Brunson, De-Weaponizing Bob Jones

Ever since Bob Jones University, when the Supreme Court decided that violating a fundamental public policy disqualified an organization from tax exemption, there has been an open question about what qualified as a fundamental public policy. The Court was clear that preventing racial discrimination by private schools qualified as such a public policy, but beyond that, left the boundaries vague. In the ensuing years, the IRS has rarely expanded the scope of fundamental public policy, but even without that expansion, the Supreme Court’s Bob Jones decision’s ambiguity has limited the actions tax-exempt organizations take.

This ambiguity has become particularly salient in light of the Trump Administration’s war on diversity, equity, and inclusion. While the Trump Administration has not explicitly announced that it will treat DEI programs as violative of fundamental public policy, it has hinted that it may be moving in that direction.

Treating DEI as an intolerable violation of fundamental public policy does not square with the Supreme Court’s Bob Jones decision. The Court focused on discrimination against historically marginalized groups and excluded from its reach programs that aimed to help such groups achieve equality. As such, if this—or any future—Administration were to try to revoke the tax exemption of organizations that provided DEI programs, challengers of those policies should win.

Even though revoking the exemption of organizations that have DEI programs is legally dubious, though, the threat of such a revocation may impose intolerable pressure on organizations to give up those programs. While it could not restrict the programs formally, informal pressure is just as effective, while being significantly harder to challenge.

In light of the risk of jawboning, Congress needs to use its legislative authority to expressly cabin the scope of the Supreme Court’s Bob Jones decision. The fundamental public policy rule should be legislatively limited to racial discrimination in education against historically-marginalized groups. To the extent other policies should also disqualify tax exempt status, the decision should rest with the Legislative, not the Executive, Branch.