Bob Jones University v. United States

Supreme Court of United States
461 U.S. 574 (1983)

ELI5:

Rule of Law:

Organizations seeking tax-exempt status under § 501(c)(3) of the Internal Revenue Code must not only meet the express statutory requirements but must also serve a public purpose and not be contrary to fundamental public policy. The government's interest in eradicating racial discrimination in education is a compelling interest that outweighs any burden placed on an organization's free exercise of religion by the denial of a tax exemption.

Facts:

Bob Jones University is a private, nonprofit religious educational institution.
The University's sponsors hold a genuine religious belief that the Bible forbids interracial dating and marriage.
Based on these beliefs, the University completely excluded Black applicants until 1971.
From 1971 to 1975, the University accepted applications from married Black individuals but not from unmarried ones.
After May 1975, the University permitted unmarried Black students to enroll but maintained a disciplinary rule expelling students for interracial dating or marriage.
Goldsboro Christian Schools is a private, nonprofit religious school that also maintained a racially discriminatory admissions policy based on its interpretation of the Bible, generally admitting only Caucasian students.

Procedural Posture:

The IRS notified Bob Jones University in 1970 of a policy change and officially revoked its tax-exempt status in 1976, effective from 1970.
Bob Jones University paid $21 in Federal Unemployment Tax Act (FUTA) taxes and then sued the United States for a refund in the U.S. District Court for the District of South Carolina; the government counterclaimed for nearly $490,000 in unpaid taxes.
The District Court ruled for Bob Jones University, finding the IRS exceeded its authority.
The United States (appellee) appealed, and the U.S. Court of Appeals for the Fourth Circuit reversed, ruling in favor of the IRS.
In a separate case, the IRS determined Goldsboro Christian Schools was not tax-exempt, and Goldsboro sued for a refund in the U.S. District Court for the Eastern District of North Carolina.
The District Court granted summary judgment for the IRS, and the U.S. Court of Appeals for the Fourth Circuit affirmed.
Bob Jones University and Goldsboro Christian Schools (petitioners) sought and were granted a writ of certiorari from the U.S. Supreme Court.

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Issue:

Does the Internal Revenue Service's policy of denying tax-exempt status under § 501(c)(3) to private schools that practice racial discrimination on the basis of sincerely held religious beliefs exceed its statutory authority or violate the Free Exercise Clause of the First Amendment?

Opinions:

Majority - Chief Justice Burger

No. The Internal Revenue Service's policy does not exceed its statutory authority or violate the First Amendment. An institution seeking tax-exempt status under § 501(c)(3) must serve a purpose that is charitable in the common-law sense, meaning it must provide a public benefit and not be contrary to fundamental public policy. There is a deeply and widely accepted national public policy against racial discrimination in education, which has been affirmed by all three branches of the federal government. An institution that practices such discrimination cannot be seen as conferring a public benefit and is therefore not 'charitable' for tax-exemption purposes. Furthermore, the government has a fundamental, overriding, and compelling interest in eradicating racial discrimination in education. This interest substantially outweighs the burden that denying tax benefits places on the schools' exercise of their religious beliefs.

Concurring - Justice Powell

No. While concurring in the judgment, the majority's broad test—requiring an exempt organization to be 'in harmony with the public interest'—is troubling because it grants the IRS excessive power to enforce governmental orthodoxy and could undermine pluralism. However, in the unique context of racial discrimination in education, the public policy is so fundamental and well-established that it acts as an overriding limitation on the availability of tax-exempt status. Crucially, Congress has demonstrated its acquiescence to and ratification of the IRS's policy, particularly through its enactment of § 501(i) which denied tax-exempt status to discriminatory social clubs. This specific legislative approval, rather than a broad grant of public policy enforcement power to the IRS, justifies the outcome.

Dissenting - Justice Rehnquist

Yes. The IRS's policy exceeds its statutory authority. The plain language of § 501(c)(3) sets forth clear, explicit requirements for tax-exempt status, and it contains no additional, undefined requirement that an organization's activities must align with public policy. Congress has meticulously defined the criteria, and it is the role of Congress, not the IRS or the courts, to amend the statute if it wishes to add a non-discrimination requirement. The majority's reliance on legislative inaction is unpersuasive, as the failure of Congress to overturn an agency's interpretation is not a reliable guide to legislative intent. The IRS is a tax-collecting agency, not an arbiter of national policy, and it overstepped its authority by effectively legislating this new requirement.

Analysis:

This decision established that the statutory term 'charitable' in § 501(c)(3) implicitly includes the requirement that an organization's activities must not violate fundamental public policy. It affirmed the IRS's authority to interpret the tax code in light of such policies, even when not explicitly stated in the statute, granting the agency a significant gatekeeping role. The ruling also reinforced the principle that the government's compelling interest in eradicating racial discrimination can override First Amendment free exercise claims, particularly when the issue is the receipt of a government benefit like a tax exemption rather than the direct prohibition of a religious practice. This precedent remains critical in debates over the tax-exempt status of organizations whose policies conflict with other evolving public policies, such as those concerning LGBTQ+ rights.

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