Slate: Subsidized Injustice: Racist Fraternities and Sororities Should Have Their Tax-exempt Status Revoked, by David Herzig (Valparaiso) & Samuel Brunson (Loyola-Chicago):
The video of an inexcusable racist chant by members of the University of Oklahoma chapter of the Sigma Alpha Epsilon fraternity came as a shock to most viewers. The fraternity’s national headquarters acted swiftly to close the chapter, and the university quickly removed the fraternity from its campus. But the discussion seems to end there.
Treating this as an isolated incident, rather than as a symptom of a larger problem, is shortsighted. ... These incidents show structural inequities in the Greek system. ...
As tax law professors, we naturally see solutions through the prism of the tax law.
Policymakers often use the tax law to provide both carrots and sticks, encouraging certain societally beneficial behavior while deterring behavior we deem detrimental. With apparently endemic discrimination bubbling to the surface of Greek organizations, the tax law may be able to help nudge these organizations to either integrate or clearly signal their discriminatory tendency.
What does tax law have to do with discriminatory fraternities and sororities? All these Greek organizations have been granted tax-exempt status. The SAE chapter in Oklahoma files under the national SAE grant of tax-exemption. By granting a tax-exemption to the fraternity, we, as a society, are subsidizing actions we purport to despise.
If these actions are not societally acceptable, we should not be granting this tax benefit to the organizations. In 1983, the Supreme Court ruled that tax-exempt organizations could lose their tax-exempt status when their practices are contrary to a compelling public policy. One such policy is preventing racial discrimination. Under the Reagan administration, the IRS revoked Bob Jones University’s tax exemption because of its racially discriminatory policies, including not admitting black students. In Bob Jones University v. U.S., the university contested the IRS’s decision. The Supreme Court upheld the IRS’s revocation, deciding that, notwithstanding the university’s sincere interpretation of biblical mandates, the government’s “overriding interest in eradicating racial discrimination in education” outweighed any burden on the university from denial of tax-exempt status based on its exercise of its religious beliefs. ...
How can the tax law operate, then, to effect structural change? It can dangle the carrot of their tax exemption in front of them while, at the same time, threatening them with its loss if they do not eliminate discriminatory behavior. We would propose that the IRS begin sending letters to all Greek organizations putting them on notice that if they discriminate, their tax-exempt status will be revoked. They can retain their tax exemption if they demonstrate that they do not discriminate based on race. This provides Greek organizations with a choice. If they are willing to comply with the norms of society, then they can enjoy the benefit of their tax exemption. If they do not wish to conform, they can explicitly signal that desire by forgoing the public subsidy implicit in being exempt from taxation.