Tuesday, June 30, 2015

Same-Sex Weddings v. Tax Exempt Status

Someone asked me recently, “Do you think churches will lose their tax-exempt status if they refuse to witness same-sex marriages?”

I answered, “I don’t know, but I’m convinced that the tax-exempt status will be challenged on that grounds.”

From what I understand, the Internal Revenue Code in section 501 (c) (3) has for decades exempted churches if they are “organized and operated exclusively for exempt purposes” and if none of its revenues “inure to any private shareholders or individual.”

Another provision, however, was added in 1954 when Senator Lyndon B. Johnson successfully pushed for an amendment to the code which prohibited tax-exempt organizations from endorsing or opposing political candidates. This Johnson Amendment means churches may not engage in political activities without risking the loss of their tax exempt status. In effect the IRS is permitted to censor a pastor’s sermon.

Loss of the tax-exempt status would mean that churches would have to pay taxes on their income, and donors could no longer declare their contributions as deductions on their tax returns. Title 26 USC #170 allows deductions for federal income tax purposes for some donors who make charitable contributions to most 501 (c) (3) organizations. That deduction could be eliminated for donors who contribute to churches refusing gay weddings.

The loss of the tax-exempt classification could challenge a church’s continued operation. Loss of tax-exemption would likely result in reduction of salaries for church staffs and church schools --any employee from music directors to youth ministers, from principals to teachers’ aides.

The tax-exempt status for churches was granted in light of the so-called “separation of church and state” concept in the First Amendment.

In 1970 the U.S. Supreme Court ruled on an appeal from a property owner who wanted to prevent the New York City Tax Commission from giving tax exemption to religious organizations. In the Walz v. Tax Commission of the City of New York casethe court ruled that granting such exemptions “tends to complement and reinforce the desired separation insulating each from the other.” The basic issue before the court was whether tax-exemption could be construed as the establishment of religion, thus violating the First Amendment. Some were arguing that granting tax-exempt status was in fact "establishing" religion.

The court in deciding this case acknowledged that the establishment clause of the First Amendment was not precisely drawn, that its purpose was to establish an objective not to write a statute. For this reason the court’s opinions are formulated on a case-by-case basis. The court upheld New York.

In 1819 Chief Justice John Marshall had made the observation that “the power to tax involves the power to destroy” –an argument he used in the McCulloch v. Maryland case over whether states or other forms of local government could by taxation impede the implementation of constitutional laws enacted by the Federal Congress. The court decided that states could not tax the Federal government nor impede Federal legislation.

The issue of freedom of religion and the observation that “the power to tax involves the power to destroy” may be pertinent in deciding whether the IRS could revoke tax-exempt status from churches which reject same-sex marriage.

In 1983 the U. S. Supreme Court decision in the case of Bob Jones University v. United States ruled that the Internal Revenue Service could legally revoke the tax-exempt classification of a religious university if that university’s practices were contrary to compelling public policy, which in this case was the university’s policy that single Black students could not be involved in interracial dating nor advocate interracial  marriage.

When the IRS revoked the university’s tax-exempt status, the case ended up in the U.S. Supreme Court. In an 8-1 decision, the court declared that that there was a common law/public interest requirement in the IRS statute granting tax-exemption and that the university’s policy violated that statute. Chief Justice Burger said that “the Government has a fundamental, overriding interest in eradicating racial discrimination in education…which substantially outweighs whatever burden of denial of tax exemption places on (Bob Jones University’s) exercise of their religious beliefs.”

The court held that “Whatever may be the rationale for such private school’s policies, racial discrimination in education is contrary to public policy. Racially discriminatory educational institutions cannot be viewed as conferring a public benefit within the above ‘charitable’ concept or within the congressional intent underlying 501 (c) (3).”

The Court did clarify that in this opinion the court had dealt only with religious schools and not with churches or purely religious institutions, but in today’s climate could a priest or diocese or the US Catholic Conference be sued for refusing to witness a same-sex marriage? Bakers and caterers have been sued for refusing service to gay couples.

Someone asked me recently, “Do you think churches will lose their tax-exempt status if they refuse to witness same-sex marriages?”

I answered, “I don’t know, but I’m convinced that tax-exempt status will be challenged on that grounds. I suspect the United States Catholic Conference already has its lawyers formulating its case. I think it only a matter of time before court proceedings will begin and likely run to the level of the U. S. Supreme Court.”

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