Most people are aware that a church or religious organization can lose its tax exempt status for engaging in partisan political activity, like endorsing a political candidate. What many aren’t aware of, though, is that the same can happen for engaging in behavior contrary to government policy. Tax exemption is a privilege, not a right.
This might seem unfair to people because it means that a public benefit, in this case tax-exempt status, is conditioned on agreeing with the government. This is a sound criticism but it is not one that the Supreme Court has accepted. The entire concept of a charitable tax exemption is based upon the idea that a charity provides a public benefit which, if stopped, the state might have to provide instead. Thus, granting a tax exemption to a charity encourages them to do something which saves the government time and money.
This does not hold, however, when a non-profit organization is doing something contrary to fundamental policies. On the contrary, the actions of such an organization might end up costing the government time and money in order to counteract their efforts. So why designate them a charity under the pretense that they are providing a public service at the same time? This is the government’s position and the courts have accepted it.
In 1971, the Supreme Court upheld in Coit v. Green an IRS decision to revoke the tax exempt status of private schools in Mississippi that excluded black students from enrolling. According to the Court, charitable trusts (whether for the purpose of education, religion, or the relief of poverty) are created to “serve the general welfare†and are expected to be “beneficial to the community.†Would a school for pickpockets “serve the general welfare†such that the IRS would be forced to grant them tax-exempt status? Of course not â€" so why should a school that engages in and promotes racial discrimination be different?
This was the same reasoning used in the Supreme Court’s decision to uphold the revocation of Bob Jones University’s tax-exempt status. According to Chief Justice Warren Burger, the reason why charitable organizations’ tax exemptions are predicated upon serving general community interests is the fact that when such exemptions are granted, “all taxpayers are affected; the very fact of the exemption or deduction for the donor means that other taxpayers can be said to be indirect and vicarious “donors.†“
The meaning of these two decision is that charitable exemptions are justified solely on the basis that when an organization is given an exemption, that organization is providing a public benefit and that the organization is not “so at odds with the common community conscience as to undermine any public benefit that might otherwise be conferred.â€
This has potentially serious consequences for churches and other organizations with religiously based tax exemptions if they insist on fighting social changes in active ways like the above schools did. There might come a time, for example, when private religious schools that discriminate against gay students could suffer the same consequences as schools that discriminated against blacks did. It isn’t possible to defend the former without also allowing the latter, and court precedent makes it clear that a charitable tax-exempt status is a privilege which can be taken away when the “charitable†function is no longer being fulfilled.
This doesn’t mean that traditionalist churches are out of luck â€" after all, religiously based and charitable tax-exempt status are not the only options. There are other means for getting tax exemptions. The difference is that they aren’t as easy to obtain and it means that these churches would be put in the same position as a secular organization, hardly a terrible thing.
Moreover, there is no precedent for removing a church’s tax exempt status merely for preaching something like racism or discrimination; instead, what is needed is for a religious organization to practice discrimination. Charities, religious or secular, are tax-exempt if they provide a service to the community; thus, inappropriate discrimination as to whom they help can justifiably lead to their losing their “charitable†status.
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