Tax Exemptions Do Not Make Charities Government Agents

​America’s charities face a growing danger of being crushed by onerous regulations and government regulation of their speech.
 
Multiple courts have ruled that “tax-exempt” status constitutes “federal financial assistance,” subjecting non-profit organizations to a host of burdensome, proactive obligations to ensure compliance with: Title VI of the Civil Rights Act, Title IX of the Education Amendments of 1972, The Age Discrimination Act of 1975, Section 1557 of the Affordable Care Act of 2010 … and the list goes on.
 
These are laws with noble intents, but they come with onerous paperwork requirements and the ever-present threat of restrictions on a faith-based group’s speech and doctrines. Most non-profit entities – charities, churches and schools – are ill-equipped to handle the vast compliance burdens reserved that a large university or national NGO would be able to dedicate a whole department of lawyers to handle. 
 
As Philanthropy Roundtable wrote last year, “targeting nonprofit organizations that exist to address community problems and provide assistance for those in need should be off limits on the political battlefield.” We’ll refrain for now from commenting on whether these cases constitute lawfare, but we’ll happily point out why the courts came to the wrong conclusion.
 
In Buettner-Hartsoe v. Baltimore Lutheran High School Association, a federal district court in Maryland found that Concordia Prep’s tax-exempt status constituted “federal financial assistance” for the purposes of Title IX compliance. The Fourth Circuit Court of Appeals disagreed, writing:
 
“Tax exemption is not ‘Federal financial assistance.’ This is not a novel concept. Indeed, since Title IX’s inception over fifty years ago, it has never been applied to organizations based solely on their tax-exempt status. And for good reason.”
 
That reason, of course, has to do with the underlying policy goal of encouraging good works from organizations that are not seeking to make a profit. Placing burdensome requirements on such organizations hinders their ability to express their goals, values, advocacy interests and opinions – to the detriment of their First Amendment rights.
 
Another case from the Central District of California, Herrera v. Valley Christian Academy, however, also found that a non-profit school’s tax-exempt status “is a form of federal financial assistance that would subject the institution to Title IX.” The judge ruled:
 
“[T]he plain purpose of the statute is controlling. Here that purpose is clearly to eliminate discrimination in programs or activities benefitting from federal financial assistance.”
 
Yet legislative references to purely tax-exempt status goes back to at least 1894. According to the Internal Revenue Code, non-profits must merely be: “Organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals …”
 
Requiring non-profits to serve these charitable missions while constantly navigating a vast bureaucratic labyrinth undermines the clear policy aims of the law’s definition. Such requirements could crush smaller organizations that are doing immense social good. These rules also threaten the free speech of charitable groups to hold and express beliefs that offend official sensibilities, whether it is a Christian or Muslim group that advocates traditional marriage, or an environmental group that holds policy ideas that offend this administration or the next one.

Last year, then-Sen. Marco Rubio and Rep. Greg Steube (R-FL) sponsored the “Safeguarding Charity Act” to clarify that tax-exempt status does not qualify as “federal financial assistance.” And if all else fails, the U.S. Supreme Court should strike down these rulings. That might be our fastest way to reform.
 
We’ll keep a close eye on these cases as they pop up, and new legislative efforts by the 119th Congress to protect America’s charities.

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