The Volokh Conspiracy

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The legal-historical amnesia of using tax exemptions to punish political beliefs

A tool for viewpoint discrimination has an anti-LGBT history, too


In a televised Democratic presidential forum on LGBT issues last night in Los Angeles, CNN's Don Lemmon asked Beto O'Rourke, "Do you think religious institutions like colleges, churches, charities – should they lose their tax-exempt status if they oppose same-sex marriage?"

"Yes," O'Rourke responded. "There can be no reward, no benefit, no tax break for anyone, or any institution, any organization in America that denies the full human rights and the full civil rights of every single one of us."

Eugene explained well in this 2016 post why the IRS cannot deny tax exemptions solely on the basis of viewpoint, even if you conceive of a tax exemption as a form of subsidy (a "reward") that the government does not have not to give anyone at all, and even if you think the group propounds a hateful or deeply immoral message. The IRS

can't deny exemptions to groups that engage in "hate speech" against blacks, gays, evangelical Christians or Donald Trump supporters, while allowing exemptions to groups that praise blacks, gays, evangelical Christians or Donald Trump supporters. Indeed, the Supreme Court has made this clear: The government may not discriminate against groups based on the viewpoint of their speech. See Rosenberger v. Rector (1994) (discussing Regan v. Taxation With Representation (1983)). As the D.C. Circuit put it in Z Street v. Koskinen (2015) (itself a 501(c)(3) tax exemption case), "in administering the tax code, the IRS may not discriminate on the basis of viewpoint."

Walter Olson expands on why O'Rourke's answer was so objectionable, calling it "illiberal, anti-pluralist, and inflammatory." Scott Shackford piles on, noting the political damage that could be done: "If you care about LGBT rights, you should be glad O'Rourke doesn't have a shot: The backlash against him as a nominee would be massive."

All of these points are well taken. Perhaps most striking to me about the exchange between Lemmon and O'Rourke was not that a candidate would tell an audience what he thought they wanted to hear, but that the audience was so wildly enthusiastic about it.  The reaction was explicable on one level because organized religion has been an extraordinary source of pain to LGBT people. (And of course, it has also been a source of extraordinary comfort to many LGBT people. It giveth and taketh away.)

But on another level, it's an act of forgetfulness. As William Eskridge has written, "the modern regulatory state cut its teeth on gay people." First Amendment rights, especially the cardinal directive that government may not discriminate on the basis of viewpoint, has served both individual LGBT people and the organized LGBT-rights movement very well.  When the government, including the administrative state and courts, failed to live up to those principles, the whole movement was imperiled.

One of the innumerable ways in which the state attempted to discourage gay-rights advocacy in its infancy was through the device of denying corporate charters, school recognition, and all other manner of what O'Rourke might call a "reward, benefit, or tax break . . for anyone, or any institution, or any organization" that violated right and good state-sanctioned principles.

Among these devices was specifically the selective denial of charitable tax exemptions for gay organizations in the 1970s. As Eskridge summarized some of the cases in a 1997 Yale Law Journal article:

Educational and charitable organizations are entitled to exemption from federal income tax, and their contributors are entitled to tax deductions. The IRS had granted tax-exempt status to organizations not having "gay" in their names, most prominently the University Fellowship of Metropolitan Community Churches, and had been willing to give "gay" groups exemptions if they stipulated that they did not "promote" homosexuality or if they accepted homosexuality as a "diseased pathology." Accordingly, the IRS denied tax exempt status to the Gay Community Services Center of Los Angeles in January 1973. In an important turnabout and after a series of meetings with gay representatives, the IRS reversed itself in August of that year, giving exempt status for the first time to an organization with "gay" in its name. Lambda Legal Defense got surprisingly quick approval the next year.

In other words, the IRS made a speech restriction (no "gay") or even compelled speech (accepting homosexuality as a mental illness) a condition of receiving a tax benefit.

The IRS also initially denied exempt status to the Pride Foundation, a pro-gay educational and legal organization.

The IRS found that the Pride Foundation's "efforts 'toward the elimination of unjustified and improper discrimination or treatment, or toward violations of the privacy of adult individuals, are insignificant when compared to the possible detriment to society,"' specifically, "'advancing the unqualified and unrestricted promotion of the alleged normalcy of homosexuality"' which the IRS feared would have the effect "'in the general prevalence of what is still generally regarded as deviant sexual behavior."' As legal authority for its position, the agency cited the Supreme Court's disapproval of "perverted" sexuality in its obscenity opinions and state sodomy laws against homosexual conduct.

Here the federal government doled out exempt status purely on the basis of the viewpoint of the gay-advocacy group: it could not "promote" the idea that homosexuality was normal. Doing so might have socially harmful (and indeed illegal) behavioral consequences. Eskridge recounts how gay-rights attorneys were able to turn the IRS around:

Once such a justification was out in the open, gaylegal representatives were able to ply the IRS with arguments and information undermining its premises. Lawyers for the Fund for Human Dignity in New York worked with the IRS for two years and persuaded the agency to grant exempt status to gay educational groups, without any disclaimer, in a September 1977 ruling.

O'Rourke's rationale for denying exempt status to churches and other groups that oppose same-sex marriage is identical in form to the rationale for denying exempt status to the Pride Foundation in the 1970s. A federal benefit (exempt status) can be denied selectively on the basis of a viewpoint ("promoting" homosexuality then, opposing same-sex marriage now) in the interest of avoiding social harm ("sexual deviancy" then, denial of "full human and civil rights" now).

There's a lot of forgotten or unrecognized history in the LGBT-rights movement.  The movement has been trying rather self-consciously to unearth that history. It's also worth recalling that the government, with its long and ready list of good causes, has not always been a friend.