Why Religious Organizations Shouldn't Lose Tax-Exempt Status Based on Public Policy, Post-Obergefell

Abstract

Since the U.S. Supreme Court issued its historic same-sex marriage decision in Obergefell v Hodges in June 2016, the question has been raised whether religiously-affiliated organizations could lose their Section 501(c)(3) tax-exempt status or not, based on the “fundamental public policy” doctrine as used in the Court’s 1983 decision in Bob Jones University v. United States. Several significant considerations come into play: the value and place of religious liberty freedoms within our country’s constitutional framework and shifting cultural context; the IRS’s role as arbiter of Section 501(c)(3) recognition; and the “tax subsidy” theory that accompanies tax-exempt status, particularly whether it should affect religious Section 501(c)(3) organizations. Underlying all of these considerations, and on which the Bob Jones decision rests at its core, is the “fundamental public policy” rationale for revoking tax-exempt status. To what extent should religious nonprofits’ tax-exempt status be affected by public policy questions related to why and how they carry out their activities, namely with respect to their sincerely held religious beliefs about sexuality that may run counter to views promoted by lesbian, gay, bisexual, transgender, and queer (LGBTQ) proponents? Should the IRS be completely viewpoint neutral, or engage in evaluation of an organization’s specific public benefit worthiness? This article responds to these questions by examining the charitable trust law principles underlying Bob Jones, the evolution of the term “charity” for Section 501(c)(3) tax code purposes, vital religious liberty interests at stake, and related tax policy aspects.