Wednesday, May 30, 2012

What is a Religious Organization?

Over 40 Catholic organizations (including my employer, the University of Notre Dame) have filed coordinated lawsuits against the federal government challenging a regulation that would require the group health insurance sponsored by most employers to cover birth control and other services that are contrary to Catholic teaching.  See Notre Dame press release, the Washington Post blog entry.  One among the many interesting aspects of this dispute is the definition of a "religious employer," which is critical because group health plans sponsored by religious employers are exempt from the requirement.  As noted in the background section of a recently released Proposed Rule that the federal government is hoping will resolve this dispute,

a religious employer is one that (1) has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is a non-profit organization described in section 6033(a)(1) and section 6033(a)(3)(A)(i) or (iii) of the Code.

Since the first three prongs of the definition are relatively vague (for example, what are the thresholds for "primarily employs" and "primarily serves"?), arguably the narrowest part of this definition is the fourth prong that refers to two of the mandatory exceptions from having to file the Form 990 annual return otherwise generally required for organizations exempt from tax under section 501(a).  As the background section for the proposed rule elaborates, "[s]ection 6033(a)(3)(A)(i) and (iii) of the Code refers to churches, their integrated auxiliaries, and conventions or associations of churches, as well as to the exclusively religious activities of any religious order." 

Churches, and conventions or associations of churches, are of course religious organizations under section 501(c)(3) but many clearly religious organizations do not qualify as churches (or conventions or associations of churches) for federal tax purposes because "church" for these purposes is limited to organizations that generally have in-person worship meetings and other characteristics common to the historical, Western understanding of a "church."  See, e.g., the previous blog entry regarding the Foundation of Human Understanding case.  The definition of intergrated auxillary is more complicated, but in general an intergregated auxillary must be both affiliated with a church or a convention or association of churches and, most critically, be "internally supported," which is not the case if an organization offers admissions, goods, services or facilities (e.g., educational or health care services) for sale to the general public and recevies more than 50 percent of its support from a combination of governmental sources, public soliciation of contributiosn, and receipts from such sales.  See 26 C.F.R. 1.6033-2(h).  It is this last point that places the University of Notre Dame and presumably the other plaintiffs in these lawsuits outside of this exception. 

This dispute therefore highlights an increasingly important issue: assuming that for constitutional or policy reasons it is required or desirable to generally grant "religious" organizations exemptions from laws that would conflict with their religious beliefs, how broad should the definition of a "religious" organization be? Here the federal government has chosen a relatively narrow definition that was created for a different purpose (Form 990 filing exemptions), and at the end of the day it is the narrowness of this tax-based definition that has led to these lawsuits.


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