Will Christian Colleges (And Law Schools) Lose Their Tax Exemption After Obergefell?

Following up on my previous post, Will Supreme Court's Same-Sex Marriage Decision Cost BYU Its Tax Exemption?:  Inside Higher Ed, The Supreme Court Ruling and Christian Colleges:

Friday's Supreme Court decision that states must authorize and recognize gay and lesbian marriages could create major legal challenges for religious colleges -- primarily evangelical Christian colleges that bar same-sex relationships among students and faculty members. Or the decision may not create much of a legal challenge at all. Or it may create challenges, but not soon.

Legal experts are divided. But the question of whether same-sex marriage as a national right changes the legal status of Christian colleges is no longer just theoretical.

For the majority of colleges that do not bar same-sex relationships, the decision won't change very much, or may simplify things. Many colleges and universities embrace the same-sex partnerships or marriages of their students and employees, and accord them the same benefits as straight couples. In states without same-sex marriage rights, many colleges have offered or tried to offer domestic partner benefits (which some state governments by legislation or political influence have blocked at public institutions). Colleges that were not comfortable offering health insurance to employees when not all employees could get marital or family coverage no longer face that prospect, as everyone has equal marriage rights.

Not all religious colleges -- even those from faiths that oppose same-sex marriage -- may be affected by the Supreme Court's decision. The Roman Catholic Church, for example, is a vocal opponent of same-sex marriage. But Roman Catholic colleges do not bar people in same-sex relationships from enrolling or being hired. And as states have recognized same-sex marriage, many Catholic colleges, such as the University of Notre Dame, have extended health and other benefits to the gay and lesbian partners of employees. As a result of such policies, Catholic colleges are unlikely targets for those who want religious colleges to fully respect gay and lesbian marriages.

But that is not the case for many Christian evangelical colleges, the vast majority of which bar students and faculty members from having gay or lesbian relationships.

And those colleges, some legal experts believe, may now face challenges to their tax-exempt status or other government benefits. "Private institutions that dissent from today's reformulation of marriage must be prepared for aggressive legal attacks on all fronts," said Michael W. McConnell, the Richard and Frances Mallery Professor and director of the Constitutional Law Center at Stanford University Law School.

The Internal Revenue Service grants tax-exempt and charitable status to colleges and other nonprofit organizations with a range of views on many issues, including issues of faith. Generally, there is a high bar for the IRS to deny such status to a nonprofit college, but a precedent involving Bob Jones University illustrates to some legal observers how Christian colleges' tax status could be challenged now.

In 1970, the Internal Revenue Service adopted a policy that it would not grant tax-exempt status to private schools and colleges that engaged in racial discrimination, saying that as a matter of public policy, such groups could not be viewed as "charitable." That ruling led to a series of disputes with Bob Jones University, which barred the admission of any applicants in an interracial marriage or dating relationship, or who advocated interracial marriage. (Single black students who did not date or marry anyone who was not black were permitted to enroll.) The IRS found these policies to be racially discriminatory and revoked the tax-exempt status of the university.

Bob Jones sued on the grounds that its policies were based on its religious views, and thus should be protected. But in 1982, the U.S. Supreme Court ruled that the IRS was within its rights. ...

The view that the Supreme Court's decision could result in challenges to Christian colleges' tax exemptions extends to critics of their policies.

Michael A. Olivas, director of the Institute for Higher Education Law and Governance at the University of Houston and author of The Law and Higher Education, said that the Supreme Court ruling should prompt Christian colleges to rethink their policies. "In an area of social change that is as well defined as this issue is, why would any college want to violate the law by banning relationships that are not only legal, but if they led to marriage would be legal and recognizable in every jurisdiction in the country?" he asked

Olivas said that this issue will likely play out as the Bob Jones case did. The policies Bob Jones defended were once reflected by public policy, and so are the policies Christian colleges are defending. But public policy changed in both instances, he said.

"It is one thing to premise behavior bans on what was illegal at one time," he said, noting that Bob Jones's policies against interracial dating were once consistent with South Carolina law. "But if you liken this historical period to that one, it is clear that public policy has changed with regard to the underlying illegality or inability to effectuate a marriage as same sex. That is no longer a shield," he said.

Olivas said he could see a "small" exemption for seminaries that train clergy, but not for most Christian colleges that train undergraduates and students for a variety of careers other than becoming a member of the clergy. For most religious institutions, he said, they would need to renounce tax exemptions to maintain their policies. "They can't have it both ways," he said. ...

Rod Smolla, who starts this week as the dean of Widener University Delaware Law School and is the author of The Constitution Goes to College, said he could see legal challenges for Christian colleges, but that the process would be a long one and they may have protections that were not available to Bob Jones, he said.

Smolla noted that nothing would happen quickly, as the IRS would need to adopt a policy about colleges that don't treat gay people equally and state tax agencies would have to do the same. That is "a policy and political decision," he said, adding that it is "difficult to know whether government agencies would take that step, or just leave nonprofits alone on this issue, at least in the near future."

Then, if the IRS did so, and challenged tax exemptions, Smolla said that litigation would likely result. In that litigation, he said, Christian colleges would likely cite the Religious Freedom Restoration Act (a federal law that many states have versions of, designed to prevent government actions that would force religious people or organizations to violate their beliefs). That law was enacted in 1993, so it was not something Bob Jones could cite. Smolla said that cases involving the act "have been extremely close," so it's hard to predict if it would shift courts away from the precedent involving Bob Jones.

As a result of all of these factors, he said, government is likely to "go slow" in questioning Christian colleges' tax-exempt status.

Olivas of the University of Houston acknowledged this possibility, but predicted that the issue will eventually be addressed. "There is a tension, to be sure, if colleges try and carve out such enclaves and evade their obligations, such as has been happening with some religious colleges that do not want to implement" the new health care law. "The administration has treated them gingerly, but at some point, the outlier colleges will not accommodate or yield. Then, the cases will carve out a common law. But this is dangerous ground, and they will have to act carefully. If it is a clash, it will have to be addressed by the courts."

• Baltimore Sun, Religious Colleges Concerned About Losing Tax-exempt Status
• The Blaze, Will Churches Lose Their Tax-Exempt Status in the Wake of the Supreme Court’s Gay Marriage Ruling?
• Breitbart, Time Magazine: After Gay Marriage Victory, Kill ‘Tax Exemptions for Religious Institutions’
• Fusion, Does Your Church Ban Gay Marriage? Then It Should Start Paying Taxes
• Inside Higher Ed, Baylor Drops Policy Reference to 'Homosexual Acts'
• New York Times, Schools Fear Gay Marriage Ruling Could End Tax Exemptions
• Time, Now’s the Time To End Tax Exemptions for Religious Institutions, by Mark Oppenheimer
• Time, Orthodox Christians Must Now Learn To Live as Exiles in Our Own Country, by Rod Dreher
• Time, Why Conservatives Are Nervous About Church Tax Breaks, by Sam Frizell
• Town Hall, It Begins: New Calls To Strip Churches of Tax Exempt Status After Same-Sex Marriage Ruling
• University World News, Gay Marriage Ruling Puts Christian Colleges on Edge

Canadian Lawyer Magazine, Ontario Court Upholds LSUC’s Denial of TWU Accreditation:

The Ontario Divisional Court has upheld a decision by the Law Society of Upper Canada not to accredit Trinity Western University’s planned law school.

LSUC benchers voted in April 2014 not to accredit the law school proposed by TWU, a British Columbia-based evangelical Christian university, because of its community covenant that asks students to refrain from “sexual intimacy that violates the sacredness of marriage between a man and a woman,” a stipulation critics argue is discriminatory against LGBTQ individuals. But the university appealed to Divisional Court for a judicial review of the law society’s decision.

The three-person Divisional Court panel, however, agreed that TWU’s policy was discriminatory. ...

To attend the law school, TWU students “must sign a document in which they agree to essentially bury a crucial component of their very identity” since “it is accepted that sexual conduct is an integral part of a person’s very identity,” it says.

But the LSUC’s decision not to accredit TWU’s law school has less of an impact on religious rights than it does on the university’s ability to make money, the judges ruled.

Refusing accreditation to the school, the decision states, “does not, in fact, preclude TWU from opening a law school,” despite TWU’s argument that it would not open the school without accreditation from LSUC, and “while . . . there is a degree of interference with religious beliefs, should that result occur . . . the motivating force not to open the law school appears to be more economic than it is religious.

“What TWU would then be essentially saying is that it not only wishes to operate its law school in a particular way in order to advance its religious beliefs, but that it will only do so if it is guaranteed access to the single largest market for law school graduates.” ...

In a news release, TWU said it planned to appeal the decision as soon as possible. “The Court’s finding that there has been a breach of religious freedom rights in this case is critically important,” said TWU spokesman Guy Saffold. “The court’s ultimate decision against TWU is starkly at odds with the Supreme Court of Canada’s 2001 decision directing approval of TWU’s teacher education program. It points a knife at the freedom of faith communities across Canada to hold and practise their beliefs.”

• Catholic World News, Ontario High Court Upholds Decision Denying Accreditation to Christian Law School
• CBC News, Trinity Western Law School Accreditation Denial Upheld by Ontario Court
• Daily Caller, Canada Court Rules Right To Gay Sex Trumps Religious Liberty
• Globe and Mail, Ontario Law Society’s Decision to Refuse Trinity Western Accreditation Upheld
• Toronto Star, Ontario Court Upholds Law Society’s Decision Not to Accredit Trinity Western University
• Vancouver Sun, Trinity Western’s Planned Law School Takes Another Hit; Ontario Supreme Court Upholds Law Society’s Right to Deny Accreditation

Prior TaxProf Blog coverage:

• Deans Oppose Canada's First Christian Law School (Jan. 19, 2013)
• An Argument for a Christian Law School in Canada (Aug. 4, 2013)
• Canada Approves First Christian Law School Despite Opposition Over Student Code of Conduct Prohibiting Gay 'Sexual Intimacy' (Dec. 20, 2013)
• Legal Education, Religious and Secular: The Trinity Western University Controversy and Beyond (June 1, 2014)
• Legal Education, Gay Rights and Religion: Living by a Different Law (Nov. 9, 2014)
• Canada's First Christian Law School Sues Over Denial of Accreditation Due to Student Code of Conduct (Dec. 25, 2014)