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? 


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.


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.


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.

[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.


  1. Sure enjoy your posts. Are you the son of my Home Teacher in Poway about 17 years ago?

  2. Very helpful thanks. Would a similar analysis apply to federal loans/grants for students attending BYU?

  3. ProvoCenterStreet says:

    Thanks for this. Can you do the same analysis on Accreditation? I don’t know anything about it, but people are saying its more likely that BYU lose accreditation and the ability to get federal funding than churches losing tax exempt status.

  4. Bruce, with the exception of college and my mission, I lived in Poway until 2000 or so, so it’s distinctly possible (though you could be thinking of my younger brother).

    Dave and ProvoCenterStreet, the questions of federal loans and accreditation are tremendously interesting, and, I suspect, more fraught than the question of tax exemption. Unfortunately, I know very little about either of those areas, though I would certainly love to hear from someone who’s familiar with the law and culture surrounding those questions.

  5. Sam, we lived in Poway 1978-1998. Our HT as Bro Brunson and he had a son, Sam. Guess it is you. How are your parents?

  6. thank you for a voice of reason, Sam

  7. Sam, I hope that you are right that no one will seek revocation of BYU’s tax exemption. However, there is much in the Obergefell opinion that suggests the court’s liberal wing would not be inclined to uphold BYU’s honor code.

    As has been widely reported, the issue of tax exemption for religiously sponsored universities came up in oral argument, so this was an issue the court was aware of and could have provided at least some dicta that would provide comfort on this issue. However, as Justice Roberts points out, the majority appears to take the position that advocates of traditional marriage have little more than free speech rights, rather than the broader rights of free exercise of religion: “The majority graciously suggests that religious believers may continue to “advocate” and “teach” their views of marriage. The First Amendment guarantees, however, the freedom to “exercise” religion. Ominously, that is not a word the majority uses.”

    As Justice Kennedy wrote for the majority, “[W]hen that sincere, personal opposition [to same-sex marriage] becomes enacted law and public policy, the necessary consequence is to put the imprimatur of the State itself on an exclusion that soon demeans or stigmatizes those whose own liberty is then denied.”

    Couldn’t the court easily state that, although BYU may have the right to “advocate” and “teach” whatever it chooses, continuing to confer tax-exempt status on BYU would constitute government approval of practices violating fundamental constitutional rights? I disagree with that argument, as I do with the overall rationale of Obergefell, but the majority opinion seems to invite that kind of challenge rather than preclude it.

  8. What about BYU being kicked out of the NCAA or lossing its accreditation status? Glad I never went there.

  9. Steve, like I said, there is legal risk for BYU (though I honestly think, based on Bob Jones, that we’re at least two or three decades away from any viable movement toward this, if it were to happen), but, as a practical matter, I think the risk is zero. Revoking exemptions would require an affirmative decision by the IRS, but the IRS has absolutely no incentive to make that decision. And, if it wants to be sure the decision would be upheld, it requires a lot more judicial and legislative actions than have happened up until now. And advocates can’t force the IRS to do anything. So, as a practical matter, the risk of BYU losing its tax exemption doesn’t strike me as worth spending time on, as long as there are other pressing issues in its world.

  10. I am not an accreditation expert, but I find it very unlikely that BYU would lose its accreditation over SSM. College accreditors are very reluctant to strip a school of its accreditation–even having a whole series of “fake classes” running for over a decade will only get a school put on probation (cough, UNC, cough). And BYU is hardly the only religious school in the country–no accrediting body is going to take a position that would bring them into conflict with, e.g., Notre Dame.

    Now, federal loans could be a trickier question, but again, that would potentially challenge quite a few other religious schools, and I don’t see the Federal government wanting to open that can of worms.

  11. n, I don’t think its actually possible to get kicked out of the NCAA–if Penn State was allowed to stay, then I think BYU is fine.

  12. Terry H says:

    Nepos. That may be true, but BYU (and the church’s “anti-gay” stance on this issue is a far more serious offense than serial and felony child sexual abuse. The PC police move on farther and faster every time we turn around.

  13. Terry, no offense, but that’s stupid. I suspect that Nepos is right, though here, Bob Jones doesn’t help us (its founder was apparently skeptical of accreditation, so it didn’t become accredited until 2011; at the same it, it dropped its anti-miscegenation policies in 2000).

  14. Michael says:

    I can easily see BYU having to bulldoze married student housing – if the school offers, for rent, housing services for hetero married couples, then it must do so for other couples.

    Take any long-term predictions about what might happen, and drop the time period one level. Think a change is ten years out? Try ten months. Lawyers will be actively shopping for people to stand up as plaintiffs in cases all over the country. A guy can marry his boyfriend, apply to BYU, get denied, go to court, and then have a lucrative gig as a keynote speaker all over the US as the man who bravely took down BYU and the LDS church. There’s any number of donors out there ready to contribute to the legal bills on such a case.

    I’d bet dollars to doughnuts that such a plan has already been in the works for five years.

  15. Michael, that’s possible, but it will not affect the school’s tax exemption. Neither the guy nor his boyfriend will have standing to force the IRS to revoke BYU’s exemption in court, and the supposed suit will be dismissed at the summary judgment stage. If, for some strange reason, the district court gets it wrong, it will be dismissed at the circuit court.

    Utah law does prohibit housing discrimination based on sexual orientation, but religious institutions (including BYU, presumably) are exempted. There’s no legal nondiscrimination law I’m aware of that would require BYU to admit or maintain a student who’s married to an individual of the same gender.

    Which is to say, it’s easy to assert that some clever lawyer will come around to challenge BYU’s behavior, but it’s a whole lot harder to figure out on what grounds he or she will maintain that suit. If you’ve thought of one, please feel free to share it. If not, though, you’re making unfounded accusations; you certainly may be right, but there’s no reason to believe you are.

  16. Sam, the Steve above is not me, Teh Steve, but I appreciate your patient responses to all Steves. I agree with you re: likeliness of loss of tax exemption, contests of the Honor Code in court, etc. It’s just not going to happen. Those scenarios are largely generated out of an ignorance of the law and how such cases operate.

    I do think, however, that there will be increased scrutiny on how the Church operates using powers granted to it from the State: marriages and adoptions come to mind. The Church’s ability to seal whomever it will cannot be questioned, but whether discriminatory organizations continue to have the ability to civilly marry may be questioned. We may be approaching a European perspective, where civil unions are out of the hands of the clergy as a general matter. Anyhoo, that’s my view. Whether that sort of thing would be constitutional is another question; I think it’s thorny but not impossible.

  17. Steve, I certainly think that’s a possible future, and, in many ways, it may be desirable, too. I don’t mean to encompass the whole world of consequences of Obergefell redounding to churches—it may impel some changes.

    My aim is much more modest: I merely want to point out that it is unlikely to have any consequence for churches, and, at least in the near- and medium-terms, on the tax exemptions of religiously-affiliated schools.

  18. I live in BYU’s married student housing. “We shall not be moved…” lol

  19. Sam, I am aware that revoking tax exemptions involves action by the IRS, but that is exactly what happened in the Bob Jones case. I fail to see any legal impediment to that occurring sooner than you forecast with respect to BYU and similar organizations. Depending on political winds and who is in the Oval Office, the IRS can be quick to adopt generous interpretations of the law in favor of same-sex unions, such as occurred in Rev. Rul. 2013-7 after the Windsor ruling. The problem is that BYU’s tax exemption and other benefits were once considered secure under the Constitution, and now, thanks to unfortunate language in Obergefell, they are potentially at risk by legislative or executive action. That is a disturbing development by itself.

  20. Steve, the short answer is, Bob Jones certainly was launched by the IRS, but only after a taxpayer suit had set it on the course of looking at (and revoking the exemptions of) racially-discriminatory schools. (I mention it about halfway through this post.)

    I don’t know the history of standingn requirements, but the standing the Mississippi parents enjoyed in 1970 wouldn’t fly today. So you don’t have the initial spark that launched this whole direction. Yes, the IRS can look at it on its own (though there are now more rules that limit the influence the president can have on the IRS), but what is its incentive? There’s not a lot of revenue at stake, nor is there a lot of popularity (especially in light of Tea Party-gate). So I just don’t see it happening, and history backs me up on that.

  21. Terry H says:

    Sam, perhaps I should have put (tic) on my comparison. Having said that, who would have thought that the issue would change so much in the last six years. The backlashes against those viewed as “anti-gay” has been tremendous. Just look at the Mozilla chief who had to resign. Just look at the issue as it played in Indiana. Sure, the IRS can move slowly when it wants, but as we’ve seen recently, politics has infected it to some degree and my belief is that this issue would be one where it would move quickly if it had marching orders. Just sayin’

  22. I suspect that based on the political leanings of the typical fed worker and the politicization of the IRS that Sam’s faith that the IRS is a non political actor esp against socially conservative institutions is misplaced.

  23. bbell, do you have any evidence supporting your intuition, or is it just an inchoate suspicion that the government is out to get conservatives? Because I presented history, policy, and law to support my assertion; if you disagree, I’d love to hear what you base your disagreement on. But if it’s just an imagined persecution complex, I’ll confess that I’m not at all interested. Like I said in the OP and at least once or twice since, it certainly could happen. But it’s also possible that tomorrow Obama will resign and the GOP will disband. Just because it could happen, though, doesn’t make it likely, nor does it mean that we should concern ourselves with it.

    I assert, based on law, history, and politics, that BYU’s loss of its tax exemption is highly unlikely; if you disagree, tell me why.

  24. bbell, what are the political leanings of the typical fed worker? What is your basis for that claim?

    What is your basis for claiming that the IRS is undergoing politicization? (the recent anecdote about one ‘liberal’ 501(c)(3) getting quick clearance is not exactly a trend). Do you have more of a basis?

    That said, the IRS is definitely a political actor. It is so, by definition. I don’t think Sam has argued otherwise. Your point — which (I guess) is that we should mistrust the IRS — isn’t particularly bothersome. Mistrust of government agencies is a time honored tradition and everyone should do it once in a while.

  25. Thanks for the reasoned analysis.
    Given the recent IRS scandal and history of email destruction I wager that public trust in them is rather low. As you probably know more about how IRS policies change perhaps here or another post you could outline why it seems unlikely to you. Or instead perhaps a post Re the revenue ruling and Windsor that (not that) Steve mentioned?

  26. lyle, I’ve laid out why it seems unlikely to me. But re: the revenue ruling and Windsor: I’m not sure what to say about Windsor; the Supreme Court held that section 3 (iirc) of DOMA was unconstitutional, meaning that the federal government had to recognize state marriages for federal purposes, even if the marriages were between two people of the same gender.

    The revenue ruling (which was actually before the Windsor ruling) allowed income-splitting in California domestic partnerships (which is different, actually, than recognizing domestic partnerships as marriage).

    Neither the Supreme Court’s nor the IRS’s decisions say anything about tax exemptions; the IRS, in fact, was providing a benefit to specific taxpayers; that’s a world away from creating a detriment for specific taxpayers (which a revocation would do).

    As for the IRS scandal: it’s grossly overblown, notwithstanding Darrell Issa. It was handled poorly (though, as a matter of law, the IRS was almost certainly correct). It’s also inapplicable—it involved the delay of granting tax-exempt status, not the revocation of tax-exempt status.

    The result of the scandal, though, is that the IRS has become even more gun-shy than it was before—the chances are much lower that it will stick its head out in addressing tax-exempts. After what happened to Lois Lerner, why would any IRS agent want to risk public outrage?

  27. Actually, I was thinking of the wrong revenue ruling; in Rev. Rul. 2013-17, the IRS performs one of its really important roles: it fills in the gaps where the law is ambiguous. After Windsor, the federal government had to recognize same-sex marriages. The tax law, written (naturally) before same-sex marriage existed, assumed that a marriage performed in one state would be recognized in others (because they were). Even when states started recognizing same-sex marriages, it didn’t matter for federal income tax purposes because DOMA prevented the federal government from recognizing marriages.

    Once Windsor got rid of that part of DOMA, though, there was a very real gap that needed to be filled: if a couple got married in a state that performed same-sex marriages, then moved to a state that didn’t recognize them, what did the federal goverment do about it? That is, did such couples file their returns as married, or as single? The IRS decided that it would look to the jurisdiction where the ceremony took place, not where the taxpayer currently lived.

    It may or may not have been the best decision (I’ve read people who argue both sides). It was, however, a necessary decision, and one that has no impact at all on the exempt status of religiously-affiliated schools.

  28. Thanks Sam. When it’s explained like that it seems fairly banal and non-threatening.

  29. This ruling actually labels the Gay community as a race in essence, re-review the ruling and will actually be responded to as such. There is a risk that private educating institutions will indeed in the future be at risk for loosing Federal funding etc, although a long road for it to happen. The national gay community have already stated two days after the decision that they are going after the tax exempt status of Churches and etc.

  30. Me, oh, but it doesn’t. Justice Kennedy did not import sexuality into the world of protected classes, though he easily could have. Instead, he focused on fundamental rights and equal protection. And even if he had, that wouldn’t change my calculus. Remember, gender and religion are also constitutionally-protected classes, but no school has lost its exemption for discrimination on those bases.

    Also, there is no “gay community” as such that operates as a single entity. Even if there were some group that wanted to target church and school exemptions, though, like I said in the OP, they would lack standing to do so. That is, as much as some outlier might want to see the losses of exemptions, that outlier can do nothing to cause the IRS to in fact revoke the exemptions.

  31. The UN just took over the Alamo today and several other sites in Texas, several days ahead of JADE HELM. I don’t think anyone will recognize America by the end of the year. Taxb Exempt status may be the least of your worries…

  32. Two Catholic and three Jewish Justices—two Californians and three New Yorkers, four of them graduates of Harvard and one a graduate of Yale—purported to discover a constitutional right to SSM that trumps every voter, every state constitutional amendment, and every legislature that disagrees and overrules every previous contrary precedent and public understanding, as if this was the obvious, if previously unnoticed or hidden meaning of the law and the constitution as it has existed since the Civil War. Lest anyone think this discovery a purely secular ruling, the majority opinion referenced spirituality, as if this was the purview of a secular court. This is now the way things are in the U.S. There is a new sheriff in town.

    The court and the political establishment are now adrift from the heritage of common law and from the generous, tolerant, and favorable religious and moral consensus that prevailed just 50 years ago before the cult of political correctness. They are now making things up as they go along in response to the Zeitgeist. Hence, down the road anything could happen based on who is wielding political power. It might take quite a while, and political forces might align in new and different directions, but logic, carefully argued legal briefs, and winsomeness will not prevail against raw judicial and political power. We should continue to be logical, careful, and winsome in our arguments, but we shouldn’t be niave about what the future might hold. Trust not in princes (Psalm 146:3).

%d bloggers like this: