A legislative duo introduced a bill last month to head off a growing judicial threat. Senator James Lankford (R-Okla.) and Rep. Greg Steube (R-Fla.) introduced the “Safeguarding Charity Act” (S. 1428, H.R. 2896) to clarify that tax-exempt status does not make an organization subject to the burdensome requirements demanded of organizations that receive federal funding.

Specifically, the four-sentence bill clarifies that “the term ‘Federal financial assistance,’ or any other term referring to assistance provided by the Federal government, shall not include any exemption from Federal income tax.” It adds that this bill may not “be construed to imply that an exemption from Federal income taxes … constituted assistance from the Federal government for periods before the date of the enactment of this Act.”

The bill protects tax-exempt organizations from a novel legal theory creeping into federal lawsuits, which seeks to classify tax exemption as a form of “federal financial assistance.” The theory would subject churches, Christian schools and universities, and Christian charities to all the strictures of federal civil rights legislation, including the way that progressive courts and agencies have re-read the laws to offer special protections to individuals who identify as transgender.

In 2022, a federal judge ruled in E.H. v. Valley Christian Academy that “Valley Christian’s tax-exempt status confers a federal financial benefit that obligates compliance with Title IX.” The ruling came from Judge Maame Ewusi-Mensah Frimpong, a Biden appointee in the Central District of California, only five months into her judgeship, suggesting that the argument is persuasive for a younger, more aggressive generation of progressive judges.

As a result of this holding, Frimpong held Valley Christian liable for damages because they rearranged their football schedule to avoid playing another football team that included a girl. The school then settled the lawsuit for $20,000.

The same theory has surfaced in other cases as well, albeit with varied success. In Maryland, a district court ruled that a Lutheran high school was subject to Title IX mandates because of its Title IX status. On appeal, a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit (two Obama appointees and a Trump appointee) unanimously reversed the decision in Buettner-Hartsoe v. Baltimore Lutheran High School Association.

“Tax exemption is not ‘Federal financial assistance.’ This is not a novel concept,” they wrote. Citing no less than three Supreme Court precedents, they explained that, while indirect receipt of federal grants counted as federal financial assistance, “exemptions and deductions” were not “identical” to “cash subsidies” because the money did not actually flow from the government to the tax-exempt organization.

These precedents do not necessarily provide ironclad reassurances to tax-exempt institutions. At best, these precedents are convoluted enough to confuse the novice; at worst, they could be charged with inconsistency.

The good news is that even a progressive-leaning circuit court like the Fourth Circuit rightly defended tax-exempt organizations from government mandates. The bad news is that the argument conflating tax-exempt status with federal financial assistance seems credible enough that lawsuits continue to raise it. Even since the Fourth Circuit decided Buettner-Hartsoe in March 2024, the argument was raised again in September in Chen v. Hillsdale College. Even if the argument never succeeds, merely defending against these lawsuits creates an unnecessary legal burden on religious non-profits.

Yet an ominous line in the Buettner-Hartsoe suggests that, if plaintiffs keep raising this argument, they will eventually win. “Appellees argue … that because § 501(c)(3) status results in a monetary benefit to tax exempt entities, it is the same as the IRS granting funds to tax exempt entities,” wrote the court. “We are unconvinced.” What if the judges had been more credulous, or the lawyers more persuasive? Could that have changed the verdict in the case?

Lankford and Steube concluded that this was too insecure a foundation on which to rely given all that is at stake. If American courts once latched onto the idea that tax exemption counted as federal financial assistance, the results would be disastrous for religious organizations. Churches, Christian grade schools, and faith-based universities would be subject to a future executive branch’s definition of civil rights law. They might be required to affirm same-sex marriage, all people who identified as transgender into private spaces reserved for the opposite sex, or even hire people who disagreed with their religious convictions.

In the alternative, Christian organizations could choose to relinquish their tax-exempt status and pay the 21% corporate income tax. This would greatly hamper their work, and it would virtually amount to a financial death sentence for the many Christian schools laboring to offer an affordable education while also providing teachers with reasonable compensation. Meanwhile, public schools continue to promote a leftwing agenda at the public’s expense.

Sadly, there is indeed an appetite on the Left for targeting the tax-exempt status of Christian organizations. Before the 2024 election, the Freedom from Religion Foundation (FFRF) demanded that the IRS strip away the tax-exempt status of the Billy Graham Evangelical Association. Before the 2022 election, ProPublica forced the IRS into investigating politically engaged churches (but only the conservative-leaning ones). A few months earlier, a group of Democratic lawmakers had written to Treasury Secretary Janet Yellen attacking the tax-exempt status of Family Research Council.

“Tax-exempt organizations should not live in fear of federal control every day because courts want to redefine the meaning of tax-exempt status,” Senator Lankford said in a statement to TWS. “Tax-exempt status is not the same as receiving federal funding, and it should not be used as political leverage against the nonprofits in Oklahoma and across the nation. We should be focused on enabling the work of these organizations — not burdening them with unnecessary and costly federal requirements.”