Bob Jones University, the IRS and the question it left every church

Some Supreme Court cases are famous for the result. Others are famous for the sentence nobody could stop quoting afterward. Bob Jones University v. United States is the second kind: the result was easy to defend, and the reasoning has been a source of anxiety to religious institutions ever since.

The way to handle a case like this is not to cheer or to flinch. It is to read it. The facts are ugly, the school was wrong, the holding is narrower than its critics say, and the opinion nevertheless opened a door that has never quite closed. That is the shape of the case, and this post walks through it in order.

The facts: a school and its rules

Bob Jones University is a fundamentalist Christian university in Greenville, South Carolina. It was a private institution, owned by a religious foundation, and it held that the Bible taught that races should not mix. Until 1971 it did not admit Black students at all. After that it admitted Black students who were married, but not unmarried ones. In 1975 it began admitting unmarried Black students too, and at the same time adopted a rule against interracial dating and marriage, enforced by discipline up to expulsion.

State it plainly: the policy was wrong. It was wrong as moral theology, and wrong as a matter of the equal dignity of persons. A conservative who believes in the Judeo-Christian moral tradition does not need to defend a scheme that contradicted the Golden Rule and the Declaration's claim that all men are created equal. The sincerity of the school's belief does not change that.

The question in the case was not whether the policy was wrong. It was what the federal government could do about it through the tax code.

The IRS acts

For decades, schools like Bob Jones had enjoyed tax exemption under Section 501(c)(3) of the Internal Revenue Code, the same section that covers churches and charities. In 1970, in response to litigation over segregated private schools in the South, the IRS announced that it would no longer treat racially discriminatory private schools as tax-exempt. In 1971 it issued Revenue Ruling 71-447, stating that a school that discriminated on the basis of race was not "charitable" within the meaning of the statute and could not qualify. In 1976 the IRS formally revoked Bob Jones University's exempt status, effective back to December 1970, on account of its racially discriminatory policies, including the interracial-dating rule.

The university paid part of the tax and sued for a refund, and the Fourth Circuit ruled against it. Another school, Goldsboro Christian Schools in North Carolina, had a similar dispute, and the Supreme Court took both. Goldsboro admitted that it kept racially discriminatory admissions policies, which it based on its reading of the Bible.

There was a complication. In 1982 the Reagan administration announced that it would drop the government's position and ask for the revocations to be reversed, on the ground that the IRS had no authority from Congress to deny exemptions on the basis of public policy. Congress and the public reacted sharply, and the administration backed away, but the Court was left without a defender of the IRS's position, so it invited a private lawyer, William T. Coleman Jr., to argue the case as amicus curiae in support of the judgment below. The Court heard the case in October of 1982 and decided it on May 24, 1983.

The holding

The vote was 8 to 1. Chief Justice Warren Burger wrote for the Court. The holding, in a sentence: the IRS could deny tax exemption to schools that practice racial discrimination in admissions and conduct, and doing so did not violate the schools' First Amendment right to the free exercise of religion.

Burger's reasoning has three parts, and each one matters to a church that reads it.

1. "Charitable" has a meaning. Section 501(c)(3) lists exempt purposes, including religious, charitable and educational ones. Burger reasoned that the word "charitable" carried its common-law meaning. An institution seeking exemption as a charity, the Court said, had to serve a public purpose and not be contrary to established public policy. Under the common law of charitable trusts, a trust for an illegal or against-public-policy purpose could not be charitable.
2. There is a "fundamental public policy" against racial discrimination in education. Burger pointed to the Court's decision in Brown v. Board of Education (1954), to the actions of all three branches of the government since then, and to the Civil Rights Act of 1964, as proof that the government had settled on a policy that was by 1970 firmly established. The institutions' racial policies were at odds with it, and so they could not be considered charitable.
3. The First Amendment did not require an exception. The Court accepted that the schools' beliefs were sincere and that the loss of exemption would burden them. But it held that the government's interest in eradicating racial discrimination in education was a compelling interest, and that denying the exemption was the least restrictive means of serving it. The Court did not say the schools could not hold or teach their view. It said the government need not subsidize it.

Justice Powell wrote a concurrence that is worth reading. He joined the judgment and the free-exercise holding, but he questioned whether the IRS had authority to decide which policies are fundamental enough to deny exemption, and he argued that balancing those interests belongs to Congress. He also stressed that tax exemptions support pluralism.

The dissent: Rehnquist on who decides

Justice William Rehnquist was the lone dissenter, and his dissent is the best reason to study the case.

Rehnquist did not defend the school's policy. He called racial discrimination odious. His argument was constitutional and it was about who decides. He said that Congress, not the IRS and not the Court, writes the tax laws. Congress had listed the purposes that qualify for exemption in Section 501(c)(3), and discrimination was not on the list as a disqualifier. When Congress wants to deny exemption for racial discrimination, he said, it can pass a law that says so, and it had never done it. For the Court to find a hidden requirement in the word "charitable" was for the Court and the executive branch to act as a legislature.

That is a separation-of-powers argument, and every conservative should recognize it. It is the same argument conservatives make against rule by agency guidance, against decisions Congress never made, and for the principle that the people's elected representatives, not unelected officials, make the laws that bind the citizen. It is a reminder that you can be right about the policy and wrong about the process.

The Court's majority responded that Congress had, in fact, acquiesced. It pointed to repeated failed bills to overturn the IRS position and to a 1976 statute denying exemption to certain discriminatory social clubs, and found what it called an unusually strong case of acquiescence by implication. Rehnquist found that unpersuasive: silence is not legislation.

Two points follow. First, I think the Court reached the right result and the dissent has the better of the method. It would have been cleaner for Congress to act. Second, the reason this matters to churches is that the method, an agency reading a "public policy" limit into an exemption statute, is available for other purposes.

The question it left every church

Here is the door that opened.

Burger's opinion said the exemption is contingent on a public benefit, and that an institution that violates "fundamental public policy" may lose it. In the case itself, the policy at issue was one that nearly everyone in 1983 agreed on, and whose violation was the national shame the Civil War and the civil rights movement had been fought over. The Court was careful to say that its holding was limited to the issue of racial discrimination in education, and it took care to say that it was not deciding questions about a church's own worship and religious practice. Powell's concurrence stressed the limits.

But a principle outlives the case that announced it. Every few years, whenever a change in law or culture produces a new public-policy commitment, someone asks what the Bob Jones test implies for a religious institution whose teaching conflicts with it. Burger's test is that exemption depends on conformity to "fundamental public policy". The test does not say how fundamental the policy must be, who decides, or whether the policy must be settled across all three branches of government as it was on race.

This is not an abstraction. During oral argument in Obergefell v. Hodges in April of 2015, Justice Alito asked the Solicitor General, Donald Verrilli, whether the reasoning that supported a right to same-sex marriage would mean a religious school opposed to it might lose its exemption, as Bob Jones had. Verrilli's answer, in substance, was that he could not answer without knowing more, but that it would certainly be an issue. That exchange, discussed in What Obergefell said to religious believers, and what it left open, is why Bob Jones is still cited whenever tax exemption for religious groups comes up.

The steelman and the answer

The other side's best argument is a strong one, and it should be said fairly. The argument says: tax exemption is a subsidy. When the government exempts an institution, every other taxpayer makes up the difference. A nation is entitled to decline to subsidize practices that violate its deepest commitments. The ruling did not stop Bob Jones from teaching or believing anything. The Court said something close to it in the same year, in Regan v. Taxation With Representation, which said that Congress may decline to subsidize speech without violating the First Amendment.

The best answer, in numbered form:

1. The exemption for churches is not a subsidy in the ordinary sense. The Court in Walz (1970) upheld exempting churches from property tax, reasoning that exemption involved far less entanglement between church and state than taxation would. Churches were not taxed, and that was a matter of principle, not generosity.
2. A test of "fundamental public policy" is only as safe as the policy. On race in 1983 it was safe, since every branch of the government had declared the same thing. On a question where the country is divided, the test hands a rule-making power to whichever agency or administration is in office. That is exactly the point of Rehnquist's dissent.
3. Limiting principles matter. Bob Jones does not authorize an IRS agent to decide that a church's sermons are contrary to "public policy." Courts have not read it that way. But the risk of such a reading is why religious institutions have a strong interest in statutory protections, which Congress can pass and the Court cannot take away.
4. There is a practical safeguard. Churches are not required to apply for exemption. They qualify automatically, and this makes it harder for the government to treat the exemption as a license it issues. Other religious institutions, like schools and charities, are in a weaker position.

What conservatives should take from it

First, hold on to both ideas: the school's policy was wrong, and the method was worth worrying about. These are not in tension.

Second, favor clear statutes over agency inference. When a policy matters enough to cost an institution its exemption, Congress should vote on it, in public, with the consequences stated. That protects the citizen and the policy.

Third, defend the structural protections for religious institutions: the exemption by default for churches, the statutory religious-freedom laws, and the principle that the government may not use the tax code to dictate doctrine. These are discussed in Should pastors endorse candidates? The Johnson Amendment fight, argued fairly, in What a state RFRA does and does not do, in twelve plain questions and in A thought experiment where the IRS fact-checks every Sunday sermon. For the Brown decision that the Court relied on, see the Courts page.

The case in brief

1. Bob Jones University barred or restricted Black students and, from 1975, banned interracial dating; the policy was morally wrong and contradicted the Golden Rule and the Declaration.
2. The IRS revoked the school's exemption, and in 1983 the Supreme Court upheld the revocation 8 to 1, in an opinion by Chief Justice Burger resting on the common-law meaning of "charitable" and a "fundamental public policy" against racial discrimination.
3. Justice Rehnquist's dissent argued that Congress, not the IRS, decides the terms of the tax exemption, a separation-of-powers point conservatives should not forget.
4. The case's holding is limited to racial discrimination in education, but its "public policy" test is why religious institutions still ask what it implies when tax exemption is debated.
5. The safeguard is clear statutes, the default exemption for churches, and religious-freedom laws, not trust in agency discretion.

What you can do: ask your member of Congress whether any statute in the tax code should say, in plain words, what kinds of conduct cost a religious organization its exemption, and read Section 501(c)(3) yourself on Congress.gov.