The Supreme Court’s Wednesday ruling upholding, for now, a New York judge’s decision requiring Yeshiva University to officially recognize an LGBTQ+ student group keeps the New York City school at the intersection between separate legal precedents: On one hand religious entities have sovereignty over matters related to their religious teachings. On the other, government has effectively exercised authority against discrimination on college campuses.
The case is expected to go before a New York state appeals court. Meanwhile, Yeshiva, which describes itself in the court filing as a “deeply religious Jewish university,” is required to designate YU Pride Alliance as a bona fide campus organization.
At issue is the distinction of Yeshiva University as a “school” by virtue of its charter in New York and not as a religious institution, which otherwise might be better able to sustain its objections on religious grounds. As a school, however, Yeshiva is not in compliance with the New York City Human Rights Law, which prohibits discrimination based on “actual or perceived sexual orientation or gender.”
Yeshiva had asked the Supreme Court to overrule the lower court on the theory that religious protection under the First Amendment should override that human rights law. In the filing, the university calls the LGBTQ club a “government-enforced establishment” that is “irreparably damaging” to what the school calls its religious mission.
Lawyers representing the student group said a previous court had already “correctly ruled” that Yeshiva must grant equal accommodations to all students on campus and called it “disheartening” that Yeshiva will not join other major religiously affiliated universities to allow LGBTQ students to create safe spaces for themselves.
Behind the scenes of this case is the tax-exempt status of the school.
Officially a 501c3 charitable organization, Yeshiva adheres to the status as a school for its public charity recognition. While this tax-exemption status is not inherently any different than meeting any other charitable cause within 501c3, it does afford the school access to governmental grants and advantages to their students, for example, access to student loan programs and tax credits.
Now tax-exempt schools are bound by a prior Supreme Court decision, Bob Jones University v. United States, 461 U.S. 574 (1983). In that case the Supreme Court adopted the “Public Policy Doctrine” denying Bob Jones University tax-exemption due to racially discriminatory policies that it had at the time.
Essentially, the Supreme Court there upheld the IRS’s position that entitlement to tax exemption depends on meeting certain common law standards of charity and public policy not specified by Congress when it enacted Section 501(c)(3).
A key element in this ruling is recognition of the concept that tax-exemption is not a fundamental right but rather a status granted to organizations that serve the public good.
That decision underlined that tax exempt 501(c)(3) organizations must serve a charitable public purpose in the common law sense and cannot be operated in a manner contrary to established public policy. The Court noted that over the previous 25 years, every Supreme Court decision and many federal statutes and executive orders displayed a firm national policy to prohibit racial segregation and discrimination.
It should be noted that prior to 1970, universities were routinely granted tax exemptions as educational institutions despite having admissions policies that were racially discriminatory.
An IRS revision of tax regulations in 1970 began to require that universities have admissions policies that were not racially discriminatory to qualify for tax exemption under Section 501(c)(3).
In the 1983 Bob Jones University case revoking that school’s tax-exemption, the Supreme Court concluded that the government has a fundamental overriding interest in eradicating racial discrimination in education, and that this interest substantially outweighs whatever burden the denial of tax benefit places on the University’s exercise of religious beliefs.
Thus, the Supreme Court held that the University’s policies practicing racial discrimination were contrary to established public policy and the IRS’s revocation of Section 501(c)(3) tax exemption was warranted.
Although the Bob Jones case concentrated on racial discrimination, the Supreme Court focused more on matters of public policy. As a result, it has been academically pondered as to whether the doctrine of marriage equality is a matter of fundamental public policy. Obergefell v. Hodges found that government prohibition of same-sex marriage is unconstitutional on equal protection and due process grounds and has seemingly been widely accepted.
Since this ruling, 501(c)(3) organizations that oppose marriage equality based on religious grounds wonder whether their exemptions are now at risk for challenge by the IRS under the Public Policy Doctrine.
The Bob Jones case does not provide the IRS with discretion to make judgment calls on what is and is not public policy. The Court noted that all branches of government were in unanimous agreement regarding this national policy.
In addition, many of the cases striking down racial discrimination were unanimous (Brown v. Board of Education, Loving v. Virginia). Splitting the hairs of what is in unanimous agreement from a public policy standpoint is never so clear, so where should the line be drawn?
Notwithstanding, the Bob Jones case specifically excluded churches and purely religious 501(c)(3) organizations.
This underlines, again, the challenges involved in conferring the status of a “school.” Without that status, Yeshiva would not be entitled to certain other government programs and advantages.
Now, with that status, they may find themselves at a crossroads between their inherent religious tenants and freedoms deemed important by most of society.
Samuel Handwerger, CPA, is a full-time lecturer in the Accounting and Information Assurance Department at the University of Maryland’s Robert H. Smith School of Business.