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Legal Principle at Issue

Can the federal government deny tax-exempt status to a nonprofit organization because of racially discriminatory policies, even if those policies are based on sincerely held religious beliefs?

Action

The Supreme Court upheld the revocation of the university's tax-exempt status in an 8-1 decision authored by Chief Justice Warren Burger. The Court emphasized that tax-exempt status is reserved for organizations that serve a public interest and do not violate established public policy. Racial discrimination is fundamentally at odds with that goal, the Court reasoned, and the government has a compelling interest in eliminating racial discrimination, which justifies the denial of tax benefits to nonprofits that engage in such practices, even if based on religious belief. Justice Rehnquist dissented, arguing that the IRS had overstepped its authority and that Congress, not the IRS, should determine public policy exceptions to tax-exempt status.

Facts/Syllabus

Bob Jones University, a Christian institution in South Carolina, enforced a policy prohibiting interracial dating and marriage among its students, citing sincerely held religious beliefs. Initially, the IRS had granted tax-exempt status to private schools without considering their racial policies. However, in 1970, the IRS revised its stance, determining that institutions practicing racial discrimination did not qualify for tax-exempt status, and in 1976 revoked Bob Jones University. The university challenged the decision in the U.S. District Court for the District of South Carolina, arguing that the IRS exceeded its authority and infringed upon the university's First Amendment rights. The district court ruled in favor of the university, but the U.S. Court of Appeals for the Fourth Circuit reversed, stating that the government's interest in eradicating racial discrimination outweighed the university's claim to religious liberty protected under the Free Exercise Clause.

Importance of Case

This landmark decision underscored that while religious beliefs are protected under the First Amendment, they do not grant institutions the right to contravene public policies and retain tax-exempt status. The ruling set a precedent for evaluating the limits of religious freedom, especially when it conflicts with overarching governmental interests in promoting equality and nondiscrimination.