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Could Faith-Based Schools Lose Tax Exempt Status for Policies Prohibiting Same-Sex Marriage?

This summer the U.S. Supreme Court legalized same-sex marriage in the landmark decision Obergefell v. Hodges (2015). In a 5-4 decision, a sharply divided Court found that the Fourteenth Amendment now protects the rights of same-sex couples to marry in all 50 states. Gays and lesbians now have a Constitutionally-protected right to marry, a right that has been sought after for decades. The immediate effect of the decision was to invalidate state law bans on same-sex marriage.

While Obergefell was limited to states with laws prohibiting same-sex marriage, some experts believe the ripple effect of this decision will have a significant impact on private religious organizations. The decision sent shock waves through many faith-based institutions that oppose same-sex marriage for religious reasons. There is major concern among these institutions that the recognition of same-sex marriage as a fundamental right under the Fourteenth Amendment could result in new federal and state antidiscrimination laws that conflict with religious doctrine.

In the wake of the Obergefell decision, religiously affiliated schools, colleges and universities are inundated with questions. Will religious institutions be required to provide medical benefits to an employee’s same-sex spouse? Will institutional policies prohibiting homosexuality and same-sex marriage be subject to antidiscrimination laws? Must student housing be offered to same-sex married couples? Perhaps the biggest question is whether religious organization that oppose same-sex marriage lose their tax exempt status?

Congress and the Supreme Court have traditionally recognized that religious institutions are “exempt” from certain federal laws that conflict with religious doctrine. One of the primary goals of religious exceptions is to prevent excessive governmental entanglement with religion. For example, during the Prohibition Era, religions that used wine for sacramental purposes, such as the Catholic Church, were granted religious exemptions. Likewise, Title VII of the Civil Rights Act allows faith-based organizations to discriminate in certain employment decisions based on religion. However, the First Amendment’s protection of religious expression does not give faith-based organizations a blank check to discriminate.

In Bob Jones University v. United States (1983), the U.S. Supreme Court assessed whether the IRS could remove a religiously-affiliated university’s tax-exempt status for implementing racially discriminatory policies. Bob Jones University had a policy that prohibited interracial dating and interracial marriage. The university argued that its discriminatory practices were based on “sincerely held religious beliefs.” The Court did not agree, finding that there are certain “governmental interests” that are so compelling that the government may justify a limitation on religious liberties. According to the Court, prohibiting race discrimination was a governmental interests that essentially trumped religious liberty.

Immediately following the Obergefell decision, many religiously-affiliated institutions have expressed concerned that the Supreme Court’s holding Bob Jones University could be used by the IRS to remove their tax exempt status. In fact, this issue was specifically brought up during oral arguments in Obergefell. Justice Samuel Alito asked Solicitor General Donald Verrilli, Jr., the attorney representing the Obama Administration, whether a college would lose its tax exempt status if it opposed same sex marriage. Verrilli responded, “I don’t think I can answer that question without knowing more specifics,” he said, “but it’s certainly going to be an issue. I don’t deny that. I don’t deny that, Justice Alito. It is going to be an issue.”

Recently, the IRS Commissioner, John Koskinen, told a Senate subcommittee that “at this time” there is no basis for the IRS to revisit tax-exempt status of institutions that oppose same-sex marriage. Koskinen did not however completely rule out a possible change in the future. He noted that if there were any proposed changes to exemption status, the changes would be open for public and that there would not be surprises.

In the short-term, there appears to be little risk that religious schools will lose their tax exempt status for opposing homosexuality and same-sex marriage. However, long-term projections are uncertain. The current LGBT movement has been compared to the civil rights movement for racial equality that occurred in the 1960’s. Some LGBT advocates believe gay rights are the new civil rights. There is an obvious analogue between the advancement of gay rights and civil rights; particularly in the use of the judicial system to effectuate change.

Race is clearly a protected class under federal and state law. In Bob Jones University, the Court noted that eliminating racial discrimination is “a most fundamental national public policy,” one endorsed by “all three branches of federal government.” The question becomes has gay rights become a “fundamental national public policy.” Most legal scholars agree that gay rights has not achieved this status. Sexual orientation is not a protected class under federal law, although a growing number of states and municipalities are including sexual orientation as a protected class. However, now that right to same-sex marriage has become a fundamental right protected under the U.S. Constitution, it would appear that gay rights is rapidly moving toward a fundamental nation public policy.

It is yet to be seen what effect, if any, Obergefell will have on religiously-affiliated schools. Many of the issues surrounding the intersection of gay rights and religious liberties will likely begin to make their way through the courts in the coming years.

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