Garrett Pratt (Tennessee, Harmon Sch. Bus.), Who Defines Public Policy for Charitable Organizations? (July 27, 2026):
Charitable organizations must not engage in activities that are contrary to “fundamental public policy” to be tax-exempt. Historically, this limitation has almost exclusively been applied to revoke the tax-exempt status of private schools refusing to admit racial minorities based on the landmark U.S. Supreme Court decision Bob Jones University v. United States. However, the U.S. Treasury Department recently announced that it will revise its interpretation of the public policy limitation in light of recent caselaw developments, even though no federal appellate court has meaningfully addressed the limitation since Bob Jones. Instead, animated by the Court’s recent affirmative action ruling in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, along with similar lower court decisions, this impending guidance likely aims to weaponize tax law against Diversity, Equity, and Inclusion (DEI) initiatives at charitable organizations beyond private schools.
This article argues that Treasury’s anticipated guidance fundamentally misunderstands the public policy limitation by failing to acknowledge the centrality of Congress’s role in establishing public policy. Without federal legislation aligned with its position, Treasury cannot, under Bob Jones, unilaterally establish fundamental public policy and therefore cannot revoke the tax-exempt status of charitable organizations pursuing DEI initiatives. Furthermore, this article uncovers a critical, unintended consequence of revisiting the limitation: a rigorous Bob Jones inquiry will reveal robust public policy supporting DEI activities at charitable organizations seeking to rectify longstanding prejudices and discrimination against racial and ethnic minorities, women, and LGBT individuals. Ultimately, Treasury’s attempt to curtail DEI initiatives through tax administration will backfire, legally codifying the very programs the Executive Branch seeks to dismantle.
