. Which it may well—I don’t have any inside administrative knowledge—but there’s not compelling reason to believe that its policy won’t change again.