Thursday’s Republican debate surprisingly featured the intersection of religion and taxes, an issue many see intertwined with larger religious freedom debates.
Whether it was businessman Donald Trump stating he was audited because he was a “strong Christian” or radio host Hugh Hewitt asking questions about religion-based tax exemptions, the issue of religion and taxes continues to gain much needed attention.
The IRS’s official position on the reason for Trump’s audit will remain unclear, as they cannot comment on audits of individual taxpayers. But the likelihood of an audit based on his “strong Christian” belief for 12 consecutive years seems rather farfetched.
First, the IRS has made a concerted effort with its limited resources to target high-income earners. If Trump earns more than $1 million a year, it should come as no surprise that he is audited based solely on his earnings.
Second, if this were true, why would he not have litigated any of the other prior audits? Taxpayers are free to litigate tax changes. An audit based on religious beliefs would likely generate much public interest.
Finally, if this were true, Trump not only has the ability to help himself by litigating in court, but he could ask for help from the Taxpayer Advocate.
To ensure that politics did not affect the IRS’s audit decisions, in 1998 Congress passed the Restructuring and Reform Act. The act established a taxpayer bill of rights that was intended to protect taxpayers from IRS abuses as well as lead to the Taxpayer Advocate office.
If Trump has evidence that he is being singled out because of his religion and not because of his return positions, the Taxpayer Advocate should be involved.
Religious liberty is an important part of the fabric of the United States. Currently, there is an examination of the limits of that liberty related to same-sex marriage and contraception. Trump has added audit risk to that list. It is right for advocates of religious freedom to be concerned. But, currently his suggestion seems unfounded.
The more crucial question at stake came up during the debate when Hewitt asked Trump about the issue that keeps him up at night: religious liberty. Related to taxation, Hewitt expressed this fear that “if Bob Jones is expanded, they [the religious based schools] will lose their tax exemption.” Could the government put undue pressure on religions and religion-affiliated organizations, through, for example, the tax law?
For example, could the refusal to perform same-sex marriages put at risk a religious institution’s tax-exempt status? That risk is not necessarily hypothetical: A significant number of tax-exempt organizations, many of which are affiliated with faith groups, discriminate against LGBT individuals.
How can the government determine the tenets of a faith, including whether or not to perform same-sex marriages?
In his question, Hewitt referred to the Supreme Court’s Bob Jones University v. United States case. In that case, the IRS revoked the fundamentalist Christian school’s tax-exemption because of racially discriminatory policies.
Bob Jones challenged the revocation because it claimed the policies were a tenant of its faith. The Supreme Court held that Bob Jones may lose its tax exemption if it violates a fundamental public policy even where religious beliefs demand that violation. In the case, the Supreme Court opined that racial discrimination violated fundamental public policy.
So, could the determination to exclude same-sex individuals from marriage or attending a college, be considered a violation of fundamental public policy? In the recent Obergefell v. Hodges case that legalized same-sex marriage, the Supreme Court asserted that LGBT individuals are entitled to “equal dignity in the eyes of the law.”
Constitutional law scholars, such as Lawrence Tribe, are advocating that faith groups might lose their status, citing that this decision is the dawning of a new era of constitutional doctrine in which fundamental public policy will have a more broad application. If that is true, then the application of Bob Jones might not be limited to only racial discrimination.
Currently, I think that it is unlikely that religions will lose tax exemption for discrimination outside of the existing standard of race. This is a complicated endeavor, which Loyola University law professor Samuel Brunson and I tackle in detail in an upcoming law review article.
In short, churches are not likely to lose tax-exempt status because of the First Amendment Free Exercise clause. Under the famous Lemon test, the government cannot engage in excessive entanglement with religion. This test has been tested in the arena of taxation and when taxes affect the religious dogma, then the tax has been held unconstitutional.
Religion-based schools and other institutions like Catholic Charities are a more difficult question. Generally, although a religious institution can believe whatever it wants, when it acts on those beliefs, the Supreme Court has held that there are limits to the Free Exercise clause. There have been many instances in which religious beliefs had to give way.
In our analysis, one reason, we think, that the answers to the question that they should not lose the tax exemption are fairly obvious are the constraints on the IRS. In order to revoke a tax exemption of a charity, the IRS has to begin the process. Private individuals do not have this power. The IRS has historically tried not to become involved in these political hot-button issues.
Limitations of the IRS in the tax-exempt context is also why Trump’s suggestion of religious persecution is likely unfounded. If the IRS has practical constraints in the context of examining religious organizations, then it likely is similarly limited in attempts to persecute Trump.
David J. Herzig, a professor of law at Valparaiso University, often writes on taxation focusing on alternative investment vehicles and charities. He is also a visiting professor of law at Loyola University (Los Angeles).