Mayer: Is Tax Law Different? Unconstitutional Conditions, Religious Organizations, and Taxation

I have hated Notre Dame ever since Jerome Bettis came in during the 2nd Half of the 1992 Sugar Bowl and ran the ball right down the Gators’ throats.

Lloyd still has a bone in his throat about religious nonprofits.  Him, Sam and Phil too. I think its still safe to stand next to Sam and Phil without getting struck by God’s lightening for their insolence.  But you would think a guy working under the outstretched arms of Touchdown Jesus would tread lightly.  It’s simple really.  Churches can do whatever they want with their tax exemption.  Plain old “religious organizations,” are subject to regulation of some such I imagine, but not churches.  We just pretend they are.  I mean that as a practical matter.  We have generally applicable tax exemption rules but to the extent the Constitution, the Supremes, and the Tea Party have put the . . . yep you guessed it, the fear of God in the IRS, we know that whatever stated restrictions exist on Church tax exemption will never be enforced.  I know I am in the distinct minority here, a minority of 1 outside the far right I expect.  And those guys don’t know the difference between “Second” and “Two” Corinthians so I could be wrong. But even broken coo-coo clocks are right twice a day.  Meanwhile the money-changes, Lloyd, Sam, and Phil, set forth formidable arguments.  Here is Lloyd’s abstract to the article whose title is in the headline:

Abstract

In common with other charities, religious organizations enjoy significant benefits under federal tax law, including exemption from income tax and the ability of donors to deduct their contributions for income, gift, and estate tax purposes. But these benefits are not costless. Also in common with other charities, religious organizations are prohibited from providing private inurement and private benefit, engaging in a significant amount of lobbying, intervening in political campaigns, promoting illegality, or acting contrary to fundamental public policy.

The IRS takes the position that these limitations apply with equal force to all tax-exempt charities, including religious organizations. Some religious organizations have challenged the application of the lobbying, political campaign intervention, illegality, and fundamental public policy limitations on religious liberty grounds, invoking the Free Exercise of Religion Clause of the First Amendment and, more recently, the federal Religious Freedom Restoration Act (RFRA). To date, however, federal courts have rejected these challenges, concluding that they are permissible conditions on the tax benefits enjoyed by religious organizations.

This essay reconsiders this conclusion and the arguments in support of it. One such argument is that tax law is somehow different from other legal contexts for purposes of applying the unconstitutional conditions doctrine to religious organization. The consistent refusal of the courts to allow free-exercise-of-religion-based exemptions from generally applicable federal tax laws suggests this may be the case. This difference could be viewed as a strand of the increasingly disfavored view sometimes referred to as “tax exceptionalism.” But I argue that this difference instead fits within the more traditional compelling governmental interest and least restrictive means analysis codified in RFRA and that arguably applied in the Free Exercise of Religion Clause context before the Supreme Court’s decision in Employment Division v. Smith.

More specifically, tax law is different because of its complex rules applicable to all individuals and entities relating to expenditures for lobbying, political campaign intervention, and illegal activity. The complexity of these rules, and the risk that granting exemptions from them for any reason would undermine their uniform and consistent application, support the conclusion that the government has a compelling interest in not allowing exemptions, and that the existing limitations imposed on tax-exempt charities, including religious organizations, are the least restrictive means to do so. As a result, constitutional and RFRA free exercise of religion rights do not require exemptions for religious organizations from these existing limitations even when such organizations are motivated by their religious beliefs to engage in the limited activities. Furthermore, while this argument does not apply to the contrary to fundamental public policy limitation, the Supreme Court has correctly concluded that in the instances where there is a fundamental public policy, ensuring that tax-supported charities do not undermine that policy is also a compelling governmental interest and prohibiting them from doing so is the least restrictive means of furthering that interest.

darryll jones