INTRODUCTION I. BOB JONES AND THE PUBLIC POLICY DOCTRINE II. WHY THE PUBLIC POLICY DOCTRINE SHOULD BE CONSTRUED NARROWLY A. Appreciating the Fundament Requirement B. Promoting Fair Notice and Doctrinal Clarity C. Limiting Administrative Discretion D. Ensuring the Diversity of the Nonprofit Sector E. Narrowly Formulating the Public Policy Doctrine to Safeguard Core Public Policy Objectives III. WHY THE PUBLIC POLICY DOCTRINE DOES NOT JEOPARDIZE THE TAX EXEMPTION OF RELIGIOUS SCHOOLS AFTER OBERGEFELL A. Obergefell v. Hodges B. Obergefell and the Public Policy Doctrine Framework C. The Broader Dissimilarities between Obergefell and Bob Jones IV. CONCLUSION INTRODUCTION
Do two decisions of the highest court in the land jeopardize the federal income tax exemption of private schools that adhere to canonical principles of sexual morality widely embraced for millennia in their religious traditions? Answering this question requires reflection on the scope of charity, principles of the rule of law, unfolding constitutional doctrine, and the competence of the agency charged with administering federal tax laws. Merely formulating an approach to answering this question has far-reaching implications for the law of tax-exempt organizations.
The two decisions that take center stage in the theatrical presentation of this question are Bob Jones University v. United States (1) and Obergefell v. Hodges. (2) The issue in Bob Jones was whether two schools were entitled to exemption from federal income taxation by virtue of being "organized and operated exclusively for religious, charitable ... or educational purposes" under section 501(c)(3) of the Internal Revenue Code ("the Code"). (3) Each school maintained some type of racially discriminatory policy as to students. Bob Jones University prohibited interracial dating and marriage among its students and refused to admit applicants who had married interracially or who advocated interracial dating or marriage. (4) Goldsboro Christian Schools admitted only persons of Caucasian descent. The Internal Revenue Service ("IRS") revoked the schools' federal tax exemptions. Approving of the IRS's position on racially discriminatory schools, (5) the Court held that neither school qualified for exemption from federal income taxation as an organization described in Code section 501(c)(3) because the racially discriminatory policy of each school violated established public policy. (6)
In Obergefell, the Supreme Court held that the right to marry is a fundamental right inherent in the liberty of a person, and under the Due Process and Equal Protection Clauses of the Fourteenth Amendment same-sex couples may exercise this fundamental right. (7) Accordingly, the Court invalidated state laws that excluded same-sex couples from civil marriage on the same terms and conditions as opposite-sex couples. (8) Further, the Court held that a state may not refuse to recognize a lawful same-sex marriage performed in another state on the ground of its same-sex character. (9)
How do these two Supreme Court cases interrelate in evaluating the federal income tax exemption of charities, especially religious schools? The very question surfaced at oral argument in Obergefell, in the following exchange between Justice Samuel Alito and Solicitor General Donald B. Verrilli, Jr.:
JUSTICE ALITO: 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 college if it opposed same sex marriage?
GENERAL VERRILLI: 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 going to be an issue. (10)
"It is going to be an issue," proclaimed the United States Solicitor General. (11) This ominous concession of Solicitor General Verrilli is surely on the minds of the students, faculty, administrators, overseers, and other stakeholders of private religious schools. Based on Biblical teaching and its interpretation within their religious traditions, many of these schools have long believed that premarital and extra-marital sexual activity is sinful and that God's view of marriage requires a union between a biological male and a biological female. Numerous schools require students or faculty (or both) to adhere to a code of conduct that reflects this religious conviction. Exactly how many private secondary schools, colleges, universities, and seminaries maintain such sexual conduct policies is unknown. That this number is high, however, finds support in recent disclosures by the United States Department of Education ("DOE"), (12) which has identified well over 200 religious colleges that have sought and received exemptions under Title IX of the Education Amendments of 1972. (13) The universe of educational institutions with such policies is likely much larger, for the DOE disclosures do not include institutions that receive no federal assistance (for example, private elementary and secondary schools).
Requests for Title IX exemption (14) made publicly available by the DOE reveal the seriousness with which many private schools hold their religious convictions on sexual conduct and marriage. Consider the exemption request submitted by the President of Covenant College. (15) The letter explains that the college is an agency of the Presbyterian Church in America (PCA) and is governed by a board elected by the PCA's General Assembly. After affirming the college's adherence to the Bible and its doctrine as expressed in the Westminster Confession of Faith (16) and the Westminster Larger (17) and Shorter Catechisms, (18) the letter states that the college bas developed a Statement on Sexual Identity and Conduct. The Statement posits that gender is a divine gift from the Creator, not a cultural construct, and that marriage between one man and one woman is "the only proper context for all sexual relations." (19) Actions inconsistent with this understanding, warns the Statement, "will result in disciplinary follow up." (20) The college sought acknowledgment of its exemption from Title IX to the extent that any DOE interpretations thereof would otherwise impede the college from responding in accordance with its theologically-grounded convictions to transgenderism or homosexual conduct. (21) The DOE's Office of Civil Rights promptly acknowledged the college's exemption from Title IX for the reasons requested. (22)
As of the publication of this Article, the DOE has not interpreted sex discrimination under Title IX to include disciplinary action for engaging in sexual relations outside the context of heterosexual monogamy. (23) Should the DOE's interpretation of sex discrimination evolve to include such action, Title IX's religious exemption would surely protect those religious schools that qualify under its terms. (24) But whether Title IX's religious accommodation protects a school acting in accordance with its religious tenets from an IRS attack under the public policy doctrine of Bob Jones has not been tested in the courts. Additionally, as illustrated in the exchange between Justice Alito and Solicitor General Verrilli, courts must now think through Obergefell's implications for the tax exemption of religious schools.
The IRS is currently taking the position that Obergefell and Bob Jones do not in tandem jeopardize the federal income tax exemption of religious schools maintaining sexual conduct policies. In response to an inquiry from then-Oklahoma Attorney General Scott Pruitt, (25) IRS Commissioner John Koskinen ad dressed the impact of Obergefell on tax-exempt organizations. (26) According to Commissioner Koskinen, the IRS does not believe that Obergefell has "changed the law applicable to section 501(c)(3) determinations or examinations," and thus the IRS will not "change existing standards in reviewing applications for recognition of exemption under section 501(c)(3) or in examining the qualification of section 501(c)(3) organizations." (27) Of course, the position of the IRS might change, as it did with respect to the admissions policies of schools such as Bob Jones University. Indeed, Chief Justice John Roberts anticipates that the Court will eventually face the issue of whether religious schools that oppose same-sex marriage can remain tax-exempt. (28) He is not alone. (29)
This Article thoroughly analyzes this important and timely issue. (30) In doing so, this Article reflects a conscious decision to limit the scope of its inquiries. First, this Article offers no independent analysis of the merits of Obergefell. (31) The Article takes Obergefell as the Supreme Court has handed it down, not as critics or supporters of the decision might have preferred the opinion to have been written. Accordingly, this article offers neither criticisms nor accolades of the Obergefell opinion and assumes for purposes of analyzing the issue under consideration that the majority opinion in Obergefell means what it says.
Second, this Article refrains from critiquing the premise of Bob Jones that the federal income tax exemption of every type of organization described in Code section 501(c)(3) and the charitable contributions deduction of Code section 170 constitute an indirect but purposeful governmental subsidy. (32) The premise is debatable. (33) However, because subsidy theories of Code sections 501(c)(3) and 170(c) are held by many, (34) including numerous academic commentators (35) and some United States Supreme Court Justices, (36) this Article analyzes the application of the public policy doctrine to religious schools under the assumption that a court examining the issue would embrace some type of subsidy theory.
Third, this Article abstains from disputing that Congress has the authority to condition federal income tax exemption on a charity's compliance with various...