Losing Tax Exemption Because of Same-Sex Marriage Matters

By Raul Rivera

Many legal experts contend that there's a precedent in place today that would allow the IRS to revoke the tax-exempt status of organizations that oppose same-sex marriage. At the end of this post, I will present my opinion on whether the IRS will prevail, should it decide to revoke tax-exempt status from religious organizations opposed to same-sex marriage.

In 2015, the Supreme Court ruled in Obergefell v. Hodges that same-sex marriage is a right guaranteed by the Fourteenth Amendment to the United States Constitution, which ensures equal protection under the law. This decision invalidated state laws that excluded same-sex individuals from civil marriage on the same terms and conditions as opposite-sex couples.

Many legal minds are convinced that this case opened the door for the IRS to revoke the tax-exempt status of any organization that opposes same-sex marriage, even if their opposition is based on sincerely held religious beliefs. The question remains: How exactly does this case open that door?

To address this question, we need to consider another question posed by Justice Alito to the Solicitor General during the oral arguments of the Obergefell case. Then, we must examine the context of his question by going back to the year 1970.

Oral Arguments of the Obergefell Case

During oral arguments¹, Justice Alito asked the following question to Solicitor General, Donald B. Verrilli, Jr.

Historical Context

In 1970, a significant decision was made by the United States District Court in Washington, D.C. The court issued an injunction against the Secretary of the Treasury and the Commissioner of Internal Revenue (IRS), ordering them to cease providing tax-exempt status to private schools in Mississippi that were not admitting African American students. Following this court order, on November 30, 1970, the IRS notified Bob Jones University (BJU) that the IRS was revising its policy on tax exemptions. The notification included the IRS's plan to begin legal action aimed at revoking the tax-exempt status of private educational institutions with admissions policies that discriminated based on race. At this time, BJU maintained several racially discriminatory policies, including a ban on interracial dating and marriage among its students.

In 1971, the IRS issued Revenue Ruling 71-447², barring tax exemptions for private schools with racially discriminatory policies. Additionally, in 1975, the IRS published Revenue Ruling 75-231³, denying tax-exempt status to any religious institution that maintained racially discriminatory policies, even if that discrimination was based on sincerely held religious beliefs. This initiated a long battle between BJU and the IRS, resulting in the IRS revoking BJU’s tax-exempt status in 1976. For over a decade, the contest that began in 1971 between the two made its way through the courts, ultimately reaching the Supreme Court.

Bob Jones University v. United States

Before the Supreme Court, BJU contended that according to Section 501(c)(3) of the law, it was entitled to tax-exempt status because it met the religious standard as required by Section 501(c)(3). This section specifies that organizations that are exclusively religious, charitable, scientific, . . . or educational in their operations are eligible for tax-exempt status. However, the Supreme Court did not accept BJU’s interpretation. The Court clarified that to qualify for tax exemption, an institution must not only meet the specific criteria of being a religious organization listed in Section 501(c)(3) but also adhere to the broader common-law standards of serving a public purpose and aligning with the fundamental policy stances of the government.

The Supreme Court missed a good opportunity to eradicate racial discrimination without burdening religious freedom. Instead, the reasoning used in their ruling implies that while a church or ministry is allowed to be religious, it cannot publicly practice its religion if it conflicts with government policy.⁴

This is the precise reasoning Justice Alito referenced when he asked the Solicitor General during the 2015 Obergefell case whether a school or college that opposed same-sex marriage on the basis of sincerely held religious beliefs would lose their tax-exempt status.

The Solicitor General’s answer was very clear: “It’s certainly going to be an issue. I don't deny that. I don't deny that.”

Will Schools, Ministries, and Churches Really be Revoked?

It’s important to note that eradicating racially discriminatory policies is not only beneficial, but also morally right. However, the majority opinion in the Bob Jones case did not limit its scope to the matter of racial discrimination alone. Instead, it established a broader principle, granting the IRS the power to scrutinize and potentially challenge any practices that in the IRS’s view are inconsistent with the official policy positions of the government.

While many believe the ruling applies to only schools or colleges, others believe it has the potential to reach far beyond. The logic of the ruling can extend to churches and ministries, too. It asserts that when the government deems an interest to be significant, that interest takes precedence over any burden that losing tax-exempt status may impose on the exercise of religious beliefs.

At present, there appears to be sufficient legal precedent for IRS intervention. Yet, thus far, the IRS has chosen not to pursue this course of action.⁵ I believe it has to do with timing, the philosophical balance of the Supreme Court, and the influence of the Super Statute known as the Religious Freedom restoration Act (RFRA).

Timing, the Court, and the Super Statute

In 1993, Congress passed the RFRA. The law prohibits the federal government from substantially burdening a person's exercise of religion, even if the burden results from a rule of general applicability, except that the government may burden a person's exercise of religion only if it demonstrates that application of the burden to the individual: (1) furthers a compelling governmental interest, and (2) is the least restrictive means of furthering that compelling governmental interest.

In 2020, the Supreme Court delivered its opinion in Bostock v. Clayton County. The main issue in this case was whether Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination "because of... sex," also protects employees against discrimination on the basis of their sexual orientation and gender identity.

The Supreme Court ruled that Title VII's protections do indeed extend to gay and transgender employees, thus making it illegal for employers to discriminate based on sexual orientation or gender identity. Had the Supreme Court ruling stopped there, it would have been the last hurdle needed for the timing to be ripe for the IRS to take action. However, Neil Gorsuch, who wrote the majority opinion, took time to state that the Court was deeply concerned with preserving the promise of the free exercise of religion enshrined in the Constitution.

He pointed out that Congress provided protection to religiously motivated practice in the 1993 Religious Freedom Restoration Act (RFRA).  It prohibits the federal government from substantially burdening a person's exercise of religion unless it demonstrates that doing so both furthers a compelling governmental interest and represents the least restrictive means of furthering that interest.  He also went on to mention that the RFRA “operates as a kind of super statute” that displaces the normal operation of other federal laws and that, in appropriate cases, it might supersede the commands of Title VII.

Three years later, In July 2023, the Fifth Circuit, influenced by the Bostock decision, ruled in Braidwood Management v. Equal Employment Opportunity Commission that Title VII's prohibition against employment discrimination placed an excessive burden on employers' religious practices, including their right not to associate with individuals based on sexual orientation or gender identity.

In this case of first impressions, the court also found that the Equal Employment Opportunity Commission did not show a compelling interest in overriding an employers' religious and associative rights. It is important to note that Braidwood Management was a secular employer who, along with Bear Creek Bible Church, sued the Equal Employment Opportunity Commission.

Another question arises whether a church could get its tax-exempt status revoked for preaching that same-sex marriage is a sin. Thousands of churches in America believe that to preach the whole gospel, a church must teach the entire Bible, even the parts that may be challenging and address sin directly, including the teachings about same-sex marriage.

When considered alone, the Bob Jones case appears to make room for the IRS to revoke tax-exempt status for churches or schools that are publicly opposed to same-sex marriage. I believe that door is closed as numerous courts have delivered rulings akin to that of the United States District Court for the District of New Hampshire in Wooley v. Maynard that the right of 'freedom of thought, protected by the First Amendment against state action, includes both the right to speak freely and the right to refrain from speaking at all.'

This ruling was confirmed by the Supreme Court in multiple cases, such as Janus v. American Federation of State, County, & Municipal Employees, Council 31, and 303 Creative LLC v. Elenis. For example, in the 303 creative case, the main issue was whether the government could force a website designer to convey a message aligned with the state’s preferred public policy. The court ruled that the government could not compel someone, under threat of legal sanction, to express messages that align with state-endorsed policies. The right to speak freely is guaranteed by the 1^st amendment, and thus, speaking a message that does not align with public policy is protected speech.

As previously mentioned, the timing of judicial and legislative decisions may be pivotal in determining whether the tax-exempt status of schools, ministries, and churches will be revoked. The current composition of the Supreme Court seems inclined to consider the relationship between the First Amendment, which protects religious freedoms, and the Fourteenth Amendment, which ensures equal protection under the law. Although religious practices may sometimes conflict with government policies, the First Amendment and other existing laws often mandate exemptions to religiously motivated practice.

501(c)(3) Status is Still the Best Way

This article is not meant to discourage you.  I believe that the Church will always march in triumphant joy and success. Romans 14:17 reminds us that “the kingdom of God is not eating and drinking, but righteousness and peace and joy in the Holy Spirit.” No matter what happens, the good news of the gospel will continue to be preached.

The church has a bright future. I encourage you to continue in your good works. Start the church you know God put in your heart to launch. Build it on a solid legal foundation. At StartCHURCH, our call is to validate the call. Let us be the second call you make when starting a church. The first should be to your spouse, and the second should be to StartCHURCH. We will do all the heavy lifting when it comes to the legal paperwork. Do not hesitate to give us a call at 770-638-3444.

When Will the IRS Attempt to Act?

Will it happen anytime soon? I am inclined to say 'No.' I believe that if the IRS decided to revoke the tax-exempt status of schools, ministries, and churches today for their opposition to same-sex marriage on the basis of their religious beliefs, the current legal landscape, combined with the composition of the Supreme Court, would likely support the continued tax exemption of these religious organizations.

This support would be based on the plain language of Section 501(c)(3), recent case law precedents, the protections afforded by the First Amendment, and the Religious Freedom Restoration Act (RFRA).

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1. You can download the entire transcript of oral arguments at the Supreme Court Website at https://www.supremecourt.gov/oral_arguments/argument_transcripts/2014/14-556q1_l5gm.pdf

2. You can download Rev. Rul. 77-447 from the IRS website at https://www.irs.gov/pub/irs-tege/rr71-447.pdf

3. You can download Rev. Rul. 77-447 from the IRS website at  https://www.irs.gov/pub/irs-tege/rr75_231.pdf

4. This logic was addressed by Chief Justice Roberts in Obergefell v. Hodges, 576 U.S. 644, 711 (2015) (“The majority graciously suggests that religious believers may continue to "advocate" and "teach" their views of marriage. Ante, at 2607. The First Amendment guarantees, however, the freedom to "exercise " religion. Ominously, that is not a word the majority uses.”)

5. Following the Obergefell decision, both the IRS and the Department of Education have refrained from initiating legal actions concerning the matter. However, class action litigation on this issue has emerged from students against educational institutions, which is presently progressing through the judicial system. During the administrations of Presidents Obama and Trump, such issues were not litigated. The plain language of Title IX provides exemptions for faith-based educational entities, granting them the ability to self-regulate on issues such as same-sex marriage and gender identity, grounded in their religious beliefs.

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