Will the Supreme Court Decision on Same-Sex Marriage Affect Tax Exemption for Religious Organizations?

The following article, originally published by Baptist Press on August 14, 2015, addresses the potential impact of the recent Supreme Court decision related to same-sex marriage on tax exemption for religious organizations.  Our firm’s managing partner, Mike Batts, was quoted in the article.

8.18.15 Will the supreme court decision on same-sex marriage affect tax exemption for religious organizationsWASHINGTON (BP) — The Internal Revenue Service will not revoke the tax-exempt status of religious organizations that object to same-sex marriage, IRS Commissioner John Koskinen has promised at least twice in recent weeks.

But some tax code experts say the commissioner’s commitments are not a guarantee of tax shelter for organizations with religious objections to the Supreme Court’s nationwide legalization of homosexual marriage this summer.

Michael Batts, a CPA who specializes in nonprofit organizations, told Baptist Press some types of tax exemptions could still be in jeopardy.

“It is helpful to have correspondence from the sitting IRS commissioner that provides some minimal level of temporary assurance about the position of current IRS officials. But the commissioner’s comments on federal tax-exempt status for religious organizations do not establish legal authority on the matter and they are not the end of the story,” Batts, managing partner of a national CPA firm that exclusively serves nonprofits, said in written comments.

“Leaders of religious organizations must also keep in mind that federal income tax exemption is only one front with respect to this issue,” Batts noted. “State and local tax exemptions of various types, as well as other areas of law like housing, zoning and land use are administered by countless agencies all over the country. Federal, state and local officials administering these other areas of law are not bound by the comments of the IRS commissioner or, for the most part, by federal tax law.”

Christian organizations that object to gay marriage “will be seeking much greater and broader assurance” related to tax exemptions, Batts said.

Koskinen’s first promise occurred at a U.S. Senate Judiciary Oversite Subcommittee hearing July 29 in which Sen. Mike Lee, R.-Utah, asked the commissioner whether he could commit, “in the absence of a directive by Congress or by the courts,” to not “take any action to remove the tax-exempt status from Christian colleges and universities based on their belief that marriage is between a man and a woman.” Koskinen responded, “I can make that commitment.”

The IRS commissioner went on to explain that any policy change will be preceded by an opportunity for public comment.

“There would be no surprises” relative to the revocation of tax-exempt status for colleges and universities, Koskinen said. If there were a change in regulations, “the public would have plenty of notice and plenty of opportunity to comment, and that’s not going to happen in the next two and a half years.”

Koskinen wrote in a July 30 letter to Oklahoma Attorney General Scott Pruitt that the “IRS does not view” the Supreme Court’s same-sex marriage ruling “as having changed the law applicable to section 501(c)(3) determinations or examinations. Therefore, the IRS will not, because of this decision, change existing standards in reviewing applications for recognition of exemption under section 501(c)(3) or in examining the qualification of section 501(c)(3) organizations.”

Koskinen’s assurances were welcomed by some who have expressed concern for Christian colleges and universities based on an April 28 exchange at the Supreme Court between Associate Justice Samuel Alito and U.S. Solicitor General Donald Verrilli.

In response to the federal government’s argument that same-sex marriage should be declared a constitutional right, Alito asked Verrilli about institutions that refuse to permit gay marriage, citing a 1983 decision in which the Supreme Court upheld the IRS’s revocation of a tax exemption for Bob Jones University, a fundamentalist Christian school in Greenville, S.C.

The court “held that a college was not entitled to tax-exempt status if it opposed interracial marriage or interracial dating,” Alito said. “So would the same apply to a university or a college if it opposed same-sex marriage?”

Verrilli responded, “You know, I — I don’t think I can answer that question without knowing more specifics, but it’s certainly going to be an issue. I — I don’t deny that. I don’t deny that, Justice Alito. It is — it is going to be an issue.”

Pruitt, a trustee at Southern Baptist Theological Seminary, called Koskinen’s promises not to revoke the tax-exempt status of religious organizations “a victory for religious freedom in America and for the non-profit charities, churches and religiously affiliated universities who feared they would be denied tax-exempt status by the IRS because their sincerely held religious beliefs prohibit them from participating in same-sex marriage.”

Pruitt continued, according to a press release from his office, “This formal statement from the IRS provides needed assurance that their First Amendment rights will be protected. To paraphrase President Reagan, we will trust but verify the comments of the IRS and continue to monitor the agency’s actions to ensure Americans aren’t targeted unfairly for exercising their religious beliefs in accordance with the First Amendment.”

Dan Busby, president of the Evangelical Council for Financial Accountability, told BP he still has concerns about how the IRS will handle objectors to same-sex marriage in the long term. He cited Koskinen’s statement to the Senate that “at this time, there is no basis for us to revisit tax-exempt status.”

“Since IRS personnel change from time to time,” Busby said in an e-mail, “statements couched with ‘we do not intend’ or ‘at this time’ give tax-exempt ministries little comfort for the future.”

The content and photo included above are reprinted with permission from Baptist Press.  To view the original article, please click here.

This publication is for general informational and educational purposes only, and does not constitute legal, accounting, tax, financial, or other professional advice. It is not a substitute for professional advice. For permission to reprint, please contact us.  © 2023 Batts Morrison Wales & Lee, P.A.  All rights reserved.
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