Tax Exemption, Post-Obergefell

… will look a lot like tax exemption, pre-Obergefell.

There’s been a lot of Sturm und Drang recently over what will happen to the tax exemptions of churches and religiously-affiliated schools that oppose same-sex marriage. The specter of loss of exemption has been bandied about, not just by tax-illiterate bloggers, but by major media sources. (Heck, I looked at the question prior to the decision.)

So could the church or BYU lose its tax exemption as a result of their policies on homosexuality? 

Yes.

But the U.S. could also remove the Free Exercise Clause from the First Amendment,[fn1] eliminate the Married Women’s Property Acts, or replace our federal income tax with a series of excise taxes.

Just because the government could, though, doesn’t mean that it’s likely. And, based on historical and current practice, revoking the church’s exemption is virtually impossible, and revoking BYU’s is tremendously unlikely. (Note that I don’t have time to break it down in-depth, so this will be a summary of why I find it unlikely.)

Public Policy and Revocation

First, a quick background: in its 1983 decision in Bob Jones University, the Supreme Court adopted the IRS’s theory that the common law of charitable trusts underlay tax exemption under section 501(c)(3). The common law had a public policy requirement: an organization that acted illegally or that violated a fundamental public policy couldn’t qualify as a charity, and therefore didn’t qualify for tax exemption.

Churches

I don’t think anybody seriously advances the idea that churches would lose their exemptions for discriminating against the LGBT community. But, lest anybody think they would, three words: Westboro Baptist Church. If any church violates fundamental public policies, it’s the WBC. And yet, it maintains its tax-exempt status.

Churches enjoy special constitutional and statutory protections. I don’t believe they have a constitutional right to exemption from tax but, once that exemption has been granted, I suspect that the Constitution would prevent the government from revoking their exemption based on their views.

Schools

BYU is a tougher question; in Bob Jones, the Supreme Court clearly held that religiously-affiliated schools can lose their tax exemptions if they violate a fundamental public policy.

Yet the public policy rule has only been used to revoke racially-discriminatory schools’ exemptions. It has not been used to revoke single-sex schools’ exemptions, for example. And we certainly have strong public policy opposing discrimination based on gender.

In fact, I’m not aware of any school losing its exemption for acting illegally. (And yes, schools do sometimes act illegally.)

Obergefell does nothing to change that dynamic.

Two counterarguments, and my response. One is the place of Loving (which disallowed anti-miscegination laws) in the Supreme Court’s Bob Jones decision. Couldn’t Obergefell play the same part in a future action as Loving did in Bob Jones?

Sure. But Loving merely allowed the Court to say that not permitting interracial relationships qualified as racial discrimination. (Bob Jones University had argued that the fact that they admitted African American students demonstrated that it didn’t discriminate.)

Loving did not, however, do any work in the case to demonstrate that there was, in fact, a fundamental public policy. Rather, it was a serious of cases that started with Brown v. Board of Education, a series of Executive actions working to desegregate schools, a long history of IRS action revoking discriminatory schools’ exemptions, and Congress’s explicit endorsement of the IRS’s position, not only by not reversing it, but by enacting section 501(i) (which carried the public policy rule on racial discrimination to tax-exempt nonprofit clubs). It took 30-ish years of concerted, serious effort by every branch of government for racial discrimination to land in the contrary to public policy basket.

The second is, what about public pressure? What about lawsuits to force the IRS to revoke the exemptions?

I can’t say that courts wouldn’t find that such discrimination violated a fundamental public policy, but the cases cannot get in front of the federal judiciary. Constitutional standing requirements stand in litigants’ way, as well as the Tax Anti-Injunction Act.[fn2]

That is, even if, say, the Human Rights Campaign wanted to get BYU’s tax exemption revoked (and n.b.: I have no reason to believe this is even on their radar, and sincerely doubt they do), there’s nothing they could do to make the courts force the IRS to revoke BYU’s tax exemption. It would have to come from the Executive or Legislative branch and, for a whole bunch of reasons, I doubt either would be amenable to such a change in the foreseeable future. Also, any such change would then be challengeable in court, so the enactment of such a change wouldn’t be a slam-dunk.

Conclusion, in Tl;dr Form

The church won’t lose its federal tax exemption, even if it continues to refuse to accept or perform same-sex marriages.

BYU could, but it is tremendously unlikely to. At the very least, the chances seem way too remote to waste time and effort worrying about.

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[fn1] And yes, I acknowledge that revoking BYU’s tax exemption is a lot more likely than getting rid of the Free Exercise Clause.

[fn2] Not to spend a ton of time on these legal impediments, but they’re very real, and I don’t know of a way to overcome them. I’ve written about them here and here.