What Is Caesar's, What Is God's: Fundamental Public Policy For Churches.

AuthorMayer, Lloyd Hitoshi

Bob Jones University v. United States is a highly debated Supreme Court decision, both regarding whether it was correct and what exactly it stands for, and a rarely applied one. Its recognition of a "fundamental public policy doctrine" that could cause an otherwise tax-exempt organization to lose its favorable federal tax status remains highly controversial, although the Court has shown no inclination to revisit the case, and Congress has shown no desire to change the underlying statutes to alter the case's result. That lack of action may be in part because the IRS applies the decision in relatively rare and narrow circumstances.

The mention of the decision during oral argument in Obergefell v. Hodges raised the specter of more vigorous and broader application of the doctrine, however. It renewed debate about what public policies other than avoiding racial discrimination in education might qualify as fundamental and also whether and to what extent the doctrine should apply to churches, as opposed to the religious schools involved in the original case. The IRS has taken the position that churches are no different than any other tax-exempt organizations in this context, although it has only denied or revoked the tax-exempt status of a handful of churches based on this doctrine.

The emergence of the Bob Jones University decision in the Obergefell oral argument renders consideration of these issues particularly timely, especially in light of developments over the past several decades both with respect to the legal status of churches and what arguably could be considered fundamental policy. This Article therefore explores whether there are emerging conflicts between a significant number of churches and what could be considered fundamental public policy, not only with respect to sexual orientation discrimination but also with respect to sex discrimination, sanctuary churches, and other areas. Finding that there are several current or likely future such conflicts, it then explores whether there are philosophical and legal grounds for treating churches differently from other tax-exempt organizations for purposes of applying the contrary-to-fundamental-public-policy doctrine and the related illegality doctrine. Drawing on both the longstanding concept of "sphere sovereignty" and emerging work in the area of First Amendment institutions, the Article concludes that churches should not be subject to the former doctrine, but that they still should be subject to loss of their tax benefits if they engage in or encourage significant criminal activity. The Article then concludes by applying this conclusion to the identified areas of current or likely future conflict to demonstrate how the IRS and the courts should apply the Bob Jones University decision to churches.

Table of Contents Introduction I. Churches and Bob Jones University A. The Case B. Subsequent Rulings and IRS Actions Involving Churches II. Churches and Fundamental Public Policy A. Why the Uniqueness of Racial Discrimination in Education Should Not Control B. Discrimination in Employment, Services, and Membership C. Protecting and Serving Undocumented Immigrants D. Other Possible Conflicts III. Churches and Taxes A. Existing Law B. Constitutional Reasons for Tax Benefits C. Policy Reasons for Tax Benefits IV. Why the Institutional Context Should Control A. Sphere Sovereignty B. First Amendment Institutions C. Churches Distinguished D. Defining "Church" V. Revisiting Churches and Bob Jones University A. Current Significant Conflicts B. Likely Future Significant Conflicts C. Limitations Conclusion Introduction

"Tell us then, what is your opinion? Is it right to pay the imperial tax to Caesar or not?" But Jesus, knowing their evil intent, said, "You hypocrites, why are you trying to trap me? Show me the coin used for paying the tax." They brought him a denarius, and he asked them, "Whose image is this? And whose inscription?" "Caesar's," they replied. Then he said to them, "So give back to Caesar what is Caesar's, and to God what is God's." (1) The relationship of churches and governments has a long and fraught history, including with respect to taxes. (2) Policymakers, church leaders, and various commentators have put forward numerous reasons both for and against preferential tax treatment for some or all churches. (3) And when governments provide such preferential tax treatment, as they often do, the issue then arises of what--if any--conditions can and should apply to such treatment.

More than thirty-five years ago the United States Supreme Court's decision in Bob Jones University v. United States4 sent shock waves through religious congregations even though the case itself involved religious schools and not churches. (5) This was because the case suggested that any organization, even a church, that was exempt from federal income tax as a "charity" and so also eligible to receive tax deductible charitable contributions, could lose those benefits if found to have an activity or purpose that was illegal or otherwise "contrary to a fundamental public policy." (6) The vagueness of the latter phrase, combined with the specter of the Internal Revenue Service making determinations regarding what constitutes fundamental public policy, only heightened the fear that the case could usher in new and intrusive IRS supervision of churches. (7)

However, reality did not come to reflect this fear. The IRS has sought to strip tax benefits from churches based on Bob Jones University or the doctrine that it established only five times: once related to one of the parties in Bob Jones University, three times for churches involved in illegal criminal activity, and once for an unapologetically racist church where the exact reasons for the revocation are unclear. (8) Indeed, the IRS has shown little interest in expanding the application of this case beyond situations involving either racial discrimination or significant illegal activity. (9)

Bob Jones University nevertheless remains good law, and the following exchange during oral argument in the Obergefell v. Hodges (10) same-sex marriage case reawakened the concerns of many religious organizations and leaders:

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 a college if it opposed same-sex marriage?

[SOLICITOR] 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-it is going to be an issue. (11)

This point was not lost on the dissenters in that case, who highlighted this possibility. (12) And it does not take much imagination to apply Solicitor General Verrilli's response to churches, many of which have strong positions opposing same-sex marriage. (13)

So to what extent does Bob Jones University, combined with changing views of what constitutes fundamental public policy, actually threaten the tax benefits enjoyed by churches? Part I of this Article considers what the Court actually decided in that case, including its (very limited) discussion of how its decision might apply to churches. Part I also reviews the few subsequent applications of that decision to churches by the IRS and the courts. Part II then identifies several existing and likely future conflicts between churches and fundamental public policy that the IRS and courts have yet to address. The remainder of this Article then explores how the IRS and courts should resolve these new conflicts. Part III begins this exploration by considering the extent to which churches enjoy preferential tax treatment in the United States, the reasons for such treatment, and the constitutional ramifications of that treatment, all of which could affect the application of Bob Jones University to churches. Part IV then explores the philosophical and legal basis for treating churches differently for tax purposes generally and with respect to application of Bob Jones University specifically. Finally, Part V pulls these strands together to provide a more complete answer to how Bob Jones University should apply to churches. While many other scholars have addressed the issues covered in the first four Parts, none have pulled together all of these various lines of thought to comprehensively consider how Bob Jones University should apply to churches in the twenty-first century.

Our conclusion is that churches should be at risk of losing their federal tax benefits only if they engage in significant criminal activities and not if their activities or purposes are only contrary to fundamental public policy. The reason for this limitation on the application of Bob Jones University is that the tax benefits for churches are based not only on a quid pro quo theory--that the societal benefits they provide are sufficient to justify those tax benefits--but also on a "soft sovereignty" theory that grants them significant autonomy from the government, including with respect to taxes, in recognition of their distinct role in society. The legal bases for this soft sovereignty approach are the First Amendment's Religion Clauses and the need for governments generally to avoid both substantially burdening religious exercise and undue entanglement with religious institutions. However, given both the continued viability of Bob Jones University and other considerations discussed below, this limited application applies only to churches and not to other religious organizations, such as the religious schools in the Bob Jones University case. And since churches are not co-equal sovereigns with the government and so are not above the law, in the rare instances where it is conclusively shown that a church is engaging in substantial criminal activities that demonstrate a significant criminal purpose, the...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT