It must be on a DBA level of writing becase this is a DBA course and has to be written different and correctly. Not copy and paste must be original work. The Professor uses a system that can tell if it is copy and paste and where the resource came from. Must read the study guide its part of the assignment.

Book Reference: Robbins, S. P., & Judge, T. A. (2019). Organizational behavior (18th ed.). New York, NY: Pearson. 

 

Instructions

Much debate has ensued since 2014 as a result of the Hobby Lobby company and how its owners chose to exercise their religious freedoms.

For this assignment, go to the CSU Online Library, and perform a search on “Hobby Lobby organizational behavior.” From the long list of results, select an article that relates to the debated issue about healthcare coverage to include covering the expense of birth control for employees.

Then, write an article critique that includes the following elements:

• Summarize the findings of the article you selected.
• Provide an introduction and brief description of the key factors/points of the issue and how they relate to organizational behavior. Note the article’s premise and supporting points.
• Discuss how this organizational behavior issue relates to and contributes to one or more of the four behavior science disciplines.
• Explain what you would do about this issue as a manager, and demonstrate your understanding of the implications from your decision to provide birth control coverage within a company’s healthcare package to employees. While you may mention the legal aspects of a case, you are not to focus solely on the legal aspects. Your perspective should be from a behavioral science viewpoint as it relates to organizational behavior. Opinions should be informed and substantiated by the literature surrounding the topic.

Your article critique should be a minimum of three pages in length, not counting the title page and references page. You are required to use a minimum of one source from the CSU Online Library for this assignment. Use APA format for your paper, including all references and in-text citations.

Resources

The following resource(s) may help you with this assignment.

• Citation Guide
• CSU Online Library Research Guide
• Submit Writing Center Request

DBA 7420, Organizational Behavior and Comparative Management 1

Course Learning Outcomes for Unit II

Upon completion of this unit, students should be able to:

1. Critique organizational behavior in the workplace.
1.1 Discuss organizational behavior.
1.2 Analyze the impact of factors contributing to organizational behavior.

2. Discuss the major behavior science disciplines that contribute to organizational behavior.

2.1 Relate a behavior science discipline to organizational behavior.
2.2 Explore the contributions of behavior science disciplines to organizational effectiveness.

Course/Unit
Learning Outcomes

Learning Activity

1.1 Unit II Article Critique

1.2 Unit II Article Critique

2.1

Unit Lesson
Chapter 1, pp. 15–16
Article: “Cross-Cultural Industrial Organizational Psychology and

Organizational Behavior: A Hundred-Year Journey.”
Article: “Ethical Climates and Their Effects on Organizational Outcomes:

Implications From the Past and Prophecies for the Future.”
Unit II Article Critique

2.2

Unit Lesson
Chapter 1, pp. 15–16
Article: “Cross-Cultural Industrial Organizational Psychology and
Organizational Behavior: A Hundred-Year Journey.”
Article: “Ethical Climates and Their Effects on Organizational Outcomes:
Implications From the Past and Prophecies for the Future.”
Unit II Article Critique

Reading Assignment

Chapter 1: What Is Organizational Behavior?, pp. 15–16

In order to access the following resources, click the links below.

Gelfand, M. J., Aycan, Z., Erez, M., & Leung, K. (2017). Cross-cultural industrial organizational psychology

and organizational behavior: A hundred-year journey. Journal of Applied Psychology, 102(3), 514–
529. Retrieved from
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bsu&AN=124805533&site=eds-live&scope=site

Simha, A., & Cullen, J. B. (2012). Ethical climates and their effects on organizational outcomes: Implications

from the past and prophecies for the future. Academy of Management Perspectives, 26(4), 20–34.
Retrieved from
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bsu&AN=84930146&site=ehost-live&scope=site

UNIT II STUDY GUIDE

Major Behavioral
Science Disciplines

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=124805533&site=eds-live&scope=site

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=124805533&site=eds-live&scope=site

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=84930146&site=ehost-live&scope=site

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bsu&AN=84930146&site=ehost-live&scope=site

DBA 7420, Organizational Behavior and Comparative Management 2

UNIT x STUDY GUIDE

Title

Unit Lesson

Introduction

In order to gain a greater appreciation of organizational behavior and all that it entails, we must delve deeper
into the subject matter. Do you remember us talking about individual and group dynamics during our last unit?
Well, to break that down even further, we must examine what triggers people to do what they do. In some
cases, people make decisions based on their sole discretion to be able to do so. In other cases, the decisions
and actions may be prompted by observances of others or as a result of what others have done. How might
we predict the types of behaviors that could be seen in the workplace? Might there be instances when we
could use this knowledge to craft the environment we feel is going to produce the most optimum outcomes?
One could suspect the answer to those questions and more is “yes.” To do so, we need to learn more about
how people respond both individually, in groups, and as a result of groups (Robbins & Judge, 2019). What we
are talking about here involves psychology, social psychology, sociology, and anthropology (Robbins &
Judge, 2019).

Psychology

Have you ever watched a crime investigation series on television? If so, perhaps you can think about the
many questions they ask of themselves and others when investigating a crime. What was the motive? What
was his or her childhood like? Were there any recent changes in behavior? Were there any events recently
that triggered a change in mood, attitude, or behavior? The list goes on. With all of the questions, one is
bound to come up with answers. However, do you know what they are trying to do? These crime scene
investigators are trying to use psychology to determine the suspect’s frame of mind, why the actions occurred,
and the suspect’s next move. What is he or she likely to do next? It is all a part of trying to determine how an
individual is going to react or behave based on a number of different criteria such as personality, motivation,
training, stress, satisfaction, and more (Robbins & Judge, 2019).

As leaders in the workplace, understanding our workers and their behaviors can help us in devising the
strategies necessary to drive the intended behaviors we need to accomplish our goals and objectives along
with those of our organization (Robbins & Judge, 2019). While we may focus on motivation, there are other
avenues that may also prove fruitful. For instance, if we knew of an employee who thrived under a certain set
of conditions, might we be able to create and/or sustain those in order to improve his or her performance? We
would be feeding the individual psyche to generate the desired performance. One example would be to
manage a person who thrives, and even likes, a fast-paced environment. Placing this person in the
organization where the work comes fast would benefit both individuals.

The challenges arise when we not only must evaluate the behaviors of an individual, but we must also
consider how those same individuals respond when in groups or how they respond as a result of what they
witness in group interactions. This leads us to some of the other behavioral disciplines such as sociology and
social psychology.

Sociology

Have you ever heard of a pack mentality? While a pack of wolves or coyotes is certainly outside of the typical
business example, the same types of behaviors can be seen. When observing a pack of wolves, there is
typically one leader who will set the stage for how the others behave. If this leader chooses to attack
something, the others in the pack will typically follow suit and do the same.

Similar behaviors can be seen when looking at a group of individuals in the workplace. Have you ever heard
of the term group think? This occurs when one person makes a suggestion or decision, and others in the
group go along with the original idea that was presented.

In both cases of pack mentality and group think, these examples help to illustrate the discipline of sociology.
As noted in our reading, sociology is described as “the study of people in relation to their social environment
or culture” (Robbins & Judge, 2019, p. 16). In the examples shared in the previous two paragraphs, the
behavior was demonstrated in a certain manner due to the social environment surrounding them.

DBA 7420, Organizational Behavior and Comparative Management 3

UNIT x STUDY GUIDE
Title

As managers, understanding the group dynamics at work can aid us in determining why we as an
organization are going down a certain path. Perhaps it is not so much that the organization is thinking the
path chosen is the best one; instead, those within the organization are simply following what others within the
industry have done (Robbins & Judge, 2019). This is not to suggest that those actions are necessarily the
right actions or that they will necessarily lead to the desired outcome. The organization is simply being
influenced by the actions of others. Perhaps we are falling victim to sociological misfortune.

Another thing to keep in mind is that social conditions are constantly changing, and we must be aware that
there are both positive and negative social influences. An example of this is when one member of a team
changes and the whole team stops being effective. As leaders, we must find out what is causing the change
and fix it. This does not always mean that this sudden issue is caused by new person.

The challenge then becomes whether or not we are willing to go against the grain and introduce additional
alternatives. In some cases, the willingness to present new ideas and ways of doing things is not so much
influenced by the group in which we find ourselves, but it may be intertwined with social psychology
perspectives.

Social Psychology

Consider what happens to many people when sitting in a meeting. The leader asks people for their
suggestions for improvement of something. You have all likely been in this situation at one time or another.
What happens? Do you speak up? Do you remain quiet? Many choose to remain quiet simply because they
are fearful of what others may think of the suggestion. Is it silly? Will others suspect that you do not know
what you are talking about or do not have a clear understanding of the problem? The trepidation manifests
itself to the point that there is no action on your part. You simply cannot overcome the uneasiness that comes
from wondering what others will think. You are now faced with the realization that you were just influenced by
others’ thoughts or actions, perceived or real. Indeed, we are now dealing with social psychology. Robbins
and Judge (2019) define social psychology as “an area of psychology that blends concepts from psychology
and sociology to focus on the influence of people on one another” (p. 15).

Knowing that this is an issue for others, managers have an opportunity to emphasize the importance of the
contribution of each employee makes in bringing the organization to greatness and accomplishing its goals
and objectives. Whether managers choose to occasionally approach employees for one-on-one
conversations or provide avenues to make anonymous suggestions without ridicule is paramount.

Without valuing the inputs from all, are we not doing a disservice to our employees, ourselves, and our
organization? The challenge is to find a way to bring out the best in each and every individual involved.

Anthropology

As noted in this week’s assigned reading, Robbins and Judge (2019) define anthropology as “the study of
societies to learn about human beings and their activities” (p. 16). In doing so, we are actually studying
various cultures and how those cultures influence behaviors.

For example, let’s consider an organization run by women in the United States. This same organization is
looking to expand globally. What happens if these women want to go to Saudi Arabia? Even with the rise in
women entrepreneurs, women are still expected to wear a black over-garment (abaya) and cover their hair
with a type of scarf (Kwintessential, n.d.). What if you opted to wear a casual pair of tan pants and a bright
orange shirt to a meeting in Great Britain? Did you realize the dress there is typically conservative with the
preferred color choices including black, dark blue, or charcoal gray (Passport to Trade, n.d.). Even an
innocent mistake in clothing choice could create problems. Doing research into the culture of a locale prior to
a visit (whether for business or pleasure) is sure to help avoid many problems.

Conclusion

As we are learning about the different organizational behavior disciplines, it becomes evident that for as much
as we do know, there is still much to be learned. It is a complex area of study with many moving parts.
Nonetheless, the more we know, the better prepared we will be when it comes time to make educated

DBA 7420, Organizational Behavior and Comparative Management 4

UNIT x STUDY GUIDE
Title

decisions in our workplace. With any luck, we may have a better understanding of the group dynamics at work
that really are influencing the people who support us.

References

Kwintessential. (n.d.). Saudi Arabia facts and statistics. Retrieved from

https://www.kwintessential.co.uk/resources/guides/guide-saudi-arabia-etiquette-customs-culture-
business/

Passport to Trade. (n.d.). Business etiquette. Retrieved from https://businessculture.org/northern-europe/uk-

business-culture/business-etiquette/

Robbins, S. P., & Judge, T. A. (2019). Organizational behavior (18th ed.). New York, NY: Pearson.

C o r p o r a t io n s , T a x e s , a n d R e l ig io n : T h e Hobby Lobby a n d Conestoga
C o n t r a c e p t iv e C a s e s

Steven J. Willis*

I. Introduction……………………………………………………………………………………2
A. Background on the Hobby Lobby Litigation……………………………………. 5
B. Background on the Conestoga Litigation………………………………………… 7
C. Background on the Grote Industries and Korte Litigation………………….8
D. Issues………………………………………………………………….. 9
E. Litigants ’ Dilemma………………………………………………………………………..9
F. Reasons Tax Lawyers Should Care………………………………………………..

1

3

1. Choice o f Entity Issues…………………………………………………………… 13
2. These Cases Arise in Tax Law ………………………………………………..14
3. Other Significant Religious Entanglements Also Involve Tax

Law …………………………………………………………………………………….. 15

II. Asserting Owners’ Rights………………………………………………………………15
A. Prudential and Associational Standing…………………………………………..16
B. Corporations as Associational Entities…………………………………………. 21
C. Christianity as Associational………………………….. 26
D. Reverse Veil Piercing…………………………………………………………………..27
E. Corporate Status as Elective………………………………………………………… 30

III. Entities as RFRA Persons……………………………………………………………… 32
A. History o f RFRA………………………………………………………………………….32
B. Corporate Rights Under RFRA…………………………………………………….. 32

IV. Corporate Rights……………………………… 35
A. Corporate Nonreligious Constitutional Rights………………………………. 35
B. Corporate Religious Rights…………………………………………………………. 37
C. Religion, Morality, and Commerce in General……………………………….38
D. Morality and Corporations………………………………………………………….. 44

/. Corporate Social Responsibility Movement (CSR)…………………….45
2. Social Entrepreneurship Movement………………………………………… 48

a. Low Profit Limited Liability Companies (L3Cs)………………… 49
b. Benefit Corporations (B Corporations)…………………………….. 51
c. Sustainable Business Corporations…………………………………… 52

Professor of Law, University of Florida, member of the Florida Bar and Louisiana Bar
(inactive) and Certified Public Accountant (Louisiana, inactive). The author thanks J. P. Dasburg
(J.D. 2014 candidate at the University of Florida) for his insightful comments on corporate
constitutional rights, as well as Hans Tanzler IV (J.D. 2014 candidate at the University of Florida),
Kyle Griffin, (member of the Florida Bar and LL.M. candidate at the University of Florida), and
Edward Waters, (member of the Florida Bar and LL.M. candidate at the University of Florida), each
for valuable help in drafting and editing.

1

2 South Carolina Law Review [Vol. 65:1

d. Faith Based Companies (FBCs)…………………………………………. 55
i. State Granted Religious Status……………………………………..55
ii. Self-Granted Religious Status………………………………………56
Hi. A Proposal for a Model Statute…………………………………….58

e. The Profit versus Not-for-Profit Dichotomy……………………….. 61
i. Not Code-Based………………………………………………………….. 61
ii. “Not-for-Profits ” Often Have Profits………………………….. 63
iii. Many Types o f Nonprofit Entities Exist: Lumping Them

Together is Wrong……………………………………………………….66
(a) Business Leagues…………………………………………………..66
(b) Social Clubs…………………………………………………………. 67
(c) Social Welfare Organizations…………………………………67
(d) Labor Unions………………………………………………………..68

iv. The Commerciality Doctrine: That’s Not the Point,
Either………………………………………………………………………….68

V. How Far Might This Reach? …………………………………………………………….. 70
A . Corporations………………………………………………………………………………….70

1. C Corporations……………………………………………………………………….. 70
2. Close Corporations and Closely Held Corporations………………….. 71
3. S Corporations………………………………………………………………………… 72
4. LLC …………………………………………………………………………………………73
J. L3C ……………………………………………………………………………………….. 73
6. B Corporations………………………………………………………………………. 74

B. Partnerships………………………………………………………………………………….. 74
1. Limited Partnerships…………………………………………………………………74
2. Family Limited Partnerships………………………………………………. …..75
3. General Partnerships………………………………………………………………..75

C. Trusts…………………………………………………………………………………………….76
D. Estates……………………………………………………………………………………………76

VI. Consequences for Lawyers…………………………………………………………….. 77

VII. Conclusions……………………………………………………………………………………….79

I. In t r o d u c t io n

Hobby Lobby Stores, Inc. v. Sebelius1 and related tax cases2 raise serious
questions about religious freedom: whether the federal government may “tax”2

1. No. CIV-12-1000-HE, 2013 WL 3869832, at *2 (W.D. Okla. July 19, 2013) (granting
injunction), on remand from 723 F.3d 1114 (10th Cir. June 27, 2013), rev’g and remanding en
banc, 870 F. Supp. 2d 1278 (W.D. Okla. 2012) (Hobby Lobby District I). In her supervisory
capacity over the Tenth Circuit, Justice Sotomayor previously denied an injunction pending

2013] Corporations, Taxes, and Religion 3

corporate employers that, for religious reasons, decline to provide mandated
contraceptives and “early abortion” insurance coverage in employee health
plans.4 The federal appellate courts are split four-to-two in favor of the

appellate review. Hobby Lobby Stores, Inc. v. Sebelius, 133 S. Ct. 641, 643 (2012) (using a higher
standard than appropriate for a district court injunction).

2. Thirty-nine other cases involve “for-profit” businesses. Autocam Corp. v. Sebelius, No.
12- 2673, slip op. at 1 (6th Cir. Sept. 17, 2013); Conestoga Wood Specialties Corp. v. Sebelius, No.
13- 1144, 2013 WL 3845365, at *1 (3d Cir. Jul. 26, 2013); Eden Foods v. Sebelius, No. 12-11229,
2013 WL 1190001 (6th Cir. Mar. 22, 2013); Annex Med., Inc. v. Sebelius, No. 13-1118, 2013 WL
1276025, at *1 (8th Cir. Feb. 1, 2013); Grote v. Sebelius, 708 F.3d 850, 852 (7th Cir. Jan. 30,
2013); Korte v. Sebelius, No. 12-3841, 2012 WL 6757353, at *3 (7th Cir. Dec. 28, 2012); Hall v.
Sebelius, 667 F.3d 1293, 1294 (D.C. Cir. Feb. 7, 2012); Order, Barron Indus, v. Sebelius, 13-CV-
1330 (D.D.C. Sept. 25, 2013); Bindon v. Sebelius, No. l:13-cv-1207, slip op. at 1 (D.D.C. Aug. 5,
2013); Armstrong v. Sebelius, No. 1:13-CV-00563, 2013 WL 4012713 (D. Colo. Aug. 1, 2013);
Mersino Mgmt. Co. v. Sebelius, No. 13-cv-U296, 2013 WL 3546702 (E.D. Mich. July 11, 2013);
Beckwith v. Sebelius, No. 8:13-cv-0648-T-17MAP, 2013 WL 3297498, at *2 (M.D. Fla. June 25,
2013); MK Chambers Co. v. Dep’t of Health & Human Servs., No. 13-11379, slip op. at 1 (E.D.
Mich. April 3, 2013); Monaghan v. Sebelius, No. 12-15488, 2013 WL 1014026 2013 (E.D. Mich.
Mar. 14, 2013); Geneva Coll. v. Sebelius, No. 2:12-cv-00207, 2013 WL 838238, at *1 (W.D. Pa.
March 6, 2013); Gilardi v. Sebelius, 926 F. Supp. 2d 273 (D.D.C. Mar. 3, 2013); Briscoe v.
Sebelius, No. 13-CV-00285-WYD-BNB, 2013 WL 755413, at *1 (D. Colo. Feb. 27, 2013); Sharpe
Holdings, Inc. v. U.S. Dep’t of Health & Human Servs., No. 2:12-CV-92-DDN, slip op. at 2 (E.D.
Mo. Dec. 31, 2012); Am. Pulverizer Co. v. United States, No. 12-3459-CV-S-RED, slip op. at 2
(W.D. Mo. Dec. 20, 2012); Tyndale House Publishers, Inc. v. Sebelius, 904 F. Supp. 2d 106, 114
(D.D.C. Nov. 16, 2012); Legatus v. Sebelius, 901 F. Supp. 2d 980, 980 (E.D. Mich. Oct. 31, 2012);
O’Brien v. U.S. Dep’t of Health & Human Servs., 894 F. Supp. 2d 1149, 1154 (E.D. Mo. Sept. 28,
2012) ; Newland v. Sebelius, 881 F. Supp. 2d 1287, 1292 (D. Colo. July 27, 2012); Second
Amended Preliminary Injunction, The QC Grp., Inc. v. Sebelius, No. 13-1726 (D. Minn. Sept. 11,
2013) ; Order. Willis Law v. Sebelius, 1:13-cv-01124 (D.D.C. Aug. 23, 2013); Order, Ozinga v.
United States, 1:13-cv-3292 (N.D. 111. July 26, 2013); Preliminary Injunction, SMA, LLC v.
Sebelius, 0:13-cv-01375 (D. Minn. July 8, 2013); Order, Bick Holding, Inc. v. Sebelius, No. 4:13-
cv-00462-AGF (E.D. Mo. April 1, 2013); Order and Preliminary Injunction, Tonn & Blank Constr.
v. Sebelius, l:12-cv-325 (N.D. Ind. Apr. 1, 2013); Agreed Preliminary Injunction, Lindsay v.
Sebelius, No. 13-C-1210 (N.D. 111. March 20, 2013); Order, Sioux Chief Mfg. Co., Inc. v. Sebelius,
No. 13-0036-CV-W-ODS (W.D. Mo. Feb. 28, 2013); Complaint at 2, Wieland & Weiland v. United
States, 4:13-cv-01577 (E.D. Mo. Aug. 14, 2013); Complaint at 2, Holland v. United States, No.
2:13-cv-11111 (S.D. W. Va. June 24, 2013); Complaint at 6, M&N Plastic, Inc. v. Sebelius, No.
2:13-cv-12036 (E.D. Mich. May 8, 2013); Complaint at 3, Johnson Welded Prods., Inc. v. Sebelius,
l:13-cv-00609 (D.D.C. Apr. 30, 2013); Complaint for Declaratory and Injunctive Relief at 8,
Hartenbower v. U.S. Dep’t of Health & Human Servs., No. l:13-cv-2253 (N.D. 111. March 26,
2013); Complaint at 4 Infrastructure Alternatives v. Sebelius, No. 1 -13-cv-31 (W.D. Mich. Jan.10,
2013); Complaint at 6, Triune Health Grp. v. U.S. Dep’t of Health & Human Servs., No. 12-6756
(N.D. III. Aug. 22, 2012).

3. Congress labeled § 4980D as an excise. See l.R.C. § 4980D (2006) (falling under subtitle
D, which Congress titled “Miscellaneous Excise Taxes”). Whether it is a penalty or a tax—and
whether the two differ—is beyond the scope of this article, which will refer to it as a tax.

5. The mandate requires coverage for all FDA approved contraceptives. Hobby Lobby
District /, 870 F. Supp. 2d at 1283. “Included among the FDA-approved contraceptive methods are
diaphragms, oral contraceptive pills, emergency contraceptives such as Plan B and ulipristal,
commonly known as the morning-after pill and the week-after pill, respectively, and intrauterine
devices.” Id. at 1284. Plan B and ulipristal “may . .. work by changing the lining of the womb
(uterus) that may prevent attachment (implantation).” Birth Control: Medicines to Help You, U.S.

4 So u t h C a r o l in a La w R ev iew [VOL. 65: 1

employers regarding the core standing issues,* * 5 6 and a certiorari application is
pending.’ District courts are also split, with the current scorecard strongly
favoring the employers. 7 The government’s position, if successful, will put some
closely held business owners in what the owners view as untenable positions.8

The three most significant cases9 involve Hobby Lobby Stores, Inc. in the
Tenth Circuit, 10 Conestoga Wood Specialties Corporation in the Third Circuit, 11

Food & Drug Administration, www.fda.gov/ForConsumers/ByAudience/ForWomen/
FreePublications/ucm313215.htm (last visited Sept. 21, 2013).

5. The Seventh, Eighth, Tenth, and D.C. Circuits have granted injunctions. See Gilardi,
2013 WL 803153, at *2 (granting injunction on the court’s own motion to reconsider its prior order
denying an injunction); Annex, No. 13-1118, 2013 WL 1276025, at *9; Grote, 708 F.3d at 855,
consolidated with Korte, 2012 WL 6757353, at *5; O ’Brien, 2012 U.S. App. LEXIS 26633, *2
(ordering a “stay pending appeal” without opinion, which appears to be the equivalent of an
injunction under Annex, 2013 WL 1276025, at *8), reversing 894 F. Supp. 2d 1149, 1169 (E.D. Mo.
2012) (granting the government’s motion to dismiss). The Third and Sixth Circuits have denied
injunctions. See Conestoga, 2013 WL 1277419, at *11; Eden Foods, 2013 WL 1190001 at *7-8;
Autocam, No. 12-2673, slip op. at 15.

6. Petition for Writ of Certiorari, Conestoga Wood Specialties Corp. v. Sebelius, No. 13-
1144, 2013 WL 3845365, at *1 (3d Cir. Jul. 26, 2013).

7. Thirty for-profit taxpayers have received preliminary injunctions. See HHS Mandate
Information Central, THE BECKET Fund, http://www.becketfund.org/hhsinformationcentral (last
visited Sept. 29, 2013). Five for-profit taxpayers have not received injunctions. Conestoga, 2013
WL 1277419, at *11; Eden Foods, 2013 WL 1190001 at *7-8; Mersino, 2013 WL 3546702, at *17;
MK Chambers, No. 13-11379, at 7; Autocam, 2012 WL 6845677, at *5, aff’d, No. 12-2673, slip op.
at 15 (Sept. 17, 2013). Additionally, four for-profit taxpayers have not yet received injunction
hearings. See HHS Mandate Information Central, supra (noting that Holland, Infrastructure
Alternatives, M&N Plastic, and Midwest Fasteners Corp. have not received injunction hearings).

8. See infra Part I.E and accompanying discussion.
9. On November 1, 2013, just before publication of this Article, the D.C. Circuit decided

Gilardi v. U.S. Department o f Health & Human Services, a fourth important case. No. 13-5069,
2013 WL 5854246 (D.C. Cir. Nov. 1, 2013). In a unanimous opinion, the court concluded that the
Gilardis had shareholder standing to pursue a preliminary injunction. Id. at *6-7 (citations
omitted). The court explained that if the company had no right to complain of a religious liberty
violation, the shareholders did have such a right:

If the companies have no claim to enforce—and as nonreligious corporations, they cannot
engage in religious exercise—we are left with the obvious conclusion: the right belongs
to the Gilardis, existing independent of any right of the Freshway companies. Thus, the
Gilardis’ injury—which arises therefrom—is “separate and distinct,” providing us with
an exception to the shareholder-standing rule.

Id. at *7. Although the government argued that religious rights disappear when an individual
creates a corporation, the court disagreed, stating it did “not believe Congress intended important
statutory rights to turn on the manner in which an individual operates his business.” Id. at *9. The
majority also concluded—over one dissenting judge—that the Gilardis had a sufficient likelihood of
success on the merits, but remanded the case for consideration of other preliminary injunction
factors. Id. at *15.

On the other hand, the court ruled against Freshway Foods, Inc.—which it repeatedly
denominated as a secular corporation—on its First Amendment and RFRA claims. See id. at *6-7.
Of significance, the court stated that “[fjortunately, we need not opine here on what a ‘religious
organization’ is, as the Freshway companies have conceded they do not meet that criterion.” Id. at
*5. Whether Freshway actually conceded the issue is debatable; however, as a concession, it
renders the court’s comments on corporate religious rights as dicta. The court also rejected the

http://www.fda.gov/ForConsumers/ByAudience/ForWomen/

http://www.becketfund.org/hhsinformationcentral

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 5

and Grote Industries/Korte & Lutijohan Contractors, Inc. in the Seventh
Circuit,1” all of which raise some potentially different issues. Hobby Lobby’s
case involves the largest dollar amount, as the company was out of compliance
for nineteen days, but Hobby Lobby ultimately received an injunction.13
Conestoga, on the other hand, did not receive an injunction, but the company
chose to comply.14 Korte received an injunction prior to the date on which the
mandate became effective, but the company has materially less than 100% of its
shareholders involved.15

A. Background on the Hobby Lobby Litigation 6

The main issues have arisen in numerous cases,17 including Hobby Lobby
Stores, Inc. v. Sebelius. ‘8 Hobby Lobby operates 514 hobby stores in forty-one
states and has 13,240 full-time employees.19 All of the voting stock of both

corporation’s claim for standing to assert its shareholders’ rights, refusing to follow the Ninth
Circuit’s “pass through theory of corporate standing” in Townley. Id. (citing Equal Emp’t
Opportunity Comm’n v. Townley Eng’g & Mfg. Co., 859 F.2d 610, 619 (9th Cir. 1988)). Each of
the holdings pertaining to the entities also conflicted with the Tenth Circuit’s en banc opinion in
Hobby Lobby v Sebelius. Petition for Writ of Certiorari at 1-2, Gilardi v. U.S. Dep’t of Health &
Human Servs. (filed Nov. 2013), available at http://media.aclj.org/pdf/gilardi-petition-for-certiorari-
filed . The D.C. Circuit’s reliance on Ohio law regarding shareholder rights to assert standing
was also noteworthy. Gilardi, No. 13-5069, 2013 WL 5854246, at * *7 n.5. The court distinguished
close corporations from large corporations. Id. As noted elsewhere in this Article, state law
typically controls issues of entity purposes and owner rights in relation to state-created or state-
recognized entities. See infra notes 482-91 and accompanying text.

10. See cases cited supra note 1.
11. See Conestoga, 2013 WL 1271419.
12. See Grote, 708 F.3d 850, consolidated with Korte, 2012 WL 6757353.
13. See Hobby Lobby Stores, Inc. v. Sebelius, No. CIV-12-1000-HE, 2013 WL 3869832, at

*2 (W.D. Okla. July 19, 2013). Information on Hobby Lobby’s compliance was obtained through a
conversation with a confidential source.

14. See Conestoga, 2013 WL 1277419, at *2, affg, 917 F. Supp. 2d 394 (E.D. Pa. Jan. 11,
2013). Information on Conestoga’s compliance was obtained through a conversation with a
confidential source.

15. See Korte, 2012 WL 6757353, at *5.
16. See generally Mark L. Rienzi, God and the Profits: Is There Religious Liberty For

Money-Makers?, 21 GEO. Mason L. Rev . (forthcoming 2013) (manuscript at 2), available at
http://ssm.com/abstract=2229632 (offering a comprehensive look at the relationship between
profitmaking and religious liberty, arguing that the act of earning money does not preclude
profitmaking businesses and their owners from engaging in protected religious activities); Scott W.
Gaylord, For-Profit Corporations, Free Exercise, and the HHS Mandate, 91 WASH. U. L. REV.
(forthcoming 2013) (manuscript at 3), available at http://ssm.com/abstract=2237630 (discussing
whether individual business owners and their for-profit corporations have standing to raise free
exercise claims).

17. See cases cited supra note 2. In addition, at least thirty other cases involve entities
organized under state “not-for-profit” statutes. See HHS Mandate Information Central, supra note
7. To date, only one of the “nonprofit” cases has been decided on the merits. Id.

18. 870 F. Supp. 2d 1278 (W.D. Okla. 2012).
19. Id. at 1284.

http://media.aclj.org/pdf/gilardi-petition-for-certiorari-filed

http://media.aclj.org/pdf/gilardi-petition-for-certiorari-filed

http://ssm.com/abstract=2229632

http://ssm.com/abstract=2237630

6 South Carolina Law Review [Vol. 65: 1

Hobby Lobby and its co-petitioner Mardel, Inc.—a non-tax-exempt Christian
bookstore with 372 employees in seven states—is owned by a management
trusts” Five closely related individuals comprise the trustees and beneficial
o wne r s . Bo t h corporations elect “S” status for tax purposes.22

Hobby Lobby has long provided its employees a “group health insurance
plan.”23 The plan uses a June 30 fiscal year.24 As a result, the contraceptive
mandate and the tax under section 4880D first applied to the plan beginning on
July 1, 2013.2? Neither Hobby Lobby nor Mardel qualify for religious
exemption,26 neither has “grandfathered” status27 or small employer status, and

20. See Complaint at 1, Hobby Lobby District I, 870 F. Supp. 2d 1278 (No. 12-1000)
[hereinafter Hobby Lobby Complaint]. Whether the trust is simple or complex is not disclosed in
the fdings. See I.R.C. §§ 641 & 651; Hobby Lobby Complaint, supra. Simple trusts are passed
through entities; as a result, the beneficiaries are responsible for income tax on profits. See Types o f
Trusts and Living Trusts, HG LEGAL RESOURCES, www.hg.org/types-of-trusts.html (last visited
Sept. 21, 2013). In contrast, complex trusts are themselves taxpayers. Id. The issue is plausibly
relevant for standing purposes.

21. Hobby Lobby Complaint, supra note 20, at 1.
22. Brief of Appellants at 33, Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, No. 12-

6294 (10th Cir. June 27, 2013) [hereinafter Brief of Appellants], This fact, while noted in a brief, is
not in evidence and was not alleged in the petition.

23. See Hobby Lobby, 723 F.3d at 1124; I.R.C. § 9832 (2006) (citing § 5000(b)(1)) (defining
a group health plan).

24. See Brief of Appellants, supra note 22, at 11. The plan changed to a fiscal year as a
result of the litigation. See id.

25. See id.
26. See Certain Preventive Services Under the Affordable Care Act, 77 Fed. Reg. 16,501,

16,502 (proposed Mar. 21, 2012) (to be codified at 26 C.F.R. pt. 54, 29 C.F.R. pt. 2590, 46 C.F.R.
pt. 147) (defining “religious employer” for purposes of the religious exemption); Group Health
Plans and Health Insurance Issuers Relating to Coverage of Preventive Services Under the Patient
Protection and Affordable Care Act, 77 Fed. Reg. 8725, 8276 (Feb. 15, 2012) (to be codified at 26
C.F.R. pt. 54, 29 C.F.R. pt. 2590, 45 C.F. R. pt. 147) (defining “religious employer” for purposes of
the religious exemption). “On February 6, 2013, the [Geneva College] defendants issued proposed
rules . . . broadening the universe of organizations eligible for an exemption from the contraceptive
requirement.” See Geneva Coll., 2013 WL 838238, at *7 (citing Coverage of Certain Preventive
Services Under the Affordable Care Act, 78 Fed. Reg. 8456, 8462 (Feb. 6, 2013) (to be codified at
26 C.F.R. pt. 54, 29 C.F.R. pt. 2590, 45 C.F.R. pts. 147, 148, 156)). According to the court:

The proposed rules exclude from the contraceptive requirement those organizations that
meet certain criteria: (1) “The organization opposes providing coverage for some or all of
the contraceptive services required to be covered under [the final regulations] on account
of religious objections;” (2) “The organization is organized and operates as a nonprofit
entity;” (3) “The organization holds itself out as a religious organization;” and (4) “The
organization self-certifies that it satisfies the first three criteria.”

Id. Moreover, the court stated:
In an effort to also accommodate those plan beneficiaries who may not share the beliefs
of the organizations claiming the accommodation, the proposed rules also set forth
proposed ways to “provide women with contraceptive coverage without cost sharing and
to protect eligible organizations from having to contract, arrange, pay, or refer for
contraceptive coverage to which they object on religious grounds.”

Id. (citing Coverage of Certain Preventive Services Under the Affordable Care Act, 78 Fed.
Reg. 8456, 8462-64).

http://www.hg.org/types-of-trusts.html

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 7

neither provides the mandated coverage.29 Both Hobby Lobby and Mardel
received preliminary injunctions on July 19, 2013/’” The United States District
Court for the Western District of Oklahoma initially denied the injunction—a
decision which was affirmed by the Tenth Circuit; however, the Tenth Circuit,
sitting en banc, later remanded the case to the district court for further
proceedings/1 Thus, Hobby Lobby and Mardel were out of compliance for
approximately three weeks.,2

B. Background on the Conestoga Litigation

Conestoga is a Pennsylvania “for-profit” corporation that manufactures
wood cabinetry and has 950 full-time employees in three states.33 Five closely
related individuals—the Flahn family—own all of the corporation’s stock.34 The
Hahns are devout Mennonites who believe that abortion is an “intrinsic evil.”35
The corporation elects S status for federal tax purposes.36 Conestoga provides its
employees with a group health insurance plan that uses the calendar year.37 The
corporation currently complies with the mandate because the United States
District Court for the Eastern District of Pennsylvania denied a preliminary
injunction—a decision which was affirmed by the Third Circuit.ji<

27. See 26 C.F.R. § 54.9815-1251 T(a) (2013); 29 C.F.R. § 2590.715-1251(a) (2012); 45
C.F.R. § 147.140(a) (2012).

28. Small employers are those with an average of fewer than fifty-one full-time employees
during the prior year and with at least two employees at the beginning of the current year. I.R.C.
§ 4980D(d)(2)(A) (2006).

29. See Ftobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1124-25 (10th Cir. June 27,
2013) (objecting to the mandated coverage).

30. Hobby Lobby Stores, Inc. v. Sebelius, No. CIV-12-1000-HE, 2013 WL 3869832, at *2
(W.D. Okla. July 19, 2013).

31. See id. at * 1.
32. Information on their compliance was obtained through a conversation with a confidential

source.
33. Complaint at 5, 9, Conestoga v. Sebelius, 917 F. Supp. 2d 394 (E.D. Pa. 2012) (No. 5:12-

cv-06744-MSG) [hereinafter Conestoga Complaint]; Employment, CONESTOGA,
http://www.conestogawood.com/employment (last visited Sept. 22, 2013).

34. Id.
35. Id. at 7-8.
36. This information is not publicly available, but was confirmed in a private conversation.
37. Conestoga Complaint, supra note 33, at 9.
38. Conestoga, 917 F. Supp. 2d at 419, aff’d, 724 F.3d 377 (3d Cir. July 26, 2013). The

court did not state when compliance began or for how long, if any time, Conestoga was not in
compliance. See id. According to Conestoga’s counsel, Conestoga currently complies with the
mandate.

http://www.conestogawood.com/employment

8 South Carolina Law Review [VOL. 65: 1

C. Background on the Grote Industries and Korte Litigation

Grote Industries is an Indiana for-profit corporation that manufactures safety
valves and has 1,148 full-time employees.39 Six closely related individuals—the
Grote family—own all of the corporation’s stock.40 The Grotes are devout
Roman Catholics who believe that abortion is an “offense against God.”41 The
corporation elects S status for federal tax purposes.42 Grote Industries also
provides its employees with a group health insurance plan that uses the calendar
year.4′ The Seventh Circuit granted an injunction in Grote v. Sebelius44 on
January 30, 2013, and consolidated the case with Korte v. Sebelius

Korte, an Illinois for-profit corporation, is a construction contractor that has
ninety full-time employees.46 Two closely related individuals—the Korte
family—own 87.348% of the stock.47 The Kortes are devout Roman Catholics
who believe that abortion is “gravely sinful.”48 The corporation elects S status
for federal tax purposes.49 Korte provides its nonunion employees with a group
health insurance plan that uses the calendar year.50 The Seventh Circuit granted
an injunction in Korte on December 28, 2012, and later consolidated the case
with Grote Industries.5I

39. Verified Complaint at 2, 10, Grote v. Sebelius, 914 F. Supp. 2d 943 (S.D. Ind. 2012),
(No. 4:12-cv-134) [herineafter Grote Complaint], The Grote family also owns Grote Industries,
LLC, which is another litigant. Id. at 3.

40. Id. at 2.
41. Id. at 2-3.
42. This information is not publicly available, but was confirmed in a private conversation.
43. Grote Complaint, supra note 39, at 3
44. 708 F.3d 850 (7th Cir. 2013).
45. No. 12-3841, 2012 WL 6757353, at *5 (7th. Cir. Dec. 28, 2012), consolidated with

Grote, 708 F.3d at 852.
46. Complaint for Declaratory and Injunctive Relief at 3-5, 7, Korte v. Sebelius, 912 F.

Supp. 2d 735 (S.D. 111. 2012) (No. 3:12-cv-01072-MJR-PMF) [hereinafter Korte Complaint].
Seventy of the employees receive health insurance through their union rather than from Korte,
which provides the other twenty with a group health insurance plan. Id. at 5.

47. Id. at 3^4.
48. Id. at 5.
49. This information is not publicly available, but was confirmed in a private conversation.
50. Korte Complaint, supra note 46, at 5.
51. See Korte v. Sebelius, No. 12-3841, 2012 WL 6757353, at *5 (7th Cir. Dec. 28, 2012),

consolidated with Grote v. Sebelius, 708 F.3d 850, 852 (7th. Cir. Jan. 30, 2013). The Seventh
Circuit delivered its opinion in this case on November 1, 2013—just prior to publication of this
Article—holding that the business owners and their companies could challenge the contraception
mandate and that compelling them to provide the mandated coverage substantially burdened their
religious exercise rights. Korte v. Sebelius, Nos. 12-3481 & 13-1077, at 4 (7th Cir. Nov. 1, 2013),
http://media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2013/Dl 1-08/C: 12-
3841:J:Sykes:aut:T:fnOp:N:1238174:S:0.

http://media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2013/Dl

2013] C o r p o r a t io n s , T a x e s , a n d R e lig io n 9

D. Issues

The cases raise three main issues with extensive subissues. Additionally, the
cases present business owners with a dilemma involving multiple undesirable
choices.52 The issues involve:

1. Asserting Owners ’ Rights. May a general business corporation or a
limited liability company assert the religious rights of its owners under
the First Amendment or under the Religious Freedom Restoration Act ’
(RFRA)?54

2. Corporations as RFRA Persons. Is a general business corporation or a
limited liability company a “person” under RFRA such that it may assert
a statutory claim based on religious freedom?55

3. Corporate Rights. In general, what comprises an entity’s constitutional
rights, and in particular, how do religious and moral issues relate to
general business corporations and limited liability companies?56

E. Litigants ’ Dilemma

All beneficial owners and members of the Hobby Lobby Trust assert
religious beliefs that “prohibit them from deliberately providing” abortion
coverage.57 Although they have no stated beliefs regarding Hobby Lobby and
Mardel employees purchasing such coverage with wages, they object to
facilitating, providing, or paying for the coverage, including through the
corporate employer structure.5S The government accepted these beliefs as
sincerely held.59 The Hahns—who own Conestoga—and the Grote and Korte
families asserted similar beliefs in their respective cases.60

52. See infra Part I.D and accompanying discussion.
53. Religious Freedom Restoration Act of 1993, 42 U.S.C. § 2000bb-2000bb-4 (2006).
54. See, e.g., Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1120 (10th Cir. 2013)

(stating the issue as whether RFRA and the Free Exercise Clause protect companies and their
owners who “run their businesses to reflect their religious values”).

55. Id. at 1128 (citing 42 U.S.C. § 2000bb-l(a) (2006)) (addressing the issue of whether for-
profit corporations are persons exercising religion for the purposes of RFRA).

56. Id. at 1133-36 (citations omitted) (discussing the distinction, or lack thereof, between the
free exercise rights of nonprofit, religious organizations and for-profit, secular companies).

57. Hobby Lobby Complaint, supra note 20, at 14. Conversely, none object to providing
more general contraceptive coverage. Id. at 15.

58. See Brief of Appellants, supra note 22, at 4.
59. Hobby Lobby District I, 870 F. Supp. 2d 1278, 1285 (W.D. Okla. 2012).
60. See Conestoga v. Sebelius, No. 13-1144, 2013 WL 1277419, at *1 (3d Cir. Feb. 8, 2013);

Grote v. Sebelius, 708 F.3d 850, 854 (7th Cir. 2013). The Grote and Korte families also object to
the forced provision of contraceptive coverage. See Grote, 708 F.3d at 854.

10 So u t h C a r o l in a L a w R e v iew [Vo l . 65: 1

Accordingly, to reconcile their own beliefs with that of the mandate, the
Hobby Lobby Trust—as well as the owners of Conestoga and Grote—faced a
difficult decision requiring them to choose among six unpalatable alternatives6′:

1. The Hobby Lobby Trust could cease all business operations of Hobby
Lobby and Mardel.62 Doing so would eliminate the requirement of
providing the mandated contraceptive/abortion insurance, but it would
be unrealistic.

2. The Hobby Lobby Trust could sell the stock in the two businesses and
invest the after-tax proceeds in a manner consistent with the owners’
religious beliefs. The transactional and tax consequences of this option
are not publicly available; however, they would likely be substantial and
time-consuming.

3. The Hobby Lobby Trust could reorganize the two businesses into a
general partnership.Although this approach would not affect the issue
involving its assertion of First Amendment rights in relation to
commerce, it would likely resolve the statutory RFRA issues involving
the definition of a person. The transactional and tax consequences of
this option are not publicly available; however, they would likely be
substantial and time-consuming. The time from the date the Treasury
adopted the initial regulatory mandate until the effective date for the
trust was twenty-three months;64 however, the Treasury and related
agencies considered and promulgated numerous regulatory changes
during that period. Hence, Hobby Lobby did not realistically have the
entire period to consider reorganization.

61. The Kortes received an injunction several days prior to the effective date of the mandate
and, thus, never faced the choices. See Korte v. Sebelius, No. 12-3841, 2012 WL 6757353, at *5
(7th Cir. Dec. 28, 2012).

62. See Gaylord, supra note 16, at 9.
63. See Hobby Lobby District /, 870 F. Supp. 2d at 1288 (suggesting that neither corporations

nor limited partnerships have religious rights) (quoting Anselmo v. Cnty. of Shasta, 873 F. Supp. 2d
1247, 1264 (E.D. Cal. 2012)). While the court did not state that such rights belong to general
partnerships, this would seem to be a reasonable conclusion. See id.

64. The mandate applies for plan years beginning after July 31, 2012. 45 C.F.R.
§ 147.130(d) (2012). Notice of the requirement was published on August 1, 2011. See Certain
Preventive Services Under the Affordable Care Act, 77 Fed. Reg. 16501, 16502 (proposed Mar. 21,
2012) (to be codified at 26 C.F.R. pt. 54, 29 C.F.R. pt. 2590, 46 C.F.R. pt. 147). The Hobby Lobby
plan uses a fiscal year ending June 30th; hence. Hobby Lobby had twenty-three months’ notice of
the requirements. See Brief of Appellants, supra note 22, at 11.

2013] Corporations, Taxes, and Religion 11

4. The Hobby Lobby Trust could terminate its group health insurance
plan6′ for the fiscal year beginning July 1, 2013,66 but this would
undoubtedly affect significant contract rights of employees. The cost of
this alternative is unclear because that contractual information is not
publicly available. Because the number of employees is so large, many
are likely uninsurable or insurable only at a large expense. Also, none
of the employees would be entitled to COBRA coverage.67 The
mandate that insurance plans cover adult preexisting conditions does not
become effective until 2014, at which time state and federal exchanges
will begin to operate.66 Hence, employees with significant preexisting
conditions would likely have difficulty affording adequate coverage,
even if they could find it. Realistically, some would then have less
medical care, which could result in some deaths or serious difficulties—
a consequence likely at odds with the owners’ religious beliefs.

5. The Hobby Lobby Trust could pay—through the corporation—an excise
tax under section 4980D of $1,324,000 per day ($483,260,000 per year)
for Hobby Lobby;69 plus, it could pay $37,200 per day ($13,578,000 per
year) for Mardel.70 Accordingly, the trust would have to pay a total of

65. See Hobby Lobby Complaint, supra note 20, at 24 (suggesting that the mandate forces
plaintiffs to choose between violating their religious beliefs or terminating employee health
insurance coverage and incurring substantial fines).

66. Both Conestoga and Grote have group health insurance plans that use a calendar year;
hence, each faced similar choices on January 1, 2013. See Conestoga v. Sebelius, No. 13-1144,
2013 WL 1277419, at *6 (3d Cir. Feb. 8, 2013) (Jordan, J., dissenting); Grote v. Sebelius, 708 F.3d
850, 853 (2013).

67. The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986, 5 U.S.C
§ 8905a (2012), requires employers who provide health insurance to make continuation coverage
available to employees whose employment terminates at the former employee’s expense.
Termination of a plan by an employer is not listed as a qualifying event for COBRA coverage. See
id.

68. See State PCIP Transition, HealthCare.GOV, https://www.pcip.gov (last visited Sept.
22, 2013) (describing how the government suspended enrollment in preexisting condition plans
effective January 16, 2013, and how the Affordable Care Act mandates that all health insurance
plans cover pre-existing conditions begins January 1,2014).

69. See Hobby Lobby Stores, Inc. v. Sebelius, No. 12-6294, 2013 WL 3216103, at *5 (10th
Cir. June 27, 2013) (finding that the most immediate consequence for Hobby Lobby and Mardel
would come in the form of regulatory taxes).

70. See I.R.C. § 4980D(b)(l) (2006); Hobby Lobby District I, 870 F. Supp. 2d 1278, 1284
(W.D. Okla. 2012). The calculations for daily taxes are $100 per day times 13,240 full time
employees for Hobby Lobby and $100 per day times 372 full time employees for Mardel. See id.
The same calculation can be used for Conestoga, Grote, and Korte. The tax for Conestoga—if it
failed to comply—would be $95,000 per day or $34,675,000 per year; the tax for Grote would be
$114,800 per day or $42,071,360 per year; and the tax for Korte would be $2000 per day or
$730,000 per year. j

https://www.pcip.gov

12 So u t h C a r o l in a La w R e v iew [V o l . 65: 1

$496,838,000 annually. Although information on the trust’s value is not
publicly available, this option does not appear financially sustainable.71

6. The Hobby Lobby Trust could provide the required coverage and
thereby cause the trust members who cooperated in that decision to
commit what they view as a grievous72 sin that would, in their view,
cause them to risk eternal damnation.73

The Hobby Lobby Management Trust apparently chose the fifth option: to
subject the corporations to the annual excise tax of nearly half a billion dollars.74
Although the Treasury Secretary has the authority to waive the tax in section
4980D(c)(4), the waiver can only be for noncompliance due to “reasonable
cause,” not due to “willful neglect.”73 Because the trust’s choice was deliberate
and willful—albeit arguably forced by unacceptable alternatives—the likelihood
of a permanent waiver appears remote. During the pendency of the litigation,
however, the government has suggested—in a nonbinding brief—that it might
waive the tax for entities that obtain injunctive relief pending litigation.76
Further, the government suggested that during the pendency of a preliminary

71. David Green, one of the Hobby Lobby owners, reportedly has a net worth of $2.6 billion.
David Whitford, Hobby Lobby’s Religious Real Estate Hobby, CNN MONEY NEWS, Oct. 22, 2010,
available at http://money.cnn.com/2010/10/21/news/companies/hobby_lobby_jihilanthropy.fortune/
index.htm. If that is indicative of the wealth of other owners, the family could suffer the tax for
several years.

72. The distinction between “grievous” and “mortal” sin is primarily one of Catholicism;
nevertheless, a fundamental tenet of Christianity concerns the distinction between the inherent
sinfulness of man versus the overt choice of some to sin. Grace overcomes man’s sinful nature, but
one who chooses a life of sin in opposition to God commits an unforgivable act. See Hebrews
12:1-16.

73. See Hobby Lobby Complaint, supra note 20, at 14-15. Mark 3:29 speaks of continuing
blasphemy against the Holy Spirit as eternal and unforgivable sin. Essentially, all sins are
forgivable except for the sin of continually rejecting God. Thus, when Hobby Lobby briefly
provided contraceptive and abortion coverage in an earlier year, that sin was forgivable because it
was in the nature of a stumble—acts for which all are guilty. To the owners of Hobby Lobby,
however, the deliberate, overt, and intentional facilitation of abortions would constitute sin of a very
different nature—one that could not be forgiven without complete renunciation and a return to the
acceptance of Grace. See id.

74. See Bill Flax, Hobby Lobby Fights The Good Fight Against Ohamacare Tyranny,
FORBES, Jan. 8, 2013, available at http://www.forbes.com/sites/billflax/2013/01/08/hobby-lobby-
fights-the-good-fight-against-obamacare-tyranny/ (quoting corporate counsel as saying, “The
company will continue to provide health insurance to all qualified employees. To remain true to
their faith, it is not their intention, as a company, to pay for abortion-inducing drugs.”). The Trust
had until June 30, 2013, the end of the current non-mandated plan year, to decide. Indeed, the
corporations were out of compliance for eighteen days prior to receiving a preliminary injunction.
This information was obtained through confidential source.

75. I.R.C. § 4980D(c)(4) (2006).
76. Defendant’s Supplemental Brief at 4, Autocam Corp. v. Sebelius, 2012 WL 6845677

(W.D. Mich. Dec. 24, 2012), (No. 1:12-cv-01096-RJJ). The various injunctions preclude
enforcement pending resolution of the. cases, but they do not enjoin accrual of the tax.

http://money.cnn.com/2010/10/21/news/companies/hobby_lobby_jihilanthropy.fortune/

http://www.forbes.com/sites/billflax/2013/01/08/hobby-lobby-fights-the-good-fight-against-obamacare-tyranny/

http://www.forbes.com/sites/billflax/2013/01/08/hobby-lobby-fights-the-good-fight-against-obamacare-tyranny/

2013] C o r p o r a t io n s , T a x e s , a n d Rel ig io n 13

injunction, the tax would be subject to the cap in § 4980D(c)(3).77 Hobby Lobby
and Mardel obtained a preliminary injunction nineteen days after becoming
subject to the mandate.78 Because thirty federal courts—including the United
States Courts of Appeals for the Seventh, Eighth, Tenth, and D.C. Circuits—
have granted injunctions,79 Hobby Lobby and Mardel have a credible claim for a
“reasonable cause” waiver pending litigation; however, unless the Supreme
Court ultimately finds the tax unconstitutional—or strikes it under a RFRA
challenge—the economic futures of Hobby Lobby, Mardel, Grote, and Korte
appear grim.

In contrast, Conestoga decided to comply with the mandate, at least during
litigation.80 Choosing to commit what its owners described as “intrinsic evil”
rather than face bankruptcy and other enforcement actions must have been
difficult for Conestoga’s owners.81 Theologians differ on the moral
consequences of succumbing to forced evil. Some believe that forced sin
remains sin,82 while others argue that coercion mitigates the seriousness of
“material cooperation with evil.”83 Although courts will undoubtedly be hesitant
to question the sincerity of the Hahns’ and Conestogas’ beliefs, their choice to
comply with the mandate they called “intrinsic evil”—albeit under duress—is
noteworthy.

F. Reasons Tax Lawyers Should Care

1. Choice o f Entity Issues

Entity religious freedom differs substantially from that of other business
enterprises—at least according to the government84 and some courts.85 Because
tax lawyers often consult on “choice of entity” issues, they should be aware of
consequences other than merely those that are tax- and business-related. If

77. The cap equals the lesser of $500,000 or 10% of the entity’s health insurance costs for the
prior year. l.R.C. § 4980D(c)(3)(A)(i).

78. The company did not comply with the mandate for the eighteen days it was subject to it,
according to confidential sources. The tax for that period amounts to $23,832,000 and would seem
unlikely to be subject to a reasonable cause waiver. See supra note 70.

79. See HHS Mandate Information Central, supra note 7.
80. This information comes from a conversation with a confidential source.
81. Conestoga Complaint, supra note 33, at 8.
82. See Brief of 28 Catholic Theologians and Ethicists as Amici Curiae Supporting Plaintiffs-

Appellants and Urging Reversal of the District Court at 29-30, Gilardi v. U.S. Dep’t of Health &
Human Servs., Doc. 13-104(EGS), 2013 WL 803153 (D.C. Cir. May 7, 2013) (No. 13-5069).

83. See Janet E. Smith, Is it Moral to Comply with the HHS Mandate?, CATHOLICVOTE,
http://www.catholicvote.org/is-is-moral-to-comply-with-the-hhs-mandate (last visited Sept. 27
2013).

84. Defendants’ Memorandum in Opposition to Plaintiffs Motion for Preliminary Injunction
at 18 n. 14, Hobby Lobby District I, 870 F. Supp. 2d 1278 (W.D. Okla. Oct. 22, 2012) (No. Civ. 12-
1000-HE) [hereinafter DOJ Brief).

85. See non-injunction cases cited supra note 5.

http://www.catholicvote.org/is-is-moral-to-comply-with-the-hhs-mandate

14 So u t h C a r o l in a La w Re v ie w [Vol. 65: 1

religious rights vary depending upon the form of the entity, then lawyers must
consider clients’ religious beliefs and how entity choices impact clients’ exercise
of religion.86 The duty to consider a client’s religious beliefs arises regardless of
how lawyers might personally regard their clients’ beliefs.87

2. These Cases Arise in Tax Law

The contraceptive coverage litigation involves Internal Revenue Code §§
4980D88 and 4980H89—two sections affected by the Affordable Care Act
(ACA).)0 Section 4980D and related regulations91 mandate “group health
plans”7′ to provide contraceptive93 and early abortion coverage.94 Section
4980D imposes a tax of $100 per day per affected employee.98 Beginning in
2014, entities will be taxed approximately $2,000 per year per affected
employee—pursuant to § 4980H—for failure to provide health coverage.96

86. Model Rules of Prof’l Conduct R. 1.1 (2012).
87. Id. R. 1.16(b)(4) (providing that a lawyer who finds a client’s actions “repugnant” may

withdraw, but only if the client suffers no harm). Rule 1.2 provides that a lawyer must abide by the
wishes of the client but that representation does not constitute an endorsement of the client’s beliefs.
Id. R. 1.2(a)-(b).

88. I.R.C. § 4980D (2006).
89. I.R.C. § 4980H (Supp. V 2011).
90. Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), amended by Health

Care and Education Reconciliation Act, Pub. L. No. 111-152, 124 Stat. 1029 (2010).
91. See 45 C.F.R. §147.130 (2013). The Department of Health and Human Services adopted

guidelines set by the Institute of Medicine for plan years starting after July 31, 2012. Interim Final
Rules for Groups Health Plans and Health Insurance Issuers Relating to Coverage of Preventive
Services Under the Patient Protection and Affordable Care Act, 75 Fed. Reg. 41726 (July 10, 2010);
Women’s Preventative Services Guidelines, HRSA, http://hrsa.gov/womensguidelines/ (last visited
Sept. 22, 2013). The Treasury adopted the same rules on August 3, 2011, with an additional,
narrow religious employer exemption. Interim Final Rules for Groups Health Plans and Health
Insurance Issuers Relating to Coverage of Preventive Services Under the Patient Protection and
Affordable Care Act, 76 Fed. Reg. 46621, 46623-24 (Aug. 3, 2011). The rules have been revised
several times, with the most recent proposed changes occurring on February 1, 2013.

92. I.R.C. §§ 9832(a), 5000(b)(1) (2006) (defining “group health plans”).
93. 42 U.S.C. § 300gg-13(a) (2006 & Supp. 2010) (“A group health plan and a health

insurance issuer offering group or individual health insurance coverage shall, at a minimum provide
coverage fo r. . . (4) with respect to women, such additional preventive care and screenings . . . as
provided for in comprehensive guidelines supported by the Health Resources and Services
Administration . . . .”).

94. Some of the mandated contraceptive methods result in very early abortions, as the various
petitioners use that term. See, e.g., Brief of Appellants, supra note 22, at 4-5 & n.3 (“In this case,
the government confirms that one of three ways ‘emergency contraceptive pills’ act is by ‘inhibiting
implantation.’” (quoting Appellees’ Opp’n to En Banc Petition at 7 n.4, No. 12-6294 (10th Cir. Jan.
24,2013))).

95. I.R.C. § 4980D(b)(l) (2006).
96. I.R.C § 4980H(c)(l) (Supp. V 2011).

http://hrsa.gov/womensguidelines/

2013] Corporations, Taxes, and Religion 15

3. Other Significant Religious Entanglements Also Involve Tax Law

Examples of other significant government entanglement with religion may
be found throughout the tax system, including in the parsonage allowance,97
charitable deductions,98 tax exemptions,99 restrictions on church lobbying and
political activity,19″ and church audit rules.101 Hence, tax law has a significant
role in religious freedom discussions.

II. Asserting Owners’ Rights

In contraceptive cases, several of the courts have allowed the corporate
petitioners to assert the religious rights of their owners,102 while others have
strictly adhered to the separate entity fiction.103 In Legatus v. Sebelius, 104 the
court denied associational standing to one “nonprofit” petitioner because it did
not prove the necessary “identity of interests” among some 4,000 members.105
In Briscoe v. Sebelius,106 the court denied representative standing to both single
member LLCs, as well as to a single shareholder corporation.107 The court
mistakenly referred to the petitioners as corporations,108 failing to make the
distinction between an LLC and a corporation.109

97. See I.R.C. § 107 (2006).
98. See I.R.C. § 170(a)(1) (2006).
99. See I.R.C. § 501(c)(3) (2006).
100. See § 501(h).
101. See i.R.C. § 7611 (2006).
102. See, e.g., Legatus v. Sebelius, 901 F. Supp. 2d 980, 988 (E.D. Mich. 2012) (holding that a

closely held family corporation had standing to assert the free exercise rights of its owner); Tyndale
House Publishers v. Sebelius, 904 F. Supp. 2d, 106, 116-17 (D.D.C. 2012) (holding that a
corporation made a sufficient showing of Article III standing by asserting its owners rights as the
basis for its claims); Geneva Coll. v. Sebelius, Op. No. 2:12-cv-00207, 2013 WL 838238, at *20
(W.D. Pa. Mar. 6, 2013) (holding that there was no legal separation between a corporation and its
owner).

103. See, e.g., Conestoga Wood Specialties Corp. v. Sebelius, No. 13-1144, 2013 WL
1277419, at *4 (3d Cir. Feb. 8, 2013) (Garth, J., concurring) (holding that for-profit corporate
entities do not and cannot legally claim a right to exercise or establish a “corporate” religion under
the First Amendment or the RFRA).

104. 901 F. Supp. 2d 980 (E.D. Mich. 2012).
105. Id. at 990 n.3.
106. 927 F. Supp. 2d 1109 (D. Colo. 2013).
107. Id. at 1116.
108. See id. at 1115-17 (citations omitted). Two of the three Briscoe entities are limited

liability companies. See id. at 1112. Limited liability companies are hybrids with aspects of both
partnerships and corporations. See Chandler Martin, Note, Delimiting Liability for South Carolina
Limited Liability Corporations, 64 S.C. L. REV. 801, 803 (2013) (citing Scott Y. Barnes et al., 1996
Limited Liability Company Act, S.C. LAW., Nov./Dec. 1996, at 33).

109. See Briscoe, 927 F. Supp. 2d at 1115-17 (citations omitted) (listing Briscoe’s companies
correctly as two LLCs and one corporation, but then applying the same rule to each without
discussing the differences in form). At one point, the court referred to the three entities collectively
as “companies,” although two are companies and one is a corporation. See id. at 1114. The court

16 South Carolina Law Review [Vol. 65: 1

A. Prudential and Associational Standing

Before the courts can reach the merits of the cases, they must first decide
issues of standing, which has both constitutional and prudential aspects.110
Constitutionally, the matter must involve a case or controversy* * 111—a standing
requirement that is easily met under the circumstances because the various cases
involve currently applicable government mandates, taxes, and penalties.112
However, courts also have the power to limit standing under notions of prudence
and propriety.113 Prudential standing has various aspects, however, the only
relevant aspect to Hobby Lobby involves whether a corporation may assert the
religious rights of its owners.114

Associational standing is another term used in relation to groups prudentially
asserting members’ rights.113 An association’s standing to assert the rights of its
members is limited, but well-established.116 For example, in 1974, the Supreme
Court held in Allee v. Medrano117 that a union had standing to assert members’
free speech rights in addition to its own rights.1 Ix In his concurrence, Chief
Justice Burger stressed the “identity of interest” between the union and its
members.114 Prior to Allee, in 1958, the Supreme Court in NAACP v.
Alabama,’~° found a similar “identity” that justified allowing the NAACP to
assert members’ rights,121 including religious rights.122 The Court stressed the
importance of freedom of association for both economic and religious claims:

Effective advocacy of both public and private points of view,
particularly controversial ones, is undeniably enhanced by group

relied on the Hobby Lobby district court opinion, but failed to discuss how that court implied a
distinction between corporations and limited partnerships as one category, and other entities as
another. See id. at 1115 (citing Hobby Lobby District I, 870 F. Supp. 2d 1278, 1292 (W.D. Okla.
2012)). The Briscoe court also mistakenly rejected the relevance of the Tyndale decision,
remarking that “Tyndale dealt with an admittedly religious organization, which is not the case here.”
See id. at 1116 (citing Tyndale House Publishers v. Sebelius, 904 F. Supp. 2d 106, 116 (D.D.C.
2012)). However, Tyndale House Publishers, Inc. is a general business corporation that is not tax-
exempt. See Tyndale, 904 F. Supp. 2d at 116.

110. See U.S. CONST, art. Ill, § 2, cl. 1; Warth v. Seldin, 422 U.S. 490, 498 (1975) (noting that
standing has both constitutional and prudential aspects).

111. See U.S. CONST, art. Ill, § 2, cl. 1.
112. See supra Part I.A-D.
113. See Warth, 422 U.S. at 498.
114. See supra note 102 and accompanying text.
115. See Warth, 422 U.S. at 511.
116. See id.
117. 416 U.S. 802(1974).
118. Id. at 819 & n.13.
119. See id. at 830 (Burger, C.J., concurring in part and dissenting in part).
120. 357 U.S. 449 (1958).
121. See id. at 459 (“Petitioner is the appropriate party to assert these rights, because it and its

members are in every practical sense identical.”).
122. See id. at 460-61.

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 17

association, as this Court has more than once recognized by remarking
upon the close nexus between the freedoms of speech and assembly. It
is beyond debate that freedom to engage in association for the
advancement of beliefs and ideas is an inseparable aspect of the
“liberty” assured by the Due Process Clause of the Fourteenth
Amendment, which embraces freedom of speech . . . Of course, it is
immaterial whether the beliefs sought to be advanced by association
pertain to political, economic, religious or cultural matters, and state
action which may have the effect of curtailing the freedom to associate
is subject to the closest scrutiny.123

In the 1980 Harris v. McRae124 decision, the Supreme Court denied
associational standing because the members had a diversity of opinions; hence,
the Court felt individual members were required participants:

In the present case, the Women’s Division concedes that “the
permissibility, advisability and/or necessity of abortion according to
circumstance is a matter about which there is diversity o f view
within . . . our membership, and is a determination which must be
ultimately and absolutely entrusted to the conscience of the individual
before God.” It is thus clear that the participation of individual
members of the Women’s Division is essential to a proper
understanding and resolution of their free exercise claims.123

In Hobby Lobby, the shareholders have the identity of interest aspect found
in both Alice and NAACP that was lacking in Harris because undisputed
evidence exists that Hobby Lobby adhere to common beliefs.126 No Harris-type
diversity of view exists on the issue of facilitating abortions. In addition, the
number of shareholders is very small127—making proof of an identity of interest
easier to establish—unlike the members in Legatus, which numbered in the
thousands.1″3 Also, the Hobby Lobby claims involve fundamental rights—free

123. Id. (emphasis added) (citing Thomas v. Collins, 323 U.S. 516, 530 (1945); De Jonge v.
Oregon, 299 U.S. 353, 364 (1937)).

124. 448 U.S. 297 (1980). The Harris Court merely referred to “standing” of the entity on
behalf of its members and did not use the term “associational standing.” See id. at 320-21. The
case involved an agency of the United Methodist Church. Id. at 304.

125. Id. at 321 (emphasis added).
126. Brief of Appellants, supra note 22, at 19 (asserting that the material facts were based on

the Verified Complaint and were not in dispute).
127. See id. at 2.
128. Legatus involved multiple petitioners. See Legatus v. Sebelius, 901 F. Supp. 2d 980, 984

(E.D. Mich. 2012). Legatus, a “nonprofit” association with over 4,000 members, did not receive an
injunction. Id. at 990 n.3, 999 (finding the entity not subject to the mandate). In contrast, a co­
petitioner, Weingartz— a “for-profit” corporation—did receive an injunction. Id. at 988, 999. The
court used representational standing to allow the corporation to represent the interests of its owners

18 So u t h C a r o l in a L a w R e v iew [Vol. 65: 1

expression of religion, establishment of religion, and freedom of association129—
that are important to the determination of representative standing.130 Further, the
case involves injunctive relief, which is recognized as a significant factor for
associational standing in the 1975 Warth v. SeldinU] decision. Some of the other
contraceptive cases, however, arguably involved a lesser identity of interest. For
example, in Legatus, the government stated that “[t]he plaintiffs’ theory in these
cases is that, if the controlling shareholder of a for-profit, secular corporation
asserts a religious objection to a federal law that regulates the corporation, then
the law must be subjected to strict scrutiny.”132

Such an argument—if indeed made by petitioners1’’’—appears contrary to
the close identity expected by Allee, 134 In any event, the district court found
Weingarzt (one of the Legatus petitioners) to be a “closely held family
corporation,”13′ and the complaint alleged that the religious views represented
those of the “family.” lj6 The reference to controlling shareholder137 thus appears
to be a misstatement of the petitioners’ position by the government: because all
of the petitioners have unanimity, or close to it, they did not likely seek a
standard greater than that which was needed under their facts.

Two opinions handed down in the Ninth Circuit are particularly relevant. In
the 1988 Equal Employment Opportunity Commission v. Townley case, the
court permitted a closely held corporation to assert the unanimous religious
views and rights of its shareholders.1’9 Although the Ninth Circuit did not tie its
holding to associational standing, it relied on the Supreme Court’s progeny of

who had substantial identity of interests. Id. at 988 (citing Complaint at 8, Legatus, 901 F. Supp. 2d
980 (No. 2:12-cv-12061 -RHC-MJH)).

129. Hobby Lobby District I, 870 F. Supp. 2d 1278, 1287 (W.D. Okla. 2012).
130. Allee v. Medrano, 416 U.S. 802, 830-31 (1974) (emphasis added) (“The union, to the

extent that it has standing, will be seeking interference with state court prosecutions of its members.
There is an identity o f interest between the union and its prosecuted members; the union may seek
relief only because of the prosecutions of its members, and only by insuring that such prosecutions
cease may the union vindicate the constitutional interests which it claims are violated.”).

131. See Warth v. Seldin, 422 U.S. 500, 515 (1975). The Warth court summarized:
[W]hether an association has standing to invoke the court’s remedial powers on behalf of
its members depends in substantial measure on the nature of the relief sought. If in a
proper case the association seeks a declaration, injunction, or some other form of
prospective relief, it can reasonably be supposed that the remedy, if granted, will inure to
the benefit of those members of the association actually injured. Indeed, in all cases in
which we have expressly recognized standing in associations to represent their members,
the relief sought has been o f this kind.

Id. (emphasis added).
132. Brief of Appellant at 10-11, Legatus v. Sebelius, No. 13-1092 (6th Cir. Mar. 20, 2013).
133. The government brief does not provide a citation for this alleged position.
134. See supra notes 118-19 and accompanying text.
135. Legatus, 901 F. Supp. 2d at 988.
136. Legatus Complaint, supra note 128, at 14.
137. See Brief of Appellant at 10-11, Legatus v. Sebelius, No. 13-1092 (6th Cir. Mar. 20,

2013).
138. 859 F.2d 610 (9th Cir. 1988)
139. Id. at 619-20.

2013] C o r p o r a t io n s , T a x e s , a n d R e l ig io n 19

the NAACP case.140 The court focused on the small number of shareholders and
the shareholders’ unanimity of viewpoint, as well as the fundamental nature of
the right141—three aspects which are also present in Hobby Lobby, 142 The Ninth
Circuit—in conjunction with all of the other circuits—declined to decide
whether a for-profit corporation has religious rights of its own.143 Ultimately,
the court denied Townley’s requested relief, concluding that the government had
a compelling interest in preventing an employer from requiring mandatory
devotional attendance.144

The 2009 Stormans v. Selecky145 decision reaffirmed the holding in Townley
regarding representative standing, although it specifically described it as
something other than “associational.”146 The court limited the associational
standing doctrine to associations other than corporations.147 Nevertheless, the
court used a representative type of standing that is very similar to associational
standing.14’3 The case involved a state mandate that required pharmacies to
provide Plan B contraception.144 The corporate pharmacy was “a fourth-
generation, family-owned business whose shareholders and directors [were]
made up entirely of members of the Stormans family . . . ,”150

Several of the injunctions granted by courts in the contraceptive cases were
based on representative standing and reliance on Townley and Stormans, 151 For
example, Legatus adopted the Ninth Circuit approach and concluded that the
Sixth Circuit lacked a similar theory.13′ The court described its approach as a
“Stormans pass-through instrumentality theory.”153 Tyndale House Publishers,
Inc. v. Sebelius,’54 which is appealable to the D.C. Circuit, likewise adopted
Stormans, emphasizing how the owners were “indistinguishable” from the
corporation largely because of unanimity in mission and belief.153 In contrast,
the Hobby Lobby district court rejected the relevance of both cases without

140. Id. at 619 n.14. Townley relied on Tony & Susan Alamo Found, v. Sec’y o f Labor, 471
U.S. 290 (1985), which relied on NAACP. Alamo Found., 471 U.S. at 303 n.26.

141. See id. at 619.
142. See supra Part I.A.
143. Townley, 859 F.2d at 621-22 (citing United States v. Lee, 455 U.S. 252, 257-58 (1982)).
144. See id.
145. 586 F.3d 1109 (9th Cir. 2009).
146. See id. at 1121.
147. See id.
148. See id.
149. See id. at 1117.
150. Id. at 1120.
151. See, e.g., Legatus v. Sebelius, 901 F. Supp. 2d 980, 988 (E.D. Mich. 2012); Tyndale

House Publishers, Inc. v. Sebelius, 904 F. Supp. 2d 106, 116 (D. D.C. 2012).
152. Legatus, 901 F. Supp. 2d at 988.
153. Legatus v. Sebelius, 901 F. Supp. 2d 980, 988 (E.D. Mich. 2012).
154. 904 F. Supp. 2d 106 (D.D.C. 2012).
155. Id. at 116.

20 South Carolina Law Review [Vol. 65: 1

explanation. 1′ 6 The Third Circuit also rejected the relevance of representative
standing in Conestoga.w Further, Judge Garth—who concurred in Conestoga—
specifically rejected representative standing by emphasizing the separateness of
the corporate entity:

Conestoga further claims that it should be construed as holding the
religious beliefs of its owners. This claim is belied by the fact that, as
the District Court correctly noted, ‘“ [ijncorporation’s basic purpose is to
create a distinct legal entity, with legal rights, obligations, powers, and
privileges different from those of the natural individuals who created it,
who own it, or whom it employs’ . . . . It would be entirely inconsistent
to allow the Hahns to enjoy the benefits of incorporation, while
simultaneously piercing the coroorate veil for the limited purpose of
challenging these regulations.” 15

Judge Garth also rejected the petitioners’ stated beliefs156 that petitioners
must operate their corporation consistently with Mennonite teachings. 160 The
judge exclaimed that “the purpose—and only purpose—of the plaintiff
Conestoga is to make money!” 161 That a federal appellate judge would so firmly
and indelicately162 reject undisputed16, factual allegations is noteworthy. 164
Indeed, Judge Jordan took issue with the comment in his dissent:

156. Hobby Lobby District I, 870 F. Supp. 2d 1278, 1292 n.13 (W.D. Okla. 2012) (citing
Stormans, 586 F.3d at 119; Equal Emp’t Opportunity Comm’n. v. Townley Eng’g & Mfg. Co., 859
F.2d 610, 619-20 (9th Cir. 1988)).

157. Conestoga Wood Specialties Corp. v. Sec’y of the U.S. Dep’t of Health & Human Servs.,
No. 13-1144, 2013 WL 1277419, at *2 (3d. Cir. Feb. 8, 2013) (citing Conestoga Wood Specialties
Corp. v. Sebelius, 917 F. Supp. 2d 394, 409 (E.D. Pa. 2013)) (adopting the district court opinion),
aff’dsub nom., Conestoga Wood Specialties Corp. v. Sebelius, 917 F. Supp. 2d 394 (Jan. 11, 2013).

158. Id. at *4 (Garth, J. concurring) (quoting Conestoga, 917 F. Supp. 2d at 408).
159. Conestoga Complaint, supra note 33, at 7-8 (stating petitioners’ belief that they must

operate the corporation in line with their religious beliefs).
160. See Conestoga Wood Specialties Corp. v. Sec’y of the U.S. Dep’t of Health & Human

Servs., 2013 WL 1277419, at *4 (Garth, J., concurring) (quoting Conestoga Wood Specialties Corp.
v. Sebelius, 917 F. Supp. 2d at 408).

161. Id.
162. One must struggle to interpret what the Judge fully meant to say. On its face, the

statement appears to flatly reject the owners’ undisputed religious views—that they operate the
entity to fulfill their religious commandments. The reference to “money,” along with the
exclamation, suggest a dichotomy reminiscent of the Biblical constraint that one cannot serve both
God and money: “No servant can serve two masters. Either he will hate the one, and love the other,
or he will be devoted to the one and despise the other. You cannot serve God and [mjoney.” Luke
16:13 (N1V).

The dichotomy raises serious theological issues. The stated views of the petitioners, as well as
those in Hobby Lobby, are more nuanced than what Judge Garth appeared to profess. To the
petitioners, one may—and indeed must—live one’s whole life, including his commercial endeavors,
for the glory of God. See Conestoga Complaint, supra note 33, at 7-8. Making money does not
equate to worshipping money and is not inconsistent with Christianity. Judge Garth’s statement—
which goes to the heart of the religious issues—creates the appearance that he believes otherwise.

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 21

That assumes the answer to the question the Hahns have posed. As a
factual matter, it is unrebutted that Conestoga does not exist solely to
make money. This is a closely held corporation which is operated to
accomplish the specific vision of its deeply religious owners, and, while
making money is part of that, it has been effectively conceded that they
have a great deal more than profit on their minds. To say that
religiously inclined people will have to forego their rights of conscience
and focus solely on profit, if they choose to adopt a corporate form to
conduct their business, is a controversial position and certainly not one
already established in law.165

The standing question—whether it is associational or representative—
centrally involves a determination of the nature of a for-profit corporation.166 Do
for-profit corporations, as Judge Garth asserted,167 solely exist to make money;
or do they have broader purposes, as asserted by the various petitioners and
supported by Judge Jordan?168 The analysis is complex and involves two distinct
issues: (1) the nature of a corporation as associational and (2) the moral
responsibilities of a corporation.

B. Corporations as Associational Entities

Corporations exist for many reasons, one of which involves the pooling of
capital among persons with common economic and commercial goals.169 While
other forms of conducting business—such as partnerships—also allow pooling,
they often lack the perpetuity of life-granted corporations, which facilitates
changes of ownership and, thus, greater ease of association.170 State statutes

See Conestoga, 2013 WL 1277419, at *4-5 (Garth, J., concurring). Whether he may properly
impose such a profound view on the litigants is another matter. That he would appear to impose his
personal view on them under the guise of preventing them from imposing their religious views on
others is noteworthy.

163. See Conestoga Wood Specialties Corp. v. Sebelius, 917 F. Supp. 2d at 400 n.3.
164. Judge Garth, who is ninety-two years old, took senior status in 1986. Justice Alito once

clerked for him. Office of Communications, U.S. Supreme Court Justice Samuel Alito to Deliver
Inaugural Judge Leonard Garth Lecture at Rutgers, RUTGERS-NEW ARK,
http://www.newark.rutgers.edu/news/us-supreme-court-justice-samuel-alito-deliver-inaugural-
judge-leonard-garth-lecture-rutgers (last updated Nov. 10, 2011).

165. Conestoga, 2013 WL 1277419, at *10 n.8 (Jordan, J., dissenting).
166. See id. at *4 (explaining that the nature of a for-profit corporation is to make money); id.

at *10 n.8 (Jordan, J., dissenting) (noting that for-profit corporations exists for many reasons other
than making money).

167. Id. at *4.
168. See id. at *10 n.8 (Jordan, J., dissenting).
169. See generally 1 WILLIAM MEADE FLETCHER ET AL., FLETCHER CYCLOPEDIA OF THE

Law OF CORPORATIONS § 5, at 13-14 (perm, ed., rev. vol. 2006) (describing the attributes of a
corporation).

170. See generally id. § 6, at 15-16 (describing the continuity of a corporation).

http://www.newark.rutgers.edu/news/us-supreme-court-justice-samuel-alito-deliver-inaugural-judge-leonard-garth-lecture-rutgers

http://www.newark.rutgers.edu/news/us-supreme-court-justice-samuel-alito-deliver-inaugural-judge-leonard-garth-lecture-rutgers

South Carolina Law Review22 [VOL. 65: 1

routinely required multiple incorporators until 1962.1,1 Indeed, the notion of a
single shareholder corporation is relatively new.172

The government does not directly argue against associational or
representative standing; instead, it asserts that the burden imposed by the
mandate falls only on the corporation rather than upon its owners.173 Hence,
even if associational standing is appropriate, the owners can assert no injury.174
The government’s argument relies heavily on the separate entity wall.175
Essentially, this argument suggests that the owners elected to form a corporation
separated from themselves and, thus, waived their representative rights.176 The
government’s (and Judge Garth’s) approach,177 however, is flawed because it
simplistically views corporations as fully separate from their owners.

Indeed, corporations exist as separate persons for many purposes: for limited
liability protection of owners (assuming adequate capitalization);178 for
procedural rules (allowing the entity to sue and to be sued without naming the
owners);174 and, under the separate entity assumption of accounting,186 for
bookkeeping convenience.181 But corporations remain associational persons for
many other reasons.182

Early in United States tax history, the Supreme Court held that corporations
would “generally” be respected as separate from their owners—at least for their
losses, ‘‘ an issue presented in the Burnet v. ClarknA decision. Yet, Congress
later decided otherwise. In 1958,183 Congress enacted section 1244,186 which

171. See generally Ernest L. Folk, III, Corporation Statutes: 1959-1966, 1966 DUKE L.J. 875,
878 (1966) (explaining that only recently had statues begun allowing single individuals to act as
incorporators).

172. See id. at 896.
173. See DOJ Brief, supra note 84, at 17-19.
174. See id.
175. Id. at 16.
176. Id. at 17.
177. See Conestoga Wood Specialties Corp. v. Sec’y of the U.S. Dep’t of Human & Health

Servs., 2013 WL 1277419, at *4 (Garth, J. concurring).
178. See 1 FLETCHER ET AL., supra note 169, § 14, at 32.
179. See id. § 7, at 17-18 (describing a corporation’s separate existence from its owners).
180. See LOREN NIKOLAI ET AL., INTERMEDIATE ACCOUNTING 51 (11th ed. 2010).
181. See generally 1 FLETCHER ET AL., supra note 169, § 25, at 47, 50-51 (explaining how

corporations can exist as distinct entities).
182. See generally id. §§ 29^40, at 67-111 (listing a variety of ways in which corporations can

be treated as distinct entities).
183. Burnet v. Clark, 287 U.S. 410, 415 (1932) (respecting the chosen form “generally,”

except in “exceptional circumstances”).
184. 287 U.S. 410.
185. Small Business Tax Revision Act of 1958, Pub. L. No. 85-866, § 202(b), 72 Stat. 1676.
186. See l.R.C. § 1244 (2006). Section 1244 treats losses incurred on “small business” stock

sales as ordinary rather than capital. See id. This effectively reversed Clark, which disallowed such
losses as not “in the ordinary course of business.” See Clark, 287 U.S. at 415. The ordinary/capital
dichotomy did not exist at the time of Clark, but the effect was essentially the same. By treating the
losses as ordinary, small-business owners essentially ignore the corporate form for purposes of
losses but respect it for purposes of gains.

2013] C o r p o r a t io n s , T a x e s , a n d R e lig io n 23

legislatively reversed Clark for many “small business corporations.”187
Congress also chose in 1958 to further ignore corporate formalities by allowing
S corporation status.188 Legislative history from a 1954 bill described closely
held corporations as “essentially partnerships.”18’’ Initially, such entities could
have ten shareholders at most.190 Currently, corporations with fewer than 101
shareholders may elect S status,191 which effectively ignores the corporate form
and allows the stockholders to realize their proportional share of income.19′ The
S corporation must separately state all items of income, loss, deduction or credit,
which if separately stated, might affect the tax liability of any shareholder.19 ‘ As
a result, tax law determines the character194 of various items at the shareholder
level—as if the corporation did not exist. The “gross income” of a shareholder
includes the proportional share of the corporate gross income195—again, as if the
corporation did not exist. An individual shareholder’s losses may not exceed his
own basis in the stock,196 which further identifies the shareholder and the entity.
Even S corporation charitable contributions are treated as if made pro rata by the
shareholders, rather than by the entity.197

Similarly, most states permit entities to organize as limited liability
companies (LLCs), which have limited liability—as do corporations—but are
often taxed as partnerships for federal purposes.198 Single member LLCs are
generally “disregarded entities” for federal tax purposes.199 Multiple member
LLCs are taxed as partnerships,2110 unless they elect to be taxed as

187. A “small business corporation” is defined as one with initial capitalization of under $
1,000,000. § 1244(c)(3)(A).

188. Boris 1. Bittker & James S. Eustice, Federal Income Taxation of Corporations
and Shareholders H 6.01 (6th ed. 1998).

189. S. Rep. No. 83-1622, at 119 (1954). The use of the phrase “essential partnerships” is
significant because the report viewed closely held corporations as not fully separate from their
owners. See id. The Senate passed the bill, which “was eliminated in the conference committee.”
Bittker & Eustice, supra note 188.

190. Sees. REP. No. 83-1622, at 119(1954).
191. I.R.C. § 1361-62.
192. See id. § 1366(a).
193. See id.
194. Tax character might involve investment activities, at-risk limitations, passive activities,

and capital gain or loss transactions. See id. §§ 163(h), 465, 469, 1221.
195. See id. § 1366(c). An individual’s statement of § 61 “gross income,” as opposed to § 62

“adjusted gross income,” or § 63 “taxable income” is significant for many reasons. See, e.g., id.
§ 6501(e) (extending the statute of limitations on deficiencies to six years if the taxpayer omits a
“substantial” amount of “gross income”).

196. Id. § 1366(d)(1)(A).
197. See id. §§ 1366(d)(4), 1367 (2006 & Supp. 2011).
198. Robert J. Haft & Peter M. Fass, Tax-Advantaged Securities Handbook § 13.5

(2013).
199. Single Member Limited Liability Corporation, INTERNAL REVENUE CODE,

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited-
Liability-Companies (last updated Sept. 3, 2013).

200. See Treas. Reg. § 301.7701-3(b) (2006). The default status for an LLC is that of a
partnership for federal tax law. See id.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited-Liability-Companies

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited-Liability-Companies

24 So u t h C a r o l in a L a w R e v iew [VOL. 65: 1

corporations. As partners, the owners must include their allocated share of
income, deductions, gains, losses, and credits.202 As with S comorations, the
character o f such items is determined at the owner-partner level.20′ For federal
diversity jurisdiction, an LLC is an “aggregate of its members”; hence, the
residence o f each member, rather than the state of registration of the “entity” is
significant.204

The above rules directly contravene the view that corporations— or
companies in the case of LLCs— are wholly distinct entities: they are certainly
not distinct for income tax purposes if they elect “S” status, as Hobby Lobby203
and W & P Management, LLC did.’06 Indeed, under either election, the
shareholders or members must pay tax on the company’s income regardless of
whether the entity retains or distributes it;207 thus, for tax purposes, both S
corporation and LLC retained income “belongs” directly and immediately to the
owners. ‘ os Judge Garth may be correct— in part— that one purpose o f a
corporation is to make money;2 9 however, for S corporations, that purpose is to
make money taxed to the owners, not some distinct entity.210

But as compelling as the S corporation tax consequences are to support
corporate/shareholder identity, they are trivial compared to the family law
effects. For purposes o f family law, states sometimes impute retained corporate
income to the shareholders— at least for closely held entities.2″ The theory

• 201

201. See id. An LLC may elect to be taxed as an S corporation (or even a C corporation) by
filing Form 8832. See id. § 310.7701-3(c).

202. See I.R.C. § 704 (2006).
203. See id. § 703
204. Daniel S. Kleinberger, The Closely Held Business Through the Entity-Aggregate Prism,

40 WAKE Fo r e s t L. REV. 827, 859-60 (2005) (citing Hale v. MasterSoft Int’l Pty. Ltd., 93 F. Supp.
2d 1108. 1112 (D. Colo. 2000)).

205. Brief of Appellants, supra note 22, at 33 & n.23.
206. This information was obtained through a conversation with a confidential source.
207. I.R.C. § 1368(c) provides for the later exclusion of previously taxed retained earnings.
208. Income is not an asset and thus does not actually “belong” to anyone; instead, the

proceeds of the income belong to the shareholders. See id. § 61. Common vernacular, however,
often describes the income as belonging to the owners.

209. See Conestoga Wood Specialties Corp. v. Sec’y of the U.S. Dep’t of Health & Human
Servs., No. 13-1144, 2013 WL 1277419, at *4 (3d. Cir. Feb. 8, 2013) (Garth, J., concurring).

210. See I.R.C. § 1363 (2006).
211. See, e.g., J.S. v. C.C., 912 N.E.2d 933, 942-44 (Mass. 2009) (remanding the case to

lower court to determine the extent to which an S corporation’s undisputed earnings should be
considered income in light of certain factors, including the shareholder’s level of control over
corporate distributions, the legitimate business interest for retaining the corporate earnings, attempts
to shield income by means of retained earnings, and the allocation of the burden of proof); Zold v.
Zold, 911 So. 2d 1222, 1233 (Fla. 2005) (holding that Florida courts must look at the equities
involved to determine whether to respect the corporate form of closely held businesses for purposes
of determining income for alimony and child support purposes); Roberts v. Roberts, 666 N.W.2d
477, 484 (S.D. 2003) (concluding that profits from an S corporation should not be included in
calculations for child support); In re Marriage of Brand, 44 P.3d 321, 330 (Kan. 2002) (holding that
the court must do case-by-case analysis to determine whether to attribute retained profits of an S
corporation as income for calculating child support); In re Marriage of Perlenfein, 848 P.2d 604,

2013] Corporations, Taxes, and Religion 25

stems from the almost undeniable notion that corporations are significantly an
extension of their owners.212 Without such imputation rules, soon-to-be-ex-
spouses could easily park their income in corporate format to the detriment of
their families.212 However, the notion that entities are fully distinct from their
owners is generally foreign in family law—although not all states agree.214

For accounting and tax law purposes, some entities must file consolidated
returns to ignore intercompany transactions;215 otherwise, multiple entities could
distort the required clear reflection of income. Also, in some cases, owners
prepare partially consolidated statements with their entities to clearly reflect
income statements and balance sheets.216 Indeed, under SEC rules, owners are
sometimes required to file such statements by law.217 The above rules flow from
the financial recognition that a substantial owner—particularly a controlling
one—is not distinct from its legal fictions.216 To clearly reflect income and
worth, affected individuals must combine that which the government so
cavalierly denominates as wholly distinct.

For corporate law purposes, shareholders have governance voting rights,219
demonstrating the essential nature of a corporation acting for its owners rather

605 (Or. 1993) (holding that income from S corporations should be attributed to the shareholder as
income for the purpose of determining a child support obligation); In re Marriage of Nasirpour, No.
D056839, 2011 WL 6101022, at *8 (Cal. Ct. App. Dec. 7, 2011) (assuming that California law
allows for the inclusion of a “closely held corporation’s retained earnings” in a parent’s income
when calculating child support); Tebbe v. Tebbe, 815 N.E.2d 180, 185 (Ind. Ct. App. 2004)
(holding that income from an S corporation of which the husband was a minority shareholder
should not have been included in the calculation of child support); Dagley v. Dagley, 695 So. 2d
521, 523 (La. Ct. App. 1977) (concluding that trial court properly included profits from the S
corporation in calculating alimony pendente lite); see also Bleth v. Bleth, 607 N.W.2d 577, 579
(N.D. 2000) (citing Quamme v. Bellino, 540 N.W.2d 142, 146 (N.D. 1995) (holding that when a
shareholder controls his own salary, courts may consider his earning capacity).

212. The corporate nature fills much of corporate legal scholarship. Since 1937, many scholars
have taken a “contractarian” approach under which corporations are viewed as a collection of
contracts involving owners, creditors, and others. See, e.g., R.H. Coase, The Nature o f the Firm, 4
ECONOMICA 386, 390-91 (1937) (offering a theory of why people form business entities, or
“firms,” rather than using a series of contracts); Charles R.T. O’Kelley, Coase, Knight, and the
Nexus-of-Contracts Theory o f the Firm: A Reflection on Reification, Reality, and the Corporation
as Entrepreneur Surrogate, 35 SEATTLE U. L. REV. 1247, 1247—48 (2012) (proposing a different
understanding of Coase’s theory of the “firm” that would support a “very different contractarian
account of the corporation”).

213. See Steven J. Willis, Family Law Economics, Child Support, and Alimony Rumination on
Income: Part Two, 78 Fla. B. J. 34, 36 (June 2004).

214. See generally Steven J. Willis, Family Law Economics, Child Support and Alimony
Ruminations on Income: Part One, l% FLA. B. J. 34 (May 2004) (examining myriad entity types in
relation to alimony and child support obligations).

215. See generally Treas. Reg. § 1.1502-13 (2013) (outlining the rules pertaining to
intercompany transactions for accounting purposes).

216. See 17 C.F.R. § 210.3-17 (2013).
217. See id.
218. See id.
219. MODEL Bus. CORP. ACT § 7.21 (2010).

26 South Carolina Law Review [Vol. 65: 1

than for itself. Owners are not mere “potted plants” 220 who sit around while a
separate entity acts; they are essential actors who direct the entity. Further,
shareholders have derivative rights to assert, on their own, that which the
corporation fails to assert.221

Even the root of the word “corporation”— corpus in Latin— suggests a body
of associated parts.”2” Thus, the government’s position on standing—that
corporations are wholly distinct entities from their owners22̂ —is flawed because
it is contrary to many areas of law that treat corporations and their owners as
one.

C. Christianity as Associational

Associational standing and the associational nature of corporations form an
apt metaphor for a basic Christian doctrine: the Trinity as a relational Being. An
essential element of Christianity is the Trinity: God in Three Persons— Father,
Son, and Floly Spirit.224 Christians believe they are called to live their lives
consistently with that nature—in relationship and in association with others—
whether it be with spouses, families, members of the Body of Christ, or with
others in commercial activities. In stark contrast, noted humanist and
existentialist Jean-Paul Sartre famously wrote, L ’enfer, c ’est les autres,226 or
“Hell, is other people.” Sartre suggested that misery is found in other people,
especially in their perceptions of us.227 Christianity, in contrast, teaches that
ultimate joy and everlasting life are found through relationships and associations,

220. Brendon Sullivan, who represented Colonel Oliver North during a Senate Hearing,
answered Senator Inouye’s request that the Colonel object for himself, rather than allow counsel
objections: “Well, Sir, I’m not a potted plant. I’m here as the lawyer. That’s my job.” Iran-Contra
Hearings; Note o f Braggadocio Resounds at Hearing, N.Y. TIMES, July 10, 1987, at A7, available
at http://www.nytimes.com/1987/07/10/world/iran-contra-hearings-note-of-braggadocio-resounds-
at-hearing.html.

221. See MODEL Bus. CORP. ACT §§ 7.40-7.47 (2010) (citations omitted) (setting out the
requirements for shareholder derivative suits).

222. See Allan C. Hutchinson & Ian Langlois, Salmon Redux: The Moralities o f Business, 35
Seattle U. L. Rev. 1109,1109 (2012) (citing Allan C. Hutchinson, The Companies We Keep:
Corporate Governance for a Democratic Society 39-58 (2005)).

223. See Brief for the Appellees at 24, Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114
(10th Cir. June 27, 2013) (citing Seitsinger v. Dockum Pontiac, Inc., 894 P.2d 1077, 1079-80 (Okla.
1995)).

224. See generally Harold J. Berman, Law and Logos, 44 DePaul L. Rev. 143, 146 n.16
(1994) (explaining that Christian theologians identify the Trinity with the “reciprocal relationships
of Father, Son, and Spirit to each other”).

225. See Acts 2:1-13 (noting that the founding of Christ’s church at Pentacost involved the
gathering of many people from all walks of life).

226. See JEAN-PAUL Sartre, Huis Clos 91 (Jacques Hardre & George B. Daniel, 1962)
[hereinafter SARTRE, HUIS CLOS]; Jean-Paul Sartre, No Exit 45 (Stuart Gilbert trans., Vintage
Int’l 1989) [hereinafter SARTRE, N o EXIT].

227. See SARTRE, HUIS CLOS, supra note 226, a t 91; SARTRE, N o EXIT, supra note 226.

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 27

but only if one looks to all associations—not just some—in a segmented life.228
Hence, segmentation of one’s commercial life from one’s religious life—
whether government or self-imposed—is fundamentally inconsistent with
Christianity.

D. Reverse Veil Piercing

Professor Stephen M. Bainbridge wrote a recent article supporting the
assertion of owners’ religious rights by corporations.229 His theory arises from
the doctrine of “reverse veil piercing.” 230 According to the reports231
documented in the article, Judge Walton raised questions in oral argument
indicating a willingness to entertain such a theory.282 The exchange involved the
question of whether, by incorporating as an LLC, a physician relinquished her
religious rights in how she practiced.2” Apparently, the government argued that
she did.’ ’4 As discussed below, issues involving LLC assertion of religious
rights are not necessarily the same as those involving S corporations, let alone C
corporations or other types of entities.238 Nevertheless, the discussion illustrates
how far-reaching the government’s assertion may be.236

Traditionally, courts pierce the corporate veil—thus treating the shareholders
and the entity as one—in cases involving either creditors and undercapitalization
or a lack of attention to formalities.2 ’7 Reverse piercing—which Professor
Bainbridge describes as an established doctrine—involves shareholders asserting
their own rights as if their chosen separate entity did not exist.238 His most
convincing example involved a Minnesota shareholder who sought homestead
protection for the residence she placed in the corporate form.2 9 The court,
finding the public policy of protecting the home to be critical, pierced the

228. Peter called on believers to follow God with their entire lives, including how they relate
to government, spouses, and masters. See 1 Peter 2:13-37 (NIV); Matthew 16:18 (NIV) (“on this
Rock 1 will build my Church . . . ”).

229. Stephen M. Bainbridge, Using Reverse Veil Piercing to Vindicate the Free Exercise
Rights o f Incorporated Employers, 16 GREEN BAG 2d 235 (2013).

230. See id. at 236-37.
231. Terence P. Jeffrey, DOJ to Federal Judge: We Can Force Your Wife to Violate Her

Religion, CNS NEWS (Feb. 25, 2013, 7:34 PM), http://cnsnews.com/news/article/doj-federal-judge-
we-can-forceyour-wife-violate-her-religion.

232. See Bainbridge, supra note 229, at 235-36 (citing Transcript of Motion Hearing, Tyndale
House Publishers, Inc. v. Sebelius, No. CV 12-1635 (D.D.C. Nov. 9, 2012)).

233. See id.
234. See id.
235. See infra Part II.0.9-12.
236. See Brief for the Appellees at 24, Hobby Lobby Stores, Inc. v. Sebelius, ITS F.3d 1114

(10th Cir. June 27, 2013) (citing Seitsinger v. Dockum Pontiac inc., 894 P.2d 1077, 1079-80 (Okla.
1995)).

237. See id. at 242 & n.22 (citing I. Maurice Wormser, Piercing the Veil o f Corporate Entity,
12 COLUM. L. REV. 496, 517 (1912)).

238. See id. at 241, 243.
239. See id. at 243 (citing Cargill, Inc. v. Hedge, 375 N.W.2d 477 (Minn. 1985)).

http://cnsnews.com/news/article/doj-federal-judge-we-can-forceyour-wife-violate-her-religion

http://cnsnews.com/news/article/doj-federal-judge-we-can-forceyour-wife-violate-her-religion

28 S o u t h C a r o l in a L a w R e v ie w [Vol. 65:1

corporate veil and treated the shareholder and her chosen corporate form as the
same entity.240 As with associational standing, the closeness of identity between
the entity and the shareholders, as well as the great significance of the rights
involved, was paramount.241

Similarly, in Hobby Lobby, the corporation and its owners are closely
identified: essentially, they are one and the same in terms of beliefs because the
owners are small in number and unified in position.242 Further, the Hobby Lobby
litigation involves fundamental religious rights that are at least as critical as state
protection of the homestead. Thus, as with tax law, securities law, and family
law, state corporate law sometimes ignores the arbitrary corporate/shareholder
wall, even at the behest of the shareholders who elected corporate status.243 The
corporate law treatment further illustrates the simplistic nature of the
government’s black-and-white insistence on recognition of the corporate status.

Analogously, Chief Justice Burger, who concurred in part in the 1974 Allee
decision on associational standing, referred to a union as having rights derived
from the members.244 Typically, a derivative action by shareholders is the
reverse, as shareholders derive rights from the entity.-4′ Chief Justice Burger’s
language was the opposite because it described the entity as deriving rights from
its members—essentially a reverse veil piercing:

If, as claimed by the union, union members were subject to unlawful
arrest and threats of arrest in their First Amendment protected
organizational activity on behalf of the union, the union would have
derivatively suffered or have been in the position to suffer derivatively
real injury and would have standing to complain of that injury and bring
this action. If a person who was a member of the union both at the time
of that person’s arrest and at the present time would have standing
individually to challenge the constitutionality of one of the five statutes,
then the Union itself would have such standing, since the inability of the
union member to communicate freely restricts the ability of the union to
communicate. As the Court states, a union “can act only through its
members.”246

240. See Cargill, 375 N.W.2d at 479-80.
241. See id. at 479.
242. See Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1122 (10th Cir. 2013).
243. See, e.g., Cargill, Inc. v. Hedge, 375 N.W.2d 477, 479 (Minn. 1985) (piercing the

corporate veil and treating the shareholder and her chosen entity the same).
244. See Allee v. Medrano, 416 U.S. 802, 829-30 (1974) (Burger, C.J., concurring in part and

dissenting in part).
245. See Karten v. Woltin, 23 So. 3d 839, 840-41 (Fla. 4th Dist. Ct. App. 2009) (quoting

Braun v. Buyers Choice Mortg. Corp., 851 So. 2d 199, 203 (Fla. 4th Dist. Ct. App. 2003); Fort
Pierce Corp. v. Ivey, 671 So. 2d 206, 207 (Fla. 4th Dist. Ct. App. 1996)).

246. Id. (footnote omitted).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 29

The analogy is apt because unions have long been recognized as “separate
entities.” 247 Although they exist as tax-exempt organizations,248 they are
consummately commercial—albeit at the opposite end of the
management/employee spectrum from Hobby Lobby. ‘ 49 They have lobbying
and political rights of their own, which are often at odds with a significant
portion of their members; hence, sometimes the separate entity nature is
respected.250 Yet, at other times, unions and their members have an identity of
interests.”71 In Allee, not only did such an identity exist, but the interests also
involved First Amendment rights.252 Similarly, in Hobby Lobby, the corporation
undoubtedly acts as a separate entity for tort and contract law purposes; yet, it
also—in the matter involving abortion insurance—has an identity of interests
with its owners, who make all decisions.253 Indeed, as explained below, the
Hobby Lobby argument is a fortiori, while a tax-exempt organization exists
ultimately for itself and cannot permit its commercial interests or profits to
ensure the benefit of members or shareholders, the opposite is true for a
traditional business corporation. ‘ 54 Its commercial purpose is to benefit the
financial interests of its owners.255 Thus, the for-profit associational argument
appears stronger for business corporations than for the not-for-profit sector—the
exact opposite of what the government claims.256

247. See e.g., United Mine Workers v. Coronado Coal Co., 259 U.S. 344, 385-86 (1922)
(“[I]n every way the union acts as a business entity, distinct from its members . . .”). State laws
allow unions to operate as unincorporated associations or as corporations. See, e.g., Fla. Stat. §
447.02 (West 2013) (stating that labor organizations may or may not be incorporated). Each type of
union must be registered and may be a party to a legal action. See id. §§ 447.06 (requiring
registration), 447.11 (granting labor organizations the right to maintain and be subject to any action
or suit).

248. See I.R.C. § 501(c)(5) (2006).
249. See supra Part I.A.
250. See, e.g., Marker v. Schultz. 485 F.2d 1003, 1004 (D.C. Cir. 1973) (providing an example

of a case in which plaintiffs dissented from union political activity and sought an injunction). In
Marker v. Schultz, the court recognized accommodations for dissenters and permitted the union to
act consistently with the majority view, essentially recognizing it as an entity separate from its
individual members. Id.; see also Int’l Ass’n of Machinists v. Street, 367 U.S. 740, 750-64, 770
(196!) (citations omitted) (detailing how Congress essentially granted personhood to the particular
union under the Railroad Labor Act and recognizing the right of the union to act despite the
dissenters).

251 .See, e.g., Allee, 416 U.S. at 830-31.
252. See id.
253. See generally infra Part V.A (discussing the different types of corporations and the legal

implications of each).
254. See Flobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1147 (10th Cir. June 27, 2013)

(Hartz, J., concurring).
255. Id.
256. See id.

30 So u t h C a r o l in a La w Re v ie w [Vol. 65: 1

E. Corporate Status as Elective

In the contraceptive cases, several courts relied on the elective nature of
corporations to support a denial of standing or to recommend the denial
thereof.”57 These conclusions tend to stem from a mistaken reliance on
unfortunate language in the 1982 decision in United States v. Lee25*: “When
followers of a particular sect enter into commercial activity as a matter of choice,
the limits they accept on their own conduct as a matter of conscience and faith
are not to be superimposed on the statutory schemes which are binding on others
in that activity.”259

Looking at the language in the context of the case, however, makes it far less
deadly than it seems. In Lee, the employer sought not to pay Social Security
taxes, believing that the Amish faith required members to support themselves
and others of their faith.260 As Chief Justice Burger suggested, the notion of
Social Security as an insurance program is incorrect.261 Social Security taxes
paid by employers are merely excises on employment and the revenues are
general revenues.26″ Social Security taxes are no different from gambling taxes
or excises on tires, telephones, or travel by air. Similarly, the employee share of
Federal Insurance Contributions Act (FICA) is but a general revenue income
tax.263 Nothing whatsoever binds Congress to spend these revenues—or any
other revenues—on retirement; nevertheless, Congress chooses to go through the
appropriations process instead of repealing the Social Security system.264

257. Cf, e.g., Hobby Lobby Stores, Inc. v. Sebelius, 133 S. Ct. 641, 643 (2012) (Sotomayor,
J.) (citing United States v. Lee, 455 U.S. 252, 261 (1982)) (referencing Lee as support for the fact
that the Court had not previously addressed free exercise claims brought by “closely held for-profit
corporations and their controlling shareholders” challenging mandatory provisions of employee
benefits as burdening their free exercise of religion); Grote v. Sebelius, 708 F.3d 850, 859 (7th Cir.
2013) (Rovner, J., dissenting) (quoting Lee, 455 U.S. at 261) (discussing the Plaintiffs’ voluntary
decision to engage in corporate enterprise and noting the Court’s language in Lee): Mersino Mgmt.
Co. v. Sebelius, 2013 WL 3546702, at *15 (E.D. Mich. July 11,2013) (noting that Mersino selected
the corporate form); Autocam Corp. v. Sebelius, 2012 WL 6845677, at *7 (W.D. Mich. Dec. 24,
2012) (discussing the implications of the corporate form).

258. 455 U.S. 252 (1982) (Burger, C.J.).
259. Id at 261.
260. Id. at 254-55.
261. See id. at 260 (“There is no principled way, however, for purposes of this case, to

distinguish between general taxes and those imposed under the Social Security Act.”).
262. See id. at 254 n.l.
263. See 26 U.S.C. § 3102(a) (2006); see also What is the Meaning o f FICA?, Soc. SEC.

ADMIN., http://ssa-custhelp.ssa.g0v/app/answers/detail/a_id/392/~/what-is-the-meaning-0f-fica (last
updated Jan. 28, 2013, 03:29 PM) (“The payroll taxes collected for Social Security are of course
taxes, but they can also be described as contributions to the social insurance system that is Social
Security . . . . FICA is nothing more than the tax provisions of the Social Security Act, as they
appear in the Internal Revenue Code.”).

264. For a discussion of the annual appropriations process for Social Security, see generally
Soc. Sec. Admin., Fiscal Year 2014 Budget Justification: Payments to Social Security
Trust Funds (2013), available at http://www.ssa.gov/budget/FY14Files/2014PSSTF .

http://ssa-custhelp.ssa.g0v/app/answers/detail/a_id/392/~/what-is-the-meaning-0f-fica

http://www.ssa.gov/budget/FY14Files/2014PSSTF

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 31

Indeed, if Congress were to repeal the system but retain the taxes, no one would
have a claim for breach of contract—or anything like it—because the United
States Government has no obligation to provide the benefits.265 The analysis
would be quite different if the United States mandated participation in a vested
retirement system, but it does not.

Thus, an employer has no greater objection to paying an excise on
employment (FICA) than it has to paying an excise on profits (what is generally
called the corporate income tax, but which is actually an excise)266 or an excise
on tires for its vehicles; how Congress ultimately appropriates the taxes raised
has nothing to do with the raising of those taxes.26 Congress need not spend
“Social Security” revenue on social security; indeed, for decades it has not.268

The Social Security tax differs markedly from an excise on an employer’s
failure to provide health insurance269 or an excise on the failure to provide
contraception/abortion coverage.270 One is an excise on an activity the
corporation chooses to do (earn income and employ persons)—and which
generates general revenues—and the other is an excise on something the
corporation chooses not to do. The former has only a mythical relationship to a
forbidden religious practice—through general and subsequent appropriations to
retirement insurance—and the latter intrinsically involves a religious practice of
opposing abortion—or, for some, health insurance in general.

Although Chief Justice Burger seemed clear about the distinction between
Social Security and contraceptive/abortion coverage,271 such clarity has not
stopped several judges from misusing his remarks.272 The seemingly toxic effect
of his unfortunate words—quoted above273—on the Hobby Lobby and Conestoga
litigation results only because his words are so often taken out of context. Chief
Justice Burger focused on a choice—or an election274—but the choice to which
he referred was the choice to employ someone, not the choice to incorporate.275

265. See John Tammy, Op-Ed, The Ugly Truth About Social Security Is Revealed, FORBES
(June 13, 2012, 6:41 PM), http://www.forbes.com/sites/johntamny/2012/06/03/the-ugly-truth-about-
social-security-is-revealed/.

266. See Flint v. Stone Tracy Co., 220 U.S. 107, 157-58 (1911) overruled on other grounds as
stated in Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, 542 (1985).

267. Steve Vernon, The Social Security Trust Fund Myth, CBS N ew s (Feb. 1, 2011, 10:49
AM), http://www.cbsnews.com/8301-505146_162-39942944/the-social-security-trust-fund-myth/
(“There is—and never has been—any real link between our Social Security benefits and the FICA
taxes that we pay.”).

268. See supra notes 264—65 and accompanying text.
269. See I.R.C. § 4980D (2006).
270. See id.
271. See United States v. Lee, 455 U.S. 252, 261 (1982).
272. See Mersino Mgmt. Co. v. Sebelius, 2013 WL 3546702, at *13 (E.D. Mich. July 11,

2013) (arguably misusing Chief Justice Burger’s words).
273. See supra note 246 and accompanying text.
274. See Mersino Mgmt. Co. v. Sebelius, 2013 WL 3546702, at *13 (E.D. Mich. July 11,

2013) (arguably misusing Chief Justice Burger’s words).
275. See id. at *15 (referring to Mersino’s choice to incorporate).

http://www.forbes.com/sites/johntamny/2012/06/03/the-ugly-truth-about-social-security-is-revealed/

http://www.forbes.com/sites/johntamny/2012/06/03/the-ugly-truth-about-social-security-is-revealed/

http://www.cbsnews.com/8301-505146_162-39942944/the-social-security-trust-fund-myth/

32 So u t h C a r o l in a L a w R e v iew [Vol. 65: 1

III. En t it ie s a s RFRA P er so n s

The Religious Freedom Restoration Act (RFRA) provides a statutory
opportunity for litigants—arguably including corporations and companies—to
assert their own religious rights.276

A. History o f RFRA

Enacted by Congress and signed by President Clinton in 1993, RFRA directs
federal courts to use a “compelling interest” approach in evaluating free exercise
claims of any person?11 Thus, what might not be protected under traditional
constitutional theory may receive statutory protection under such a high standard
of review.278 The statute broadly applies to “government,” as opposed to
Congress—as the First Amendment does facially—and imposes the high
standard for all cases, regardless of which standard courts have adopted.279 The
act was Congress’s response to the 1990 Supreme Court decision in
Employment Division o f the Department o f Human Resources o f Oregon v.
Smith,2 which upheld an Oregon law restricting the use of peyote by a religious
entity.282 In 1997, the Court struck down RFRA to the extent that it applied to
the states but retained its application to the federal government.283

B. Corporate Rights Under RFRA

The first hurdle presented by RFRA is that a person asserts the religious
284 285issue. Traditionally, corporations are persons under both state and federal

276. 42 U.S.C. §§ 2000bb-1 through -4 (2006).
277. See id. § 2000bb-l(b). Section 200Qbb-l(b) provides:
Government may substantially burden a person’s exercise of religion only if it
demonstrates that application of the burden to the person—

(1) is in furtherance of a compelling governmental interest; and
(2) is the least restrictive means of furthering that compelling governmental interest.

Id.
278. See, e.g., Hobby Lobby Complaint, supra note 20, at 3 (claiming the plaintiffs First and

Fifth Amendment rights were violated under RFRA).
279. See generally 42 U.S.C. §§ 2000bb-2(l), 2000bb-3(a) (defining “government” and stating

that the chapter applies to all federal law).
280. See id. § 2000bb(a)(4).
281. 494 U.S. 872(1990).
282. Id. at 890.
283. See City of Boeme v. Flores, 521 U.S. 507, 532, 536 (1997) (explaining that the wide

scope of the RFRA violated separation of powers principles).
284. See 42 U.S.C. § 20000bb-l(c) (stating that a “person” whose religious exercise has been

burdened has the right to assert that violation in a judicial proceeding).
285. See, e.g., Fla. Stat. § 607.01401(11), (19) (2013) (defining an entity as including

corporations and a person as including an entity).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 33

law.28<’ Indeed, the United States Code specifically provides that “[i]n determining the meaning of any Act of Congress, unless the context indicates otherwise. . . the words ‘person’ and ‘whoever’ include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals . . . .”287

Additionally, the Internal Revenue Code, which contains the operative
section 4980D, provides:

(a) When used in this title, where not otherwise distinctly expressed or
manifestly incompatible with the intent thereof—

(1) Person. The term “person” shall be construed to mean and
include an individual, a trust, estate, partnership, association, company
or corporation.”88

While these IRS provisions might appear to resolve the matter, the Hobby
Lobby district court suggested that it would exclude both corporations and
limited partnerships from the definition.281′ The district court, however, did not
allude to other business structures such as general partnerships, trusts, estates, or
sole proprietorships.2y0 Other courts have disagreed. In Korte, the Seventh
Circuit stated:

[T]he government’s primary argument is that because K & L
Contractors is a secular, for-profit enterprise, no rights under RFRA are
implicated at all. This ignores that Cyril and Jane Korte are also
plaintiffs. Together they own nearly 88% of K & L Contractors. It is a
family-run business, and they manage the company in accordance with
their religious beliefs. This includes the health plan that the company
sponsors and funds for the benefit of its nonunion workforce. That the
Kortes operate their business in the corporate form is not dispositive of
their claim. The contraception mandate applies to K & L Contractors as
an employer of more than 50 employees, and the Kortes would have to

286. See, e.g., Pembina Consol. Silver Mining & Milling Co. v. Pennsylvania, 12 U.S. 181,
189 (1888) (stating that the designation of a person under the Fourteenth Amendment undoubtedly
includes a private corporation).

287. 1 U.S.C. § 1 (2012).
288. I.R.C. § 7701(a)(1) (2006).
289. Hobby Lobby District I, 870 F. Supp. 2d 1278, 1291-92 (2013).
290. See id. In Geneva College v. Sebelius, the district court expressly allowed owners of a

sole proprietorship to proceed, but dismissed the sole proprietorship, WLH, for not being a separate
entity. No. 2:12-CV-00207, 2013 WL 838238, at *20 (W.D. Pa. Mar. 6, 2013).

34 So u t h C a r o l in a L a w R ev iew [V o l . 65: 1

violate their religious beliefs to operate their company in compliance
with it.291

In Geneva College v. Sebelius the court sidestepped the issue regarding
whether a corporation is a person under RFRA;293 instead, the court permitted
the corporation to assert the rights of its owners.294 In contrast with the Hobby
Lobby district court, the court in Geneva also found no distinction regarding the
type of entity asserting the owners’ claims.295 The court then stressed the
significance of the many exceptions to the contraceptive mandate and, applying
RFRA, concluded that the government lacked a compelling interest.296

Similarly, the district court in Tyndale permitted the entity to assert its
owners’ rights, but “like others before it, [the court] decline[d] to address the
unresolved question of whether for-profit corporations can exercise religion
within the meaning of the RFRA and the Free Exercise Clause.”297

Two non-tax cases from the Ninth Circuit are also relevant to the issue of
whether corporations are persons under RFRA. In Townley, a closely held
corporation required employee attendance at devotional services contrary to an
Equal Employment Opportunity Commission (EEOC) regulation.298 In 1988—
prior to the enactment of RFRA—the Ninth Circuit permitted the entity in
Townley to assert the First Amendment religious claims of its owners.299
Similarly, in the 2009 Stormans decision, the Ninth Circuit considered a case
involving a corporate pharmacy that objected to a state regulation requiring the
sale of Plan B contraceptives.300 Townley and Stormans, as non-tax cases, do not
necessarily control the application of § 4980D. Because the taxing power, for
example, is not subject to general due process limitations,301 it is not necessarily
subject to First Amendment objections. No court, however, has denied an

291. Korte v. Sebelius, No. 12-3841, 2012 WL 6757353, at *3 (7th Cir. 2012) (citation
omitted).

292. No. 2:12-CV-00207, 2013 WL 838238, at *1.
293. Geneva College, 2013 WL 838238, at *41 (denying in part the government’s motion to

dismiss).
294. See id. at *19-21 (relying on Stormans, Inc. v. Sleckley, 586 F.3d 1109 (9th Cir. 2009);

Equal Emp’t Opportunity Comm’n v. Townley Eng’g & Mfg. Co., 859 F.2d 610 (9th Cir. 1988)).
295. See id. at *21 (citing First Nat’i Bank of Bos. v. Bellotti, 435 U.S. 765, 776 (1978)).
296. Id. at *25 (stating that the court need not address whether the mandate is the least

restrictive path for achieving the government’s stated goals).
297. Tyndale House Publishers, Inc. v. Sebelius, 904 F. Supp. 2d at 114 (D.D.C. 2012).
298. See Townley, 859 F.2d at 611-13.
299. See id. at 620 & n.15 (citing Tony & Susan Alamo Found, v. Sec’y of Labor, 471 U.S.

290, 303 n.26 ( 1985)).
300. Stormans, Inc. v. Selecky, 586 F.3d 1109, 1113, 1119 (9th Cir. 2009) (“We decline to

decide whether a for-profit corporation can assert its own rights under the Free Exercise
Clause . . . . ”).

301. See Magnano v. Hamilton, 292 U.S. 40, 44 (1934) (citing Brushaber v. Union Pac. R.R.,
240 U.S. 1,24(1916)).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 35

otherwise valid RFRA claim simply because it implicated the taxing power;
further, the government has not argued in favor of such a limitation.

IV. C o r p o r a t e R ig hts

A. Corporate Nonreligious Constitutional Rights

No federal appellate court has found business corporations to have religious
freedom under the First Amendment;302 indeed, several courts have specifically
declined to address the issue.’”‘ But courts have long recognized that many
constitutional rights belong to business coiporations. For-profit business
corporations have First Amendment rights to freedom of speech304 and freedom
of the press.305 They have long received equal protection under the Fourteenth
Amendment. ’00 Likewise, for-profit business coiporations receive protection
under the Fifth Amendment against unreasonable takings’07 and under the Fourth
Amendment against unreasonable searches and seizures.308 Corporations,
however, do not receive the Fifth Amendment protection against self-
incrimination. ‘ 04 The district court in Hobby Lobby emphasized the varied

302. However, non-business religious corporations have religious rights. See, e.g., Church of
Lukumi Babalu Aye, Inc. v. City of Hialeah, 508 U.S. 520, 525 (1993) (upholding the claim of a
Santeria church, a not-for-profit corporation, that a statute prohibiting animal sacrifice violated the
church’s constitutional right to the free exercise of religion); Jimmy Swaggart Ministries v. Bd. of
Equalization of Cal., 493 U.S. 378, 381 (1990) (recognizing the religious rights of Jimmy Swaggart
Ministries, a nonprofit religious corporation organized in Louisiana); Bob Jones Univ. v. United
States, 461 U.S. 574, 579-85, 602-04 (1983) (rejecting Bob Jones University’s and Goldsboro
Christian Schools’ tax-exempt status based on policies of racial discrimination, but recognizing that
the fundamental religious rights under the First Amendment were applicable to nonprofit religious
corporations).

303. See, e.g., First Nat’l Bank v. Bellotti, 435 U.S. 765, 111 (1978) (declining to address
“whether corporations have the full measure of rights that individuals enjoy under the First
Amendment”); Stormans, 586 F.3d at 1119 (declining to decide whether a for-profit corporation can
assert its own rights under the Free Exercise Clause); Church of Scientology of Cal. v. Cazares, 638
F.2d 1271, 1280 n.7 (5th Cir. 1981) (declining to decide whether a church could assert an
institutional right to free exercise).

304. See Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 342 (2010); Bellotti, 435
U.S. at 111 n.14 (citing United States v. White, 322 U.S. 694, 698-701 (1944)).

305. See, e.g., Citizens United, 558 U.S. at 352 (Scalia, J., dissenting) (“We have consistently
rejected the proposition that the institutional press has any constitutional privilege beyond that of
other speakers.” (citing Austin v. Mich. State Chamber of Commerce, 494 U.S. 652, 691 (6th Cir.
1989))); Bellotti, 435 U.S. at 784.

306. See County of Santa Clara v. S. Pac. R.R. Co., 118 U.S. 394, 396 (1886).
307. See Ilya Shapiro & Caitlyn W. McCarthy, So What if Corporations Aren 7 People?, 44 J.

MARSHALL L. Rev. 701, 708 (2011) (explaining that there would be no incentive to form
corporations if they did not have some constitutional rights).

308. See id.
309. See Application to Enforce Admin. Subpoenas Duces Tecum of the Secs. & Exch.

Comm’n v. Knowles, 87 F.3d 413, 416 n.3 (10th Cir. 1996) (citing United States v. Rice, 52 F.3d
843, 845-^46 (10th Cir. 1995); United States v. Hansen Niederhauser Co., 522 F.2d 1037, 1039
(10th Cir. 1975)).

S o u t h C a r o l in a L a w R e v ie w36 [VOL. 65: 1

treatment of corporate rights in denying the existence of corporate religious
rights:

Corporations have constitutional rights in some circumstances, such
as the right to free speech, but the rights o f corporate persons and
natural persons are not coextensive. Courts have not extended all
constitutional rights to all corporations. Corporations do not possess a
“right to exercise a privilege against self-incrimination.” They have
been denied “[c]ertain ‘purely personal’ guarantees . . . because the
‘historic function’ o f the particular guarantee has been limited to the
protection of individuals.” “Whether or not a particular guarantee is
‘purely personal’ or is unavailable to corporations for some other reason
depends on the nature, history, and purpose of the particular
constitutional provision.”310

The above analysis, however, is flawed. The court mistakenly chose to
distinguish the type o f person— natural versus corporate— rather than the
mechanical nature o f the right asserted.311 However, the quoted language
involving “certain ‘purely personal’ guarantees” was not suggesting that only
natural persons have the guarantee; rather, it was suggesting that the Fifth
Amendment can only be pleaded for oneself—not for a third party.312 Consider
the history of the statement the Court made in Hale v. Henkel, 3 which the Court
later relied upon in United States v. White314 and First National Bank o f Bos. v.
Belotti,315 According to the Court:

[W]hile the immunity statute may protect individual witnesses, it would
not protect the corporation of which appellant was the agent and
representative. This is true, but the answer is that it was not designed to
do so. The right of a person under the 5th Amendment to refuse to
incriminate himself is purely a personal privilege o f the witness. It was
never intended to permit him to plead the fact that some third person
might be incriminated by his testimony, even though he were the agent
o f such person. A privilege so extensive might be used to put a stop to
the examination of every witness who was called upon to testify before
the grand jury with regard to the doings or business of his principal,
whether such principal were an individual or a corporation. The

310. Hobby Lobby District I, 870 F. Supp. 2d 1278, 1287-88 (W.D. Okla. 2012) (citations
omitted).

311. See id. at 1287 (“[T]he rights of corporate persons and natural persons are not
coextensive.”).

312. See id. at 1288 (citing First Nat’l Bank v. Bellotti, 435 U.S. 765, 778 n.14 (1978)).
313. 201 U.S. 43, 69-70(1906).
314. 322 U.S. 694, 699 (1944) (citing Hale, 201 U.S. at 69-70).
315. 435 U.S. 765, 779 (1978) (citing White, 322 U.S. at 699).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 37

question whether a corporation is a “person ” within the meaning o f this
amendment really does not arise, except, perhaps, where a corporation
is called upon to answer a bill of discovery, since it can only be heard by
oral evidence in the person of some one of its agents or employees.316

Thus, the district court in Hobby Lobby quoted the language in a manner
inconsistent with its intended meaning.’317 A parallel exists between Hale and
Hobby Lobby, in both cases, corporations asserted constitutional rights to protect
themselves.’3 18 However, the distinction missed by the district court involves the
Fifth Amendment mechanics: the right is personal to the witness.319 Hence,
Hobby Lobby is more akin to Citizens United v. Federal Election Commission,’320
in which the Court recognized corporate speech rights as being personal to the
speaker, but allowed a corporation to assert them because a corporation can
speak.3″ 1 Further evidence exists in the religious corporation cases, in which
courts have long recognized the existence of a corporation’s right to religious
expression. If a religious corporation has religious rights, then such rights are
not akin to the self-incrimination rights of Hale, which belong only to
individuals who can testify.322

B. Corporate Religious Rights

Religious beliefs vary widely on the central issues of abortion and the extent
of one’s duty to behave consistently with one’s beliefs.323 The abortion issue is
not particularly pertinent, as no one questions the sincerity of the beliefs of
Hobby Lobby’s owners—at least for purposes of the litigation. Hence, one’s
views on that issue are not relevant to the issues that tax lawyers must
understand and will likely face. The remaining issues, however, are both
controversial and fundamental.

The government’s case appears grounded in three facially seductive
propositions:

316. Hale, 201 U.S. at 69-70 (emphasis added).
317. See Hobby Lobby District I, 870 F. Supp. 2d at 1287.
318. See Hale, 201 U.S. at 66; Hobby Lobby District I, 870 F. Supp. 2d at 1283.
319. See Hale, 201 U.S. at 69 (“The right of a person under the 5th Amendment to refuse to

incriminate himself is purely a personal privilege of the witness.”).
320. 558 U.S. 310(2010).
321. Id. at 342.
322. See Hate, 201 U.S. at 69 (explaining that the Fifth Amendment right against self­

incrimination belongs only to individuals); but see cases cited supra note 257 (listing examples of
cases discussing the religious rights held by religious corporations).

323. See, e.g., Hobby Lobby Complaint, supra note 20, at 2 (detailing the plaintiffs’ belief that
they must operate their business in accordance with their faith).

38 So u t h C a r o l in a L a w R e v iew [V o l . 65: 1

1. Religious freedom does not extend to commercial activities, at least
not through the corporate format.324

2. Corporations are secular entities with no religious beliefs of their
own.325

3. An appropriate distinction involves the for-profit versus not-for-
profit dichotomy.326

C. Religion, Morality, and Commerce in General

As discussed below, many people seek to impose moral standards on various
entities through movements involving corporate social responsibility (CSR),
social entrepreneurship, and social justice.32′ While this phenomenon does not
necessarily grant religious rights to corporations, it is consistent with the notion
that humans often involve their moral beliefs and practices in their commercial
activities. Thus, one arguably may not leave morality—and, by implication,
religion—to personal, noncommercial matters.

Different religions treat duty, morality, and commerciality differently.
Christians believe one must live one’s life fully, and in all aspects, according to
Christ’s teachings/26 To them, one cannot behave according to such rules in
personal or social settings but then act amorally in commercial settings.329 Two
widely known New Testament330 examples should suffice. First, Christ harshly
criticized “money changers” in the temple.331 Their behavior, along with that of

324. DOJ Brief, supra note 84, at 2 (“Nor can the owners of a for-profit, secular corporation
eliminate the legal separation provided by the corporate form, which the owners have chosen
because it benefits them, to impose their personal religious beliefs on the corporate entity’s
employees.”).

325. Id. at 2-3 (“[A] secular entity by definition does not exercise religion.”).
326. See id. at 2 (citing United States v. Lee, 455 U.S. 252, 261 (1982)) (emphasizing the fact

that the corporation voluntarily organized itself as for-profit).
327. See infra Parts II.E-F.
328. See, e.g., Vocation o f the Business Leader: A Reflection, PONTIFICAL COUNCIL FOR

JUSTICE & Pe a c e , at 5, available at http://www.stthomas.edu/cathstudies/cst/conferences/Logic%
20of%20Gift%20Semina/Logicofgiftdoc/FinalsoftproofVocati (“Building a productive
organisation [sic] is a primary way in which businesspeople can share in the unfolding of the work
of creation. When they realize [sic] that they are participating in the work of the Creator through
their stewardship of productive organisations [sic], they may begin to realise [sic] the grandeur and
awesome responsibility of their vocation.”).

329. See supra note 225 and accompanying text.
330. In a similar vein, the Old Testament also requires one to live one’s whole life according

to God’s law. The story of King David and his adulterous affair with Bathsheba provides an
example. David valiantly fought the philistines and helped unify the Israelites; however, he
suffered because of his failings despite his great works. See 2 Samuel 11.

331. See Matthew 21:12-13; Mark 11:15-18; Luke 19:45-46; John 2:13-17. Biblical scholars
differ on exactly why Christ acted in this manner. Some believe he wanted to rid the temple of all
commerce, while others focus on the excessive profits of the moneychangers. See, e.g., Dr. Richard

http://www.stthomas.edu/cathstudies/cst/conferences/Logic%25

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 39

those who sold sacrificial animals, was consummately commercial and was also
contrary to His teaching—and not simply for its location.332 Similarly, Christ
cautioned His followers of their final judgment, the time of which cannot be
known. Ultimately, some will be taken and others left behind; some will be
judged favorably and others condemned.3 ‘ 4 This warning applies not only to
religious officials, but also to the master in its relationship with servants in the
field or vineyard335—servants performing two common commercial activities.
Thus, to the Christian, one cannot limit one’s beliefs and practices to time in the
synagogue or church; instead, one must fulfill those beliefs in works336 during
more mundane, everyday activities. This includes those acting as employers of
employees/ 37

Nothing suggests that those teachings have a corporate loophole, as in
“masters will be judged in how they treat vineyard servants, but only if they
employ them directly, rather than through a corporate entity.” To the Christian,
God’s Covenant would unquestionably pierce that corporate veil just as certainly
as it tore the temple veil.3 ’6

Regardless of whether one subscribes to the specific beliefs of the Hobby
Lobby owners, one cannot credibly deny that those beliefs are commonly held,

P. Burcher, A Bible Study on the Cleansing o f the Temple Passages, OUR REDEEMER LUTHERAN
C h u r c h , http://www.orlutheran.com/html/bscleans.html (last visited Nov. 4, 2013) (noting both
theories and advocating that Christ wanted to rid the temple of all commerce). Still, others believe
that the real focus was upon the animals sold alongside for sacrifice: as Christ was about to become
the ultimate sacrifice for all humanity, the need for animal sacrifice had come to an end. See, e.g.,
William F. Dankenbring, What’s All This About the New Covenant, TRIUMPHPRO.COM,
http://www.triumphpro.com/covenants-of-god (last visited Oct. 22, 2013) (“Christ is the
fulfillment of the animal sacrifices. All the animal sacrifices pointed to Him, who was our ‘true sin
offering’ . . . . ” (citing 2 Corinthians 5:21)).

332. See supra note 225. This view stems specifically from the Gospel of Matthew, which
quotes Christ—who was quoting Jeremiah 7:11—as labeling the money changers and animal sellers
as either thieves or robbers, depending upon the translation. Whether He objected to the specific
overcharging, or more broadly to the use of commerce, to hide other wickedness is unclear; but,
location apparently was not the only issue.

333. See Matthew 24:35^14.
334. See Matthew 24:40-41.
335. See id.
336. See Colossians 3:23 (NIV) (“Whatever you do, work at it with all your heart, as working

for the Lord, not for men . . . .”).. The relevance of “good works” is itself controversial among
Christian denominations. Very generally, some believe good works are essential to salvation, while
others focus solely on acceptance of Grace as essential. All, however, accept that good works flow
naturally from faith. As the Apostle James remarked, “faith without deeds is dead.” James 2:26
(NIV).

337. See Colossians 4:1 (NIV) (“Masters, provide your slaves with what is right and fair,
because you know that you also have a Master in heaven.”).

338. See Matthew 27:50-51. The temple veil acted as a reminder that a sinful man was
unworthy of being in the presence of God. See generally Hebrews 9:2—14 (explaining the sanctity
of the tabernacle’s second veil in which only the high priest would enter once a year). How ironic
that the government and courts would now use a corporate veil to separate Christians from Christ’s
message.

http://www.orlutheran.com/html/bscleans.html

http://www.triumphpro.com/covenants-of-god

40 So u t h C a r o l in a L a w R e v ie w [Vol. 65: 1

traditional, and clear.339 In the viewpoint of Hobby Lobby’s owners, they can no
more provide—directly or indirectly340—abortion coverage to their employees
through their corporation than they can do so themselves, as sole proprietors, or
than they can directly perform an abortion on another.341 For them, those
distinctions do not exist.342

Putting aside the specific issue of abortion, the more general government
argument that divorces religion from public life is also at odds with fundamental
Christianity—at least as it is commonly professed. In the eyes of many—
including at least three former Supreme Court Justices—that argument, if fully
adopted by the courts, establishes a religion just as certainly as, for example, the
government choosing Methodism as the state church.343 The majority view, in
contrast, is far more restrictive and sharply limits government entanglement with

339. See generally United States v. Seeger, 380 U.S. 163, 185 (1965) (emphasizing that “while
the ‘truth’ of a belief is not open to question, there remains the significant question whether it is
‘truly held’”).

340. See Coverage of Certain Preventive Services Under the Affordable Care Act, 78 Fed.
Reg. 8456, 8462 (Feb. 6, 2013). This proposed regulation permits some religious organizations to
opt out from the mandate if their insurance provider separately allows employees the required
contraceptive coverage. See id. at 8463. However, this indirect option is not available to Hobby
Lobby.

341. See Hobby Lobby Complaint, supra note 20, at 1.
342. See id.
343. See School Dist. of Abington Twp., Pa. v. Schempp, 374 U.S. 203 (1963). In his dissent,

Justice Stewart stated:
It might also be argued that parents who want their children exposed to religious

influences can adequately fulfill that wish off school property and outside school time.
With all its surface persuasiveness, however, this argument seriously misconceives the
basic constitutional justification for permitting the exercises at issue in these cases. For a
compulsory state educational system so structures a child’s life that if religious exercises
are held to be an impermissible activity in schools, religion is placed at an artificial and
state-created disadvantage. Viewed in this light, permission of such exercises for those
who want them is necessary if the schools are truly to be neutral in the matter of religion.
And a refusal to permit religious exercises thus is seen, not as the realization o f state
neutrality, but rather as the establishment o f a religion o f secularism, or at the least, as
government support of the beliefs of those who think that religious exercises should be
conducted only in private.

Id. (Stewart, J., dissenting) (emphasis added). Similarly, Justices Goldberg and Harlen remarked:
[U]ntutored devotion to the concept of neutrality can lead to invocation or approval of
results which partake not simply of that noninterference and noninvolvement with the
religious which the Constitution commands, but of a brooding and pervasive devotion to
the secular and a passive, or even active, hostility to the religious. Such results are not
only not compelled by the Constitution, but, it seems to me, are prohibited by it.

Id. at 306 (Goldberg & Harlan, J.J., concurring) (emphasis added); see also Patrick Garry, The Myth
o f Separation: America’s Historical Experience with Church and State, 33 HOFSTRA L. Rev. 475,
499-500 (2004) (recognizing a misunderstanding of religion which has led to suppressive
adjudication favoring a secular society).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 41

religion. ’44 According to the government’s arguments, those limitations extend
to most persons engaged in commerce.343

A broader view is further illustrative. The Hobby Lobby case presents a
striking example of government action in conflict with a person’s religious
beliefs.346 While courts typically decide cases in a manner narrowly tailored to
the facts, academics and policymakers might examine the issue in a larger
context. For example, § 170 rewards those who report charitable donations.347
Per § 170(f)(8), that reward is generally available only to those who retain a
receipt.3″1* Two religious problems are apparent: (1) the reward rests upon
double disclosure—both to the recipient and to the government349—and (2)
many people believe giving is its own reward, which is sullied if done other than
anonymously.330 Thus, if such people stay true to their beliefs, they pay greater
taxes because of their beliefs: they may give to charity, but they cannot obtain
receipts. More controversial—yet just as apt—are a myriad of government
regulations regarding employment, hiring, firing, and operation of the
workplace.’3′ An employer might reject a more qualified person, thereby
selecting a less qualified candidate, because the government imposed a choice
grounded on moral beliefs that protect some classes, genders, races, or ethnicities
more than others. Although that decision might advance the moral beliefs of
some, it may also be contrary to the moral and religious beliefs of others who,
because of the rule, feel compelled to harm another through exclusion. Some
might view such a system of laws to be for the common good, while others
might see it as wasting talents352 for the sake of worshipping diversity. Indeed,
the government warns repeatedly in its briefs of precisely that example, asserting
that a victory by petitioners will cast doubt on the application of employment
laws to those who assert religious objections.33’ Hence, the
contraceptive/abortion facts of the Hobby Lobby litigation raise merely one

344. See Lemon v. Kurtzman, 403 U.S. 602, 612-13 (1971) (citing Bd. of Educ. v. Allen, 392
U.S. 236, 243 (1968); Walz v. Tax Comm’n, 397 U.S. 664, 674 (1970)) (explaining the three
criteria courts consider when determining if there is an “excessive government entanglement”).

345. DOJ Brief, supra note 84, at 2-3, 9-10, 14-16 (asserting a “secular” versus “religious”
distinction and suggesting that “secular” “for-profit” activities are nonreligious).

346. See Hobby Lobby District 1, 870 F. Supp. 2d 1278, 1285 (W.D. Okla. 2012).
347. See I.R.C. § 170 (2006).
348. See id. § 170(f)(8) (requiring a receipt for any contribution over $250).
349. See id.
350. Matthew 6:1-4 (NIV) (“Be careful not to do your acts of righteousness before men, to be

seen by them. If you do, you will have no reward from your Father in heaven. So when you give to
the needy, do not announce it with trumpets, as the hypocrites do in the synagogues and on the
streets, to be honored by men. I tell you the truth, they have received their reward in full. But when
you give to the needy, do not let your left hand know what your right hand is doing, so that your
giving may be in secret. Then your Father, who sees what is done in secret, will reward you.”).

351. See, e.g., Title VII of the Civil Rights Act of 1964,42 U.S.C. § 2000(e) (2006).
352. Matthew 25:14-30; Luke 12-28. Talents were a measure of weight or coinage.
353. See DOJ Brief, supra note 84, at 15-16 (citing 42 U.S.C. § 2000(e)-l(a) (2006); 42

U.S.C. 2000bb-l (b) (2006); Corp. of the Presiding Bishop of Church of Latter-Day Saints v. Amos,
483 U.S. 327, 330 n.4 (1987)).

42 South Carolina Law Review [Vol. 65:1

factual example of the government entangling itself with religious beliefs in
commerce.

That, however, does not answer the ultimate legal questions regarding the
role of morality and religion in commerce. 4 Just because many people believe
morality, religion, and commerce are necessarily intertwined does not mean that
the government must respect those beliefs—let alone any particular subset of
such beliefs. Perhaps the government may pick and choose, favoring some
belief systems over others. For example, perhaps it must reject those beliefs
grounded in religion, while accepting and enforcing those grounded in morality.
Others, however, may view “secular humanism,” as well as the CSR, diversity,
and environmental movements, as religions themselves.333 Tax lawyers in
particular often consider the definition of religion in dealing with §§
170(b)(l)(A)(i),356 1 07,357 5 01(h),338 and 761 1.359 Typically, a religion involves
beliefs in one’s relationship to others and to the cosmos.36 Religious

354. See supra Part IV.C.
355. Cf, School Dist. of Abington Twp. v. Schempp, 374 U.S. 203, 313 (1963) (Stewart, J.,

dissenting) (declaring that a compulsory state mandate finding religious education impermissible
except when conducted in private is effectively an establishment of a state “religion of secularism”);
id. at 306 (Goldberg, J., concurring) (noting that a devotion to religious neutrality-can lead to
hostility towards the nonsecular); Bron Taylor, Earth and Nature-Based Spirituality (Part 1): From
Deep Ecology to Radical Environmentalism, 30 RELIGION 175, 175 (2001) (“Earth and nature-
based spirituality is proliferating globally.”); Spencer H. Harrison et al., Organizational
Sacralization and Sacrilege, 29 RESEARCH IN ORGANIZATIONAL BEHAVIOR 225, 227 (2009)
(discussing how nonreligious organizations actively import theistic and non-theistic principles);
Lucas Johnston, The Religious Dimensions o f Sustainability: Institutional Religions, Civil Society
and International Politics Since the Turn o f the Twentieth Century, 4 RELIGION COMPASS 176, 177,
184 (2010) (referring to the religious dimension of sustainability discourse); Blake E. Ashforth &
Deepa Vaidyanath, Work Organizations as Secular Religions, 11 J. MGT. In q u ir y 359, 365 (2002)
(“A secular religion, as noted, provides a system of beliefs and practices tied to fundamental
questions about meaning and one’s role in the world. As such, a secular religion—like any
religion—provides a basis for valuing and therefore for morality and behavior. Secular religions are
thus powerful things.”).

356. See I.R.C. § 170(b)( 1 )(A)( 1) (2006) (treating “churches” as favored charities for
charitable deduction limitations and, through a cross-reference from section 509(a), as public
charities).

357. See id. § 107. This section provides:
In the case of a minister of the gospel, gross income does not include—

(1) the rental value of a home furnished to him as part of his compensation; or
(2) the rental allowance paid to him as part of his compensation, to the extent used

by him to rent or provide a home and to the extent such allowance does not exceed the
fair rental value of the home, including furnishings and appurtenances such as a garage,
plus the cost of utilities.

Id.
358. See id. § 501(h) (excluding “churches” and related organizations from the elective

lobbying rules).
359. See id. § 7611 (providing favorable church audit rules).
360. See United States v. Seeger, 380 U.S. 163, 165-66 (1965) (dealing with conscientious

objectors to war and holding that an orthodox belief in a Supreme Being was not required for one’s
belief to qualify as religious).

2013] C o r p o r a t io n s , T a x e s , a n d Rel ig io n 43

organizations involve organized groups supporting religious beliefs,361 which are
doctrines, symbols, books or other documents, leaders, members, fervor, and
general thoughts of how their beliefs are superior to those of others—and thus
some level of condemnation of nonbelievers.362

Indeed, one might easily wonder why openly professed religious beliefs are
religious—and thus subject to one level of protection and restriction, as in
elimination from commerce—while the mere moral beliefs of others receive
different protections and restrictions.363 This is particularly troubling when the
most significant distinction is that some people self-label their beliefs as
religious, while others self-label their beliefs as moral and nonreligious.364
Certainly form often controls over substance;365 however, a system in which
mere form and labels affect constitutional liberties is at least suspect. If
formalities and labels ultimately have legal and constitutional significance,
lawyers need to understand that point so they may fully advise clients.

In summary, the question regarding whether religion has a broad place in
commerce remains unanswered; however, the majority appears to believe that it
does, at least when asserted by individuals.366 Thus, the question then becomes

361. See generally I.R.S. Priv. Ltr. Rul. 200712046 (Mar. 23, 2007) (explaining alternative
definitions of a “church” and distinguishing one, in part, from an organization which is merely
religious).

362. See generally id. (citing Am. Guidance Found., Inc. v. United States, 490 F. Supp. 304,
306 n.2 (1980)) (explaining the IRS’s fourteen-part test for determining whether a religious
organization qualifies as a church).

363. See Africa v. Pennsylvania, 662 F.2d 1025, 1032 n.12 (3d. Cir. 1981) (citing Malnak v.
Yogi, 592 F.2d 197, 207 (3d. Cir. 1979) (Adams, J., concurring); Founding Church of Scientology
v. United States, 409 F.2d 1146, 1160 (D.C. Cir. 1969); Alim v. Bryne, 521 F. Supp. 1039 (D. N.J.
1980); Womens Servs., P.C. v. Thone, 483 F. Supp. 1022, 1034 (D. Neb. 1979), vacated by 452
U.S. 911 (1981); Remmers v. Brewer, 361 F. Supp. 537, 540 (S.D. Iowa 1973)) (summarizing many
decisions that treat non-theist views as “religious” for purposes of extending First Amendment
protections). In Africa, the court adopted a three-part test for determining whether a set of ideas
constituted a religion within the meaning of the First Amendment: (1) whether the beliefs address
fundamental questions of the human condition; (2) whether they are comprehensive; and (3)
whether they are manifested in external forms. Id. at 1032 (citing Malnak, 592 F.2d at 207-10);
see also Church of the Chosen People v. United States, 548 F. Supp. 1247, 1253 (D. Minn. 1982)
(holding that “The Gay Imperative” was not “exclusively” or even “substantially” religious, but
nevertheless finding it had at least some religious aspects); I.R.S. IRM 4.76.7.1(2) (adopting this
distinction, at least in part, in that it defines a church as an entity claiming to be a church).

364. See generally Africa, 662 F.2d at 1032 n.12 (highlighting how courts can view non-theist
views as religious).

365. See Gregory v. Helvering, 293 U.S. 465, 469 (1932) (citing United States v. Isham, 84
U.S. (17 Wall.) 496, 506 (1873); Superior Oil Co. v. Mississippi ex rel. Knox Att’y Gen., 280 U.S.
390, 395-96 (1930); Jones v. Helvering, 71 F.2d 214, 217 (1934) (standing for the proposition that
form controls over substances, except when it does not)). The Gregory Court stated:

The legal right of a taxpayer to decrease the amount of what otherwise would be his
taxes, or altogether avoid them, by means which the law permits, cannot be doubted . . . .
But the question for determination is whether what was done, apart from the tax motive,
was the thing which the statute intended.

Id.
366. See supra Part IV.C.

So u t h C a r o l in a L a w R e v iew44 [VOL. 65: 1

whether a corporation may assert the beliefs of its owners, or whether it may
have beliefs of its own.

D. Morality and Corporations

Although the government couches its position with a “secular” label, the
proposition essentially rests on the notion that corporations are “amoral.” 367 For
example, a table or a plastic bag has no morality of its own. Likewise, a
corporation is merely a le p l fiction—an entity in many, but not all, respects
separate from its owners.368 This notion exists in corporate law—at least for
contract and tort purposes—as well as in the separate entity assumption of
accounting and, thus, has great significance/ 69 Hence, one might easily be
seduced into believing that a corporation is amoral—as it is nonhuman and
nonliving—if one fully respects the legal and accounting fictions.

Yet, recent history suggests otherwise. Three movements over the past few
decades suggest a broad view of business corporations, describing them as
having at least moral rights and responsibilities. Two of the movements are top-
down: the CSR movement attempts to impose moral responsibilities on
corporations, as does the social justice movement.370 The other movement is
bottom-up: the social entrepreneurship movement recognizes the moral rights of
for-profit enterprises.371

Of particular note is that the government repeatedly describes the litigating
corporations as “secular.” 372 This terminology arguably assumes the conclusion
regarding whether business corporations have moral responsibilities and rights,
or even religious responsibilities and rights—assuming one can distinguish
morality from religion. Unfortunately, most of the court opinions have adopted
the government’s denomination of the corporations as secular and for-profit. j7j
As noted above, the Hobby Lobby petitioners all assert traditional Christian
beliefs that they must operate their businesses consistent with religious
teachings; hence, in their minds, the entities are not secular and are not primarily
for-profit. 374

367. See DOJ Brief, supra note 84, at 2-3.
368. See 18 Am . Jur. 2d Corporations § 44 (2004) (citations omitted).
369. See NIKOLAI ET AL., supra note 180.
370. See discussion infra Part IV.D. 1.
371. See discussion infra Part IV.D.2.
372. DOJ Brief, supra note 84, at 3, 15-16.
373. See Briscoe v. Sebelius, 927 F. Supp. 2d 1109, 1112 (D. Colo. Feb. 27, 2013); Geneva

Coll. v. Sebelius, No. 2:12-CV-00207, 2013 WL 838238, at *19 (W.D. Pa. 2013); Hobby Lobby
District I, 870 F. Supp. 2d 1278, 1285, 1288, 1296 (W.D. Okla. 2012). The Seventh Circuit used
the term “secular” once on its own and once in quoting the government. Grote v. Sebelius, 708 F.3d
850, 853-54 (7th Cir. 2013). The dissent used the term three times. See id. at 856-57 (Rovner, J.,
dissenting). The court used the term “for-profit” twice, excluding quotations. See id. at 853-54
(majority opinion). The dissent used the term four times. Id. at 856-57, 859-60 (Rovner, J.,
dissenting).

374. Hobby Lobby Complaint, supra note 20, at 2.

2013] C o r p o r a t io n s , T a x e s , a n d R el ig io n 45

The secular/religious dichotomy thus presents a difficult line for courts to
draw—or at least it should be difficult. As many scholars have noted, a variety
of nominally secular social movements are essentially religious: “Earth and
nature-based spirituality is proliferating globally. . . . [Although participants in
countercultural movements often eschew the label religion, these are religious
movements, in which these persons find ultimate meaning and transformative
power in nature.”375

1. Corporate Social Responsibility Movement (CSR)

Corporate social responsibility movements are common. Many entities claim
to be good “corporate citizens.” 76 They often advertise themselves as being
eco-friendly, sustainable, family-friendly, diverse, and in support of the current
cause celebre:’11 Many entities have substantial philanthropic foundations that,
while nominally distinct entities, exist to fulfill the “charitable obligations” of
the corporate founder.378 A cynic might suggest that such actions are mere
marketing ploys with no underlying moral reality.379 Others, however, suggest

375. Taylor, supra note 355, at 1.
376. CR Magazine annually lists the “100 Best Corporate Citizens,” as noted in Forbes.

Jacquelyn Smith, The 100 Best Corporate Citizens, FORBES (Apr. 18, 2012),
http://www.forbes.com/sites/jacquelynsmith/2014/04/18/the-100-best-corporate-citizens/. Listed
number one, Bristol-Myers told Forbes’. “Our top ranking on this list and similar lists year after
year recognizes the positive impact our company’s commitments to promoting economic, social and
environmental sustainability are having on our patients and customers, our employees, our
shareholders, our global communities, and our environment.” Id. The company lists this, and
similar rankings, prominently on its website. Achievements, BRISTOL-MEYERS SQUIBB,
http://www.bms.com/responsibility/Pages/achievements.aspx (last visited Sept. 24, 2013). The
company also emphasizes its responsibility culture on its website, consistently using jargon such as
“sustainability,” doing the “right thing,” being a “good neighbor,” “public trust,” “personal
integrity,” “values,” and “ethical business practices.” Responsibility Message from the CEO,
BRISTOL-MEYERS SQUIBB, http://www.bms.com/responsibility/Pages/responsibility-message-from-
CEO.aspx (last visited Sept. 24, 2013). Further, the company maintains the Bristol-Myers Squibb
Foundation, which it presents as a legitimate philanthropic institution. Flow to Apply for Bristol-
Meyers Squibb Foundation Grants, BRISTOL-MEYERS SQUIBB,
http://www.bms.com/foundation/Pages/bristoI_myers_squibb_foundation_grants.aspx (last visited
Sept. 24, 2013). The foundation website, however, closely connects to the commercial website,
raising questions about its legitimacy.

377. See, e.g., Responsibility Message from the CEO, BRISTOL-MEYERS SQUIBB,
http://www.bms.com/responsibility/Pages/responsibility-message-from-CEO.aspx (last visited Sept.
24, 2013) (exemplifying the company’s advertising of these values).

378. See Steven J. Willis, People in Glass Houses, 113 Tax NOTES 477, 477 (2006) (arguing
that the Bank of America Charitable Foundation “lacks a valid charitable purpose and thus should
be denied exempt status . . . . ”).

379. See Harrison, supra note 355, at 237. The article explained:
Part of the reason for willfully sacrilegious acts that are ostensibly consistent with

business goals is that organizations may enact covenants and conventions strictly for
impression management purposes, as a cynical means of gaining legitimacy. Legitimacy
fosters trust among stakeholders and induces them to relax their vigilance thereby
providing a veil of discretion that the organization can exploit. Perhaps more commonly,

http://www.forbes.com/sites/jacquelynsmith/2014/04/18/the-100-best-corporate-citizens/

http://www.bms.com/responsibility/Pages/achievements.aspx

http://www.bms.com/responsibility/Pages/responsibility-message-from-CEO.aspx

http://www.bms.com/responsibility/Pages/responsibility-message-from-CEO.aspx

http://www.bms.com/foundation/Pages/bristoI_myers_squibb_foundation_grants.aspx

http://www.bms.com/responsibility/Pages/responsibility-message-from-CEO.aspx

46 South Carolina Law Review [Vol. 65:1

that corporations owe real duties to be responsible citizens.380 According to the
Council on Foundations:

Corporate citizenship is now defined by what a company “does,”
not what it “gives.” A 2010 survey by the Edelman public relations firm
shows that 69 percent of consumers globally now believe corporations
are in a uniquely powerful position to make a positive impact on good
causes. The figure reaches 80 percent in the United States. Two-thirds
(64 percent) believe it is no longer enough for corporations to give
money; they must integrate good causes into their everyday business.381

Thus, while many people may cynically believe that corporate support of
“good causes” is purely the result of profit-seeking motives, others appear to
believe that such suppport has elements of reality—as opposed to public
relations382 —suggesting that imposing a moral code is relevant to corporations.

Examples of public pressure on corporate entities to behave in ways viewed
by some groups as “moral” are common. In 2012, Chick-fil-A, Inc.—a chain of
fast food chicken restaurants—became notoriously associated with its owners’
beliefs, viewed by many as homophobic and immoral.383 The association
between his views and Chick-fil-A affected not only the owners, but also the
corporation, tarnishing it in the eyes of many and brandishing it in the eyes of
others.384 Similarly, Apple, Inc. has faced widespread criticism for at least
indirectly using child labor—contrary to the moral standards of many potential

organizations may actually aspire to the values they espouse, but be tempted by more
expedient routes to their business goals.

Id. (citations omitted).

380. Increasing Impact, Enhancing Value: A Practitioner’s Guide to Leading Corporate

Philanthropy, COUNCIL ON FOUNDS. 8,
http://www.cof.org/files/Bamboo/whoweserve/corporate/documents/corporateguide (last visited
Sept. 24, 2013) (citing Edelman, Citizens Engage! Edelman “goodpurpose” Global Study
22 (2010), available at ppqty.com/GoodPurpose2010globalPPT_WEBversion%20(l) ).

381. Id.
382. See id.
383. See generally Kim Severson, Chick-fil-A Thrust Back Into Spotlight on Gay Rights, N.Y.

TIMES, at A7 (July 25, 2012), available at http://www.nytimes.com/2012/07/26/us/gay-rights-
uproar-over-chick-fil-a-widens.html?_r=0 (explaining the public’s reaction to the president of the
company’s remarks on gay marriage).

384. See Chris Good, Chick-fil-A CEO and Gay Activist Are Now Friends, ABC NEWS (Jan
28, 2013, 2:53 PM), http://abcnews.go.com/blogs/politics/2013/01/chick-fil-a-ceo-and-gay-activist-
are-now-friends/. According to this report, the company responded to the intense public pressure:

For years, Chick-fd-A donated to socially conservative groups, drawing the ire of
gay-rights activists. In July, Equality Matters examined tax forms and found that in 2010
the restaurant chain had donated over $1.9 million to “anti-gay causes.” Id. In
September, the restaurant chain pledged to stop donating to anti-gay groups. Windmeyer
says those donations stopped in 2011.”

Id. (citations omitted).

http://www.cof.org/files/Bamboo/whoweserve/corporate/documents/corporateguide

http://abcnews.go.com/blogs/politics/2013/01/chick-fil-a-ceo-and-gay-activist-are-now-friends/

http://abcnews.go.com/blogs/politics/2013/01/chick-fil-a-ceo-and-gay-activist-are-now-friends/

2013] C o r p o r a t io n s , T a x e s , a n d R e lig io n 47

consumers. The two examples mentioned above present different underlying
issues and effects. Chick-fil-A is a closely held entity that is easily associated
with its owners’ beliefs.386 In contrast, Apple has millions of distinct
shareholders and, thus, cannot be so easily associated with the beliefs of its
investors; instead, its moral responsibility, if any, more plausibly exists because
the corporation itself is more than an amoral entity.387 With Chick-fil-A, the
public and the government388 can easily pierce the legal fiction and thus tie the
entity’s beliefs to those of its owners.386 In contrast, with Apple, an imposition
of morality into its corporate responsibilities results not from piercing the veil,
but rather from recognition of corporate morality.390

Harrison, Ashforth, and Corley discuss multiple examples of how
corporations—both traditional nonprofit as well as for-profit—have “sacrilized”
the secular.391 Many examples provided by the authors involve subsequent
violations of what was promoted as sacred, as well as the resulting
consequences. The authors emphasize a situation involving Jet Blue
Corporation, which professed to “bring the humanity back to air travel.” 392 Yet,
when Jet Blue stranded hundreds of passengers in planes for many hours on the
runway, customers and analysts reacted as if the company had committed a
sacrilege.393 The authors continue with a fascinating study of how society has
turned the secular into the sacred—and, all too often, vice versa,394

CSR theorists and supporters generally appear to have “moral,” rather than
“religious,” motives; hence, the application of morality to corporations does not

385

385. See Juliette Garside, Child Labour Uncovered in Apple’s Supply Chain, THE GUARDIAN
(Jan. 25, 2013, 2:22 PM), http://www.guardian.co.uk/technology/2013/jan/25/apple-child-labour-
supply.

386. See generally Severson, supra note 383 (explaining that Chick-fil-A is owned by a
‘‘Baptist family”).

387. See, e.g., Andrew Winston, Apple’s Greatness, and Its Shame, Harv. B u s. REV. BLOG
NETWORK (Jan. 31, 2012, 11:21 AM) (indicating that Apple has a moral responsibility to improve
working conditions).

388. At least one Chicago alderman attempted to use his power as a government official to
block a restaurant because of the shareholder’s expressed beliefs. See Hal Dardick, Alderman Flip-
Flops Again on Chick-fil-A, Cffl. TRIB. (Oct. 19, 2012), http://articles.chicagotribune.com/2012-10-
19/news/chi-alderman-flipflops-again-on-chickfila-20121019_l_block-chick-fil-a-gay-marriage-
dan-cathy.

389. See Severson, supra note 383 (detailing how the public has related the president of the
company’s beliefs with the company itself).

390. See Winston, supra note 387 (arguing that because Apple and other companies have
many of the same rights as humans, they should be required to share some of the moral
responsibility).

391. See generally Harrison, supra note 355, at 226-33 (citations omitted) (discussing
examples of corporations whose actions have been perceived by consumers as violating a sacred
ideal).

392. See id. at 233.
393. See id. at 226.
394. See generally id. at 228-48 (discussing a study of the process of sacralization).

http://www.guardian.co.uk/technology/2013/jan/25/apple-child-labour-supply

http://www.guardian.co.uk/technology/2013/jan/25/apple-child-labour-supply

http://articles.chicagotribune.com/2012-10-19/news/chi-alderman-flipflops-again-on-chickfila-20121019_l_block-chick-fil-a-gay-marriage-dan-cathy

http://articles.chicagotribune.com/2012-10-19/news/chi-alderman-flipflops-again-on-chickfila-20121019_l_block-chick-fil-a-gay-marriage-dan-cathy

http://articles.chicagotribune.com/2012-10-19/news/chi-alderman-flipflops-again-on-chickfila-20121019_l_block-chick-fil-a-gay-marriage-dan-cathy

48 So u t h C a r o l in a La w R e v iew [Vol. 65:1

necessarily raise religious issues, let alone corporate religious rights.395
Nevertheless, the moral/religious distinction is arguably a distinction without a
difference: religion fundamentally concerns morality.396 At the very least, the
widespread CSR movement casts doubt on the government’s Hobby Lobby
arguments to the extent that those arguments stem from the viewpoint of

t • • 397corporations as amoral entities.

2. Social Entrepreneurship Movement

The social entrepreneurship movement began in the 1980s, as many
traditionally nonprofit entities sought revenue from traditionally commercial
activities.398 Sometimes, the concept is known as “philanthrocapitalism.”399 As
one author explained, a social entrepreneur is “someone who works in an
entrepreneurial manner, but for public or social benefit, rather than to make

„400money.
The social entrepreneur movement largely centers on two relatively new

entities: L3Cs and B corporations.401 Each entity limits profits, follows a list of
“socially responsible” rules, and aims to create public benefit.402 At least one
entity describes its “social conscience” and claims to be “the for-profit with a
nonprofit soul.”402

Two points are immediately evident. First, the movement rests on the notion
that the process of earning profits commercially can serve a moral purpose.
Whatever public benefit, social responsibility, and social conscience might
mean, they seem self-evidently based on someone’s concept of morality. An
extension of this notion—which was at issue in Hobby Lobby—is the implied
assumption that other entities somehow lack a social conscience or soul.

This raises the second point: the distinction between a “social entrepreneur”
and a “faith based company”—as Mardel labels itself—is, at best, thin.404 As
explained earlier, a fundamental tenant of Christianity requires one to live one’s

395. See id. at 227 (citations omitted) (theorizing that a majority of business sacrilizing is
nontheistic and “quasi-religious”).

396. See supra Part IV.C.
397. See DOJ Brief, supra note 84, at 2-3.
398. See Jaclyn Cherry, Charitable Organizations and Commercial Activity: A New Era—Will

the Social Entrepreneurship Movement Force Change?, 5 J. BUS. ENTREPRENEURSHIP & L. 345,
348 (2012).

399. See MICHAEL EDWARDS, JUST ANOTHER EMPEROR? THE MYTHS AND REALITIES OF
Philanthrocapitalism 7 (2008).

400. Cherry, supra note 398, at 348.
401. See id. at 347.
402. See id. at 348-49 (citing EDWARDS, supra note 399, at 17).
403. Our Mission, INTERSECTOR Pa r t n e r s L3C, http://www.intersectorl3c.com/mission.html

(last visited Oct. 22, 2013).
404. See Hobby Lobby District I, 870 F. Supp. 2d 1278, 1285 (W.D. Okia. 2012) (describing

Mardel as a faith based company).

http://www.intersectorl3c.com/mission.html

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 49

whole life—including one’s commercial endeavors—for the glory of God.405
Also, whatever the guiding rules and goals are for the particular L3C or B
corporation, they are unlikely to fundamentally differ from those of traditional
religions—other than, of course, the words used. The social entrepreneurship
movement works for “social good,” while religion tends to work for the glory of
a Supreme Being.

a. Low Profit Limited Liability Companies (L3Cs)

Vermont was the first406 of nine states to enact an L3C statute.407 L3C
entities “signal to foundations and donor directed funds that entities formed
under this provision intend to conduct their activities in a way that would qualify
as program related investments.”408 These program related investments (PRIs)
are relevant for private foundations’ donor advised funds.409

405. See Luke 16:14.
406. Low-Profit Limited Liability Company, VT. SEC’Y OF STATE: CORPS. DlV.,

http://www.sec.state.vt.us/corps/dobiz/llc/llcJ3c.htm (last visited Sept. 24, 2013).
407. See 805 III. Comp. Stat. 180/1-26 (2012); LA. REV. Stat. Ann. § 12:1302 (2012); Me.

Rev. Stat. tit. 31, § 1611 (2012); Mich. Comp. Laws Ann. § 450.4102 (West 2013); N.C. Gen.
STAT. § 57C-2-01 (2011); R.I. GEN. Laws § 7-16-76 (Supp. 2012); UTAH CODE Ann. § 48-3a-1302
(Supp. 2013); VT. STAT. ANN. tit. 11, § 3001 (2010); WYO. STAT. Ann. § 17-29-102 (2013).

408. Low-Profit Limited Liability Company, supra note 406. “Program related investments” is
a concept relevant under §§ 4943(f)(5) and 509(d) for “Type III supporting organizations.” See
I.R.C. §§ 4943(f)(5) & 509(f) (2006). The term appears twice in the Internal Revenue Code at §
4944(c) (relating to private foundations) and in § 501(n)(4)(A) (relating to charitable risk pools).
See id. §§ 4944(c) & 501(n)(4)(A). The term also appears in the Department of the Treasury
regulations. See Treas. Reg. § 53.493-10(b) (2013).

409. One could write a dissertation about the selfish motives inherent in all private
foundations and donor advised funds. Private foundations, defined in Internal Revenue Code § 509,
are subject to many tax disadvantages. See I.R.C. § 509(a). These include excise taxes under §§
4940 through 4945, lower contribution limitations under § 170(b)(1)(B), and lower contribution
amounts under § 170(b)(1)(E). See id. §§ 4940-45, 170(b)(1)(B), (E). One would need to look
very hard to find any foundations or funds that accomplish anything either not already
accomplished, or which could not easily be accomplished, by public charities. But, such entities do
not exist primarily to accomplish their stated goals, for if they did, the donors would give the money
away to someone who would accomplish those goals. See generally Ruth Masterson, The Best of
Both Worlds: Using Private Foundations and Donor Advised Funds, ASS’N OF SMALL FOUNDS. 4
(2010), http://www.fidelitycharitable.org/docs/Using-Private-Foundations-and-Donor-Advised-
Funds (discussing how private foundations and donor advised funds can be utilized effectively
for tax purposes). Instead, private foundation donors create their foundations and suffer the many
adverse effects for one reason: they get to control the money after they donate it. See id. at 4, 7-8.
Donor advised funds exist for even more cynical reasons. See, e.g., id. at 9 (discussing how donor
advised funds offer tax-deductible donations with less paperwork). Because private foundation
status is intricate and subject to many pitfalls, many “public charities” accept contributions for
donor funds that would otherwise be private foundations. See generally id. at 4, 9 (discussing the
types of public charities that will accept donor funds and articulating that funds could also be used
to establish a private foundation). Further—with the consent of Congress— they permit donors to
effectively control them. Essentially, the funds amount to a privatization of the myriad private
foundation excise taxes. See id. §§4940-45. The creators of L3Cs and B corporations often
emphasize their “social conscience” and “soul.” After teaching charitable tax law for thirty-two

http://www.sec.state.vt.us/corps/dobiz/llc/llcJ3c.htm

http://www.fidelitycharitable.org/docs/Using-Private-Foundations-and-Donor-Advised-Funds

http://www.fidelitycharitable.org/docs/Using-Private-Foundations-and-Donor-Advised-Funds

50 So u t h C a r o l in a L a w R e v iew [V o l . 65: 1

The Wyoming statute—typical of others—limits the entity to a charitable
purpose under § 170(c)(2)(B) of the Internal Revenue Code and forbids lobbying
and political activity.410 A general business corporation could easily satisfy
either of these requirements with an amendment to its articles of
incorporation.411 Thus, these standards serve little more than a cosmetic or
bureaucratic purpose: they help identify entities that meet the standards, but they
do not otherwise have any direct legal significance. An additional standard
under the statute provides that profits will not be a “significant” purpose, but
provides no consequence, let alone a definition, of either profits or significant.

years, this Author can find little purpose for a private foundation or a donor advised fund other than
to serve the “glory” of the individual creator. In contrast, Hobby Lobby exists—at least according
to its complaint—to serve the “glory” of “God.” Hobby Lobby Complaint, supra note 20, at 5-6.

410. WYO. Stat. Ann. § 17-29-102 (2013). The entire Wyoming statute reads:
(ix) “Low profit limited liability company” means a limited liability company that has set
forth in its articles of organization a business purpose that satisfies, and which limited
liability company is at all times operated to satisfy, each of the following requirements:

(A) The entity significantly furthers the accomplishment of one (1) or more
charitable or educational purposes within the meaning of section 170(c)(2)(B) of the
Internal Revenue Code and would not have been formed but for the entity’s relationship
to the accomplishment of charitable or educational purposes;

(B) No significant purpose of the entity is the production of income or the
appreciation of property provided, however, that the fact that an entity produces
significant income or capital appreciation shall not, in the absence of other factors, be
conclusive evidence of a significant purpose involving the production of income or the
appreciation of property; and

(C) No purpose of the entity is to accomplish one (1) or more political or legislative
purposes within the meaning of section 170(c)(2)(D) of the Internal Revenue Code.

Id.
Oddly, the statute—which is verbatim to the statutes in all other states—limits the purpose to a

charitable or educational purpose under § 170(c)(2)(B) of the Internal Revenue Code. See I.R.C.
§ 170(c)(2)(B). First, § 501(c)(3) lists the purposes for federal tax exemption, while § 170 lists the
same purposes for charitable deductions. Why the drafters chose the reference to § 170 rather than
§501, under which most substantive law exists, is unclear. Also, §§ 501 and 170 list multiple
exempt purposes, of which “charitable” is a catchall category that includes the others. See id. §§
170 & 501. Educational, however, is not a catchall; thus, the selection of these two purposes is
strange. Additionally, furthering an exempt purpose differs from accomplishing an exempt purpose
under federal tax law. Apparently, the drafters confused the two concepts. Next, the act refers to
the production o f income, which is a tax term under Internal Revenue Code § 212—connoting what
are’ relatively passive activities, as opposed to trade or business activities under § 162—which
connote more activity—or for-profit activities under § 165. See id. §§ 162, 165, 212. While the use
of federal tax terminology is not controlling for a state statute, the many other references to tax
terms and provisions suggests some general—but apparently incomplete—knowledge of tax law on
the part of the drafters. For other criticism of L3C statutes, see J. William Callison & Allan W.
Vestal, The L3C Illusion: Why Low-Profit Limited Liability Companies Will Not Stimulate Socially
Optimal Private Foundation Investment in Entrepreneurial Ventures, 35 VT. L. REV. 273 (2012).

411. See generally E.G.K., Annotation, Power o f Corporation to Amend Its Charter in Respect
o f Character or Kind o f Business, 111 A.L.R. 1525 (1937) (discussing the process through which a
corporation can amend its articles of

incorporation).

412. See WYO. Stat. Ann. § 17-29-102.

2013] Corporations, Taxes, and Religion 51

Overall, the nine L3C statutes appear well-intentioned but superfluous
because nothing they allow adds to that which would already be permissible
under the respective state’s general business corporation act. Further, to the
extent that the statutes benefit donor advised funds and private foundations, they
suffer from the stigma inherent in such entities.413 Therefore, the singular
advantage is cosmetic: organizing under an L3C statute announces the “social
conscience” of the entity to the world.414 Whether the goal of such an
announcement is to attract investors or customers is undeterminable. One thing,
however, is clear: the spread of L3C entities demonstrates an expanding societal
view that business corporations and morality are compatible.415

b. Benefit Corporations (B Corporations)

Benefit corporations involve a similar, but separate, movement in eleven
states: California,416 Illinois,417 Louisiana,418 Maryland,419 Massachusetts,420
New Jersey,421 New York,422 Pennsylvania,423 South Carolina,424 Vermont,425
and Virginia.426 Few distinctions exist between an L3C and a B corporation,
although B corporation statutes are uniformly longer than L3C statutes. A
benefit corporation is a corporation—taxed as either an S or a C
corporation ~ —and an L3C is a limited liability company—potentially taxed as
a partnership.4″8 The typical B corporation statute provides for director
protection from shareholder actions if the director acts in good faith and
consistently with the articles of incorporation or with a third-party
certification.4″1 Another distinction—of uncertain importance—may be found in
the typical benefit corporation provision for independent third-party certification.

413. See supra note 409.
414. See supra notes 401-03 and accompanying text.
415. See supra Part IV.D.2.
416. CAL. Corp. CODE § 14610 (West 2013).
417. 805 III. Comp. Stat. 40/1 (2013).
418. La . Rev. Stat. Ann . § 12:101 (2012).
419. Md . Code Ann ., Corps. & Ass’ns § 5-6C-01 (Supp. 2012).
420. Mass. Gen. Laws ch. 156E § 1 (2013).
421. N.J. STAT. Ann . § 14A: 18-1 (2013).
422. N.Y. BUS. CORP. § 1701 (McKinney 2013).
423. 15 Pa. Cons. Stat. § 3301 (2012).
424. S.C. CODE ANN. § 33-38-110 (Supp. 2012).
425. Vt . Stat. Ann . tit. 11A, § 21.01 (2012).
426. Va . Code An n . § 13.1-782 (2013).
427. Compare supra notes 416-26, with supra note 201.
428. See Benefit Corp. Quick FAQ ’s, BENEFIT CORP. INFO. Ctr., http://benefitcorp.net/quick-

faqs (last visited Aug. 29, 2013).
429. See, e.g., VA. CODE ANN. § 13.1-789 (2011) (“An officer of a benefit corporation shall

have no liability for actions taken that the officer believes, in his good faith business judgment, are
consistent with (i) the general public benefit or specific public benefit specified in the articles of
incorporation or bylaws or otherwise adopted by the board of directors and (ii) the requirements of
any third-party standard then in effect for the corporation.”).

http://benefitcorp.net/quick-faqs

http://benefitcorp.net/quick-faqs

52 So u t h C a r o l in a L a w R e v iew [Vol. 65: 1

Certification provides the rough equivalent of an audit such that investors can
rely on the B coproration’s validity.430 Thus, donor advised funds and private
foundations may make program-related investments more securely with or
through the entity.431

Overall, however, the benefit corporation statutes provide little substance not
already available to traditional business corporations. In states that lack a
“benefit” statute, a corporation should be able to amend its articles to require or
limit whatever benefit the statutes require or limit. Entities with such
amendments could then seek the same independent third-party compliance audit.
Possibly, directors may find some solace in the clear statutory limitation of
director liability, which may not be as “guaranteed” through general business
corporation article amendments. Hence, as with L3C statutes, the movement
appears largely cosmetic.433 Once again, however, that does not mean benefit
statutes are of no consequence, as they further demonstrate the recognized role of
morality in corporate commercial operations.434

c. Sustainable Business Corporations

In 2011, Hawaii enacted a provision on sustainable business corporations in
chapter 420D:

This chapter authorizes a designation and code of conduct for a business
corporation to offer entrepreneurs and investors the option to build and
invest in businesses that operate in a socially and environmentally
sustainable manner. Enforcement of those responsibilities comes not
from governmental oversight, but rather from new provisions on
transparency and accountability included in this chapter.4 3

This act appears to further remove the profit goal from business corporations
and substitute the goals of “social sustainability” and “environmentalism” that
appear to be morally based.436 Although Hawaii is the only state that recognizes
“sustainable” businesses as a distinct form, the sustainability movement is

430. See Selecting a Third Party Standard, BENEFIT CORP. INFO. CTR.,
http://www.benefitcorp.net/selecting-a-third-party-standard/overview (last visited Sept. 12, 2013)
(listing of some of the third party standards).

431. See, e.g., id. (discussing the selection of a third-party standard and the benefits of having
one).

432. However clearly one might limit director liability for good faith article-consistent actions,
one can imagine director wariness. Undoubtedly, a statute provides greater assurance than an
opinion of counsel to the effect that an article amendment would accomplish the same thing.

433. See supra Part IV.D.2.a.
434. See supra Part IV.C-D.
435. HAW. R e v . Stat. § 420D-1 (2013).
436. See id.

http://www.benefitcorp.net/selecting-a-third-party-standard/overview

2013] C o r p o r a t io n s , T a x e s , a n d R e lig io n 53

widespread.4 ‘ 7 Universities offer degrees in “sustainability,” 438 which contain
elements remarkably close to religious fervor—albeit without the label of
religion. For example, one organization linked to the University of Florida
sustainability degree program states its vision as “[a] world where human
activities live in harmony with the earth’s carrying capacity.439

Through core literature, sustainability programs promote changes in legal
structures to include what appear to be morally based goals.440 The manner in
which states, universities, and corporations promote “sustainability” is consistent
with what some authors describe as sacrilizing the secular.441 The movement’s
existence and manner of operation demonstrate two points. First, the movement
has increased the spread of moral views in the commercial world and, thus,
further debunked the notion of corporations as amoral institutions.442 Second,
the movement appears to be a substitute for religion; as Harrison explained, such
practices are evidence of man’s continuing search for meaning and

437. For example, the American Sustainable Business Council is an organization dedicated to
advancing a sustainable business agenda; its website claims that its council has a network of over
sixty business associations across the United States. American Sustainable Business Council
Mission, AM. SUSTAINABLE BUS. COUNCIL, http://asbcouncil.org/mission-history (last visited Sept.
11,2013).

438. See, e.g., Bachelor o f Arts in Sustainability Studies, UNIV. OF FLA.,
http://sustainability.clas.ufl.edu/major.html (last updated Jan. 26, 2010) (detailing courses required
for the sustainability degree).

439. See About SustainableBusiness.com: We Help Green Businesses Grow,
SUSTAINABLEBUSINESS.COM, http://w w w .sustainablebusiness.com /index.cfm /go/info .aboutus (last
visited Sept. 12, 2013). The organization even uses a green font for its m ission statem ent, w hich is
rem iniscent o f the various colors used in the seasons o f C hristianity.

440. World Comm’n on Environment and Development, Rep. on its 96th Sess., U.N. Doc.
A/RES/42/187, Ch. 12, §§ 4.2 & 5 (Dec. 11, 1987). The report stated:

Industry is on the leading edge of the interface between people and the environment.
It is perhaps the main instrument of change that affects the environmental resource bases
of development, both positively and negatively. Both industry and government, therefore,
stand to benefit from working together more closely. . . . Today, legal regimes are being
rapidly outdistanced by the accelerating pace and expanding scale of impacts on the
environmental base of development. Human laws must be reformulated to keep human
activities in harmony with the unchanging and universal laws of nature.

Id.
441. Harrison, supra note 354, at 229 n.3, 245 (providing examples of preservation of

ecosystems and sacrilizing environmental preservation). See generally Taylor, supra note 355
(describing the sacrilization process of the environmental movement).

442. See, e.g., American Sustainable Business Council Mission, Am. SUSTAINABLE Bus.
COUNCIL, http://asbcouncil.org/mission-history (last visited Sept. 24, 2013) (stating the mission of
the sustainable business movement and demonstrating its support for the injection of moral views).

http://asbcouncil.org/mission-history

http://sustainability.clas.ufl.edu/major.html

http://www.sustainablebusiness.com/index.cfm/go/info.aboutus

http://asbcouncil.org/mission-history

So u t h C a r o l in a L a w R ev iew54 [VOL. 65: 1

justification.44′ Or, as Justice Stewart suggested, these movements are arguably
religions themselves, just without the name.444

The growing sustainability movement is arguably relevant to the Hobby
Lobby litigation because the case does not include an establishment of religion
claim.445 According to petitioners in other current cases,446 the government
effectively establishes a religion when it favors one religious view over another:
those who agree with promoting contraception and abortion, rather than those
who do not.447 Movements for sustainability, social justice, corporate
responsibility, and social entrepreneurship—all of which have garnered
substantial government complicity—illustrate how the government frequently
promotes morality, and thus arguably religion, in disguise.446 Whether
government involvement in these movements actually violates the First
Amendment is unclear; however, the widespread government involvement,
coupled with the overwhelming government penalty imposed on Hobby Lobby
for asserting its owners’ longstanding religious convictions, should give courts
pause. Fundamentally, the Hobby Lobby litigants are both too religious and not
religious enough. They are insufficiently religious to claim government-granted
exemptions from providing abortion coverage; yet, they are too religious—in the
eyes of the government—to be consistent with a for-profit business.444 The fact
that so many other pseudo-religious movements receive government support
while overtly religious movements suffer oppressive taxation ought to be at least
disconcerting to the courts.

443. See Harrison, supra note 355, at 225, 243 (citing James J. Preston, Purification, in THE
ENCYCLOPEDIA OF Religion 7503, 7507 (Lindsay Jones ed., 2005); T.C. O’Brien, Conversion, in
Encyclopedic Dictionary of Religion 911, 911 (P.K.. Meagher et al. 1979)) (likening the
corporate responses to sacrilege to religious responses).

444. See School Dist. of Abington Twp., Pa. v. Schempp, 374 U.S. 203, 313 (1963) (Stewart,
J., dissenting).

445. Although the Hobby Lobby complaint does not assert an establishment of religion issue,
at least one amici does. See Hobby Lobby Complaint, supra note 20; Brief for Association of
Gospel Rescue Mission et al. as Amici Curiae Supporting Appellants at 29, Hobby Lobby Stores v.
Sebelius, 723 F.3d 1114 (10th Cir. June 27,2013).

446. See, e.g., Complaint at 16-17, Triune Health Grp. v. United States, No. 12-6756 (N.D. 111.
Aug. 22, 2012) (arguing that the federal mandate requiring that group health plans include coverage
for contraceptives discriminates among religious groups by providing exemptions to some, but not
others) [hereinafter Triune Complaint] ; Complaint at 28-29, Tyndale House Publishers, Inc. v.
Sebelius, 904 F. Supp. 2d 106 (D.D.C. 2012) (asserting that the mandate discriminates among
religions) [hereinafter Tyndale Complaint]; Verified Complaint at 23, Autocam Corp. v. Sebelius,
No. 12-cv-1096, 2012 WL 6845677 (W.D. Mich. Dec. 24, 2012) (arguing the mandate under the
Patient Protection and Affordable Care Act violated the Establishment Clause of the First
Amendment) [hereinafter Autocam Verified Complaint]; Grote Complaint, supra note 39, at 25
(stating that the government mandate violated the Establishment Clause of the First Amendment).

447. See, e.g., Grote Complaint, supra note 39, at 25 (“The [m]andate adopts a particular
theological view of what is acceptable moral complicity in provision of abortifacient, contraceptive
and sterilization coverage and imposes it upon all religionists who must either conform their
consciences or suffer penalty.”).

448. See supra Part IV.C.
449. See DOJ Brief, supra note 84, at 2-3 (labeling corporations as “secular”).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 55

d. Faith Based Companies (FBCs)

Mardel—as well as some other petitioners—describes itself as a “faith based
company.”430 Similarly, Tyndale emphasizes various corporate codes, adopted
by its directors, which provide a moral and religious structure to the company.43′
Various websites and organizations exist to promote or connect similar
entities.432 Yet, no state explicitly grants a faith based status.453

i. State Granted Religious Status

Some states explicitly grant particular corporate status to religious
organizations.454 Title 16 of the New Jersey Statutes, for example, applies to
religious corporations and associations.453 Chapter 10A provides for the
incorporation of the United Methodist Church.436 Section 15 provides that “[t]o
be qualified to vote . . . at a meeting of the membership of a local church of . . .
[t]he United Methodist Church . . . a person shall be a full member of such
church or organization who is not less than 18 years of age.”437

Similar provisions exist for a variety of mainstream denominations. In other
states, a local Methodist church would presumably be a not-for-profit
corporation.436 The fact that New Jersey—or any state—would presume to
restrict the membership requirements of a particular church, while interesting, is
not particularly important here. What is important is that states have the power
to incorporate religious organizations and to restrict—at least generally—how

450. Brief of Appellants, supra note 22, at 3 (citing Hobby Lobby Complaint, supra note 20, at
13) (referring to Mardel as faith based). In referring to its owners, Hobby Lobby states, “Their faith
is woven into their business.” Plaintiffs’ Motion for Preliminary Injunction and Opening Brief in
Support at 1-2, Hobby Lobby District I, 870 F. Supp. 2d 1278 (W.D. Okla. 2012).

451. Tyndale Complaint, supra note 446, at 7-9.
452. See, e.g., Working for a Christian Business, FAITH BASED JOBS,

http://www.jobmonkey.com/faithbasedjobs/business-opportunities.html (last visited Sept. 25, 2013)
(explaining what a Christian business is and how to start one); Faith Based Business, Am. H ea lth
C a r e PROF’l s , http://www.ahcpofva.com/overview/faith-based-business (last visited Sept. 25,
2013) (explaining that, as a faith based business, the organization’s goal is to “unite faith and
mission”); Christian Entrepreneurship, BUS. AS MISSION,
http://www.christianbusinessasmission.org (last visited Sept. 25, 2013) (explaining the
organization’s mission to help Christian entrepreneurs and faith based businesses); A Faith Based
Company—Armstrong International, ARMSTRONG INT’L,
http://www.armstrongintemational.com/faith (last visited Sept. 25, 2013) (explaining the business’s
mission to “share God’s love to all employees and their families,” as a faith based company).

453. See Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1166 (10th Cir. 2013) (Briscoe
& Lucero, J.J., concurring in part and dissenting in part).

454. See, e.g., N.J. STAT. Ann. § 16:1-1 (2008) (explaining the process of incorporating a
religious society or congregation).

455. See id. §§ 16:1-1 to :20-7.
456. See id. § 16:10A.
457. See id. § 16:10A-15.
458. See id. §§ 16:1-1 to :20-7.

http://www.jobmonkey.com/faithbasedjobs/business-opportunities.html

Faith Based Business

http://www.christianbusinessasmission.org

http://www.armstrongintemational.com/faith

56 So u t h C a r o l in a La w R e v iew [Vol. 65: 1

such entities operate.457 Whether business corporations generally possess
religious freedom is unresolved; however, religious entities undoubtedly have
religious rights—at least so far as they act consistently with and in fulfillment of
their religious beliefs.460

ii. Self-Granted Religious Status

As previously discussed, each of the for-profit corporate litigants asserted
religious beliefs in their respective cases. Of note is that all of the litigants failed
to cite a particular provision in their articles of incorporation regarding such
beliefs.461 While several litigants listed good works—including support of
various religious causes46″—none of the litigants imposed requirements within
their own charter—or at least none alleged that they did so.463

For purposes of associational or representative standing, corporate charter
limitations regarding religious beliefs would be irrelevant because standing
results in the assertion of the owners’ rights and beliefs.464 But, for a corporation
to assert its own rights and beliefs under either RFRA or the First Amendment,
the corporate charter is at least superficially relevant.463 Generally, corporate
articles grant very broad powers, 6 hence, the power to engage in furthering
religious beliefs would be included. But state general business corporation
statutes permit entities to limit or restrict their operations as well.467 Restrictions
on operations, if violated, can result in legal difficulties for actions deemed ultra

459. See, e.g., Smith v. Calvary Baptist Church, 826 N.Y.S.2d 431, 432 (App. Div. 2006)
(holding that a church member had standing to sue Calvary Baptist under the New York not-for-
profit corporation law).

460. See, e.g., 805 III. COMP. STAT. Ann. 110/35 (2013) (explaining the requirements for the
incorporation of any “church, congregation, or society formed for the purposes of religious
worship”).

461. Tyndale Complaint, supra note 446, at 7 (citing to its articles of incorporation, which
state that Tyndale’s purpose is to publish Christian and faith based books).

462. See id.; Hobby Lobby Complaint, supra note 20, at 2.
463. See id.
464. See Affiliated Constr. v. W. Va. Dep’t of Transp., 713 S.E.2d 809, 815 (W. Va. 2011)

(“[A]n organization has representative standing to sue on behalf of its members when the
organization proves that: (1) at least one of its members would have standing to sue in their own
right; (2) the interests it seeks to protect are germane to the organization’s purpose; and (3) neither
the claim asserted nor the relief requested requires the participation of individual members in the
lawsuit.”).

465. See Beckwith Elec. Co., Inc. v. Sebelius, No. 8:13-CV-0648, 2013 WL 3297498, at *12
(M.D. Fla. 2013) (citing Tyndale House Publishers, Inc. v. Sebelius, 904 F. Supp. 2d 106, 116
(D.D.C. 2012) (finding a corporation’s corporate charter relevant to the inquiry of whether the
corporation has standing to sue under RFRA and the First Amendment).

466. See 2 ALAN S. GUTTERMAN, BUSINESS TRANSACTIONS SOLUTIONS § 8:74 (West 2013)
(“[Directors are empowered to direct all the business and affairs of the corporation.”).

467. See id. (noting that corporate power is limited by state law and corporate articles).

572013] Corporations, Taxes, and Religion

vires.468 Thus, one cannot ignore the failure of all the litigants to restrict their
own operations.

Looking just at the Hobby Lobby litigation, the facts alleged in the verified
complaint do not inform the court about the existence—or lack thereof—of
charter restrictions regarding religious beliefs.469 Several responses are thus
possible. The court could plausibly find that such limitations are critical;470
however, if it did, presumably both corporations could quickly amend their
charters to require operations consistent with what already existed. Or the court
could even more plausibly consider such limitations unimportant. Because both
Hobby Lobby and Mardel have only a few shareholders,4 ‘ 1 amendment of the
articles to require what already exists would arguably be a mere formality that
could be easily obtained and, thus, superfluous.

The court could also remand the case for fact-finding, which could include
an amended complaint alleging charter restrictions, if they do exist. If,
perchance, the Hobby Lobby and Mardel charters contain no such restrictions,
the two petitioners could easily and quickly amend their charters. It is doubtful
that a court would view an amendment as insincere because no one doubts the
sincerity and unanimity of the owners’ beliefs.472 Accordingly, while a recent
amendment to the charter to include religious belief restrictions might have some
real impact on entities with less unanimity of shareholder beliefs, it should not
adversely affect Hobby Lobby or Mardel. Thus, the analysis is circular: while
the existence—or non-existence—of article limitations seems facially
significant, it seems unimportant in this particular case.

More broadly, the various contraceptive cases involve several dozen
corporate petitioners,473 each of which could easily amend its charter to require
adherence to the religious beliefs stated by its owners.474 This could plausibly
have some impact. Thus, each petitioner should carefully consider that path.
Additionally, corporate lawyers should consider similar restrictions for other
clients who choose to assert religious beliefs—at least until the outcome of the

468. See MODEL Bus. CORP. ACT. § 3.04 (2010).
469. See Hobby Lobby Complaint, supra note 20 (failing to mention the existence of charter

restrictions).
470. A court restricting corporate religious rights to entities overtly professing a religious

purpose would be an understandable—albeit a largely meaningless—and easily met standard. But a
court restricting corporate religious rights to entities overtly requiring themselves to do particular
good works would be disturbing. An important doctrinal distinction between Protestantism and
Catholicism involves the importance of good works. See Faith and Good Works,
CATHOLICISM.ORG (Mar. 18, 2009), http://catholicism.Org/faith-and-good-works.html#_ftnrefl.
This illustrates the difficulty courts would face in attempting to distinguish one professed belief
from another.

471. See supra notes 20-21 and accompanying text.
472. See Hobby Lobby District 1, 870 F. Supp. 2d 1278, 1285 (W.D. Okla. 2012) (noting that

the government did not dispute the sincerity of the plaintiffs religious beliefs).
473. See cases cited supra note 2.
474. See supra note 355 (describing the process by which a corporation amends its articles of

incorporation).

http://catholicism.Org/faith-and-good-works.html%23_ftnrefl

58 S o u t h C a r o l in a L a w R e v ie w [Vol. 65:1

Hobby Lobby litigation is clear. Perhaps the courts will approve associational
standing or permit general business corporations to assert religious rights;
conversely, perhaps they will not. If the courts do not permit the assertion of
religious rights, general business corporations with self-restricted charters may
have a stronger claim to religious rights.

One problem with a self-imposed restriction, however, is the ease with
which it could be undone. Generally, shareholders have no property right in
continued article provisions.47″ Also, a mere majority vote can typically amend
the articles.476 As a result, entities seeking to self-restrict their operations with
the hope of strengthening their claims to religious rights should consider
requiring a supermajority—or even unanimity—for an amendment altering
religious goals. Even then, however, a closely held entity would likely face little
difficulty in obtaining the needed vote. Thus, articles restrictions—while not
harmful—may be of little help in swaying a court regarding the religious nature
of a corporation.

Hi. A Proposal for a Model Statute

Because mere articles of incorporation restrictions are likely insufficient to
sway the issue of corporate religious status, 477 states should consider a new form
of entity modeled after the benefit corporation statutes. This new statute would
create an entity incorporated as a faith based corporation (FBC) . 4 6 Organization
and operation would be dedicated to furthering, and also accomplishing, specific
religious beliefs. As is the case with charities, the assets could be permanently—

475. See MODEL Bus. CORP. Act § 10.01(b) (2010).
476. See id. § 10.03(e).
477. However, two dissenting judges from the Tenth Circuit stressed the lack of restrictions in

Hobby Lobby’s articles of incorporation as hurting its argument:
Notably, there is not a single reference to religion in either certificate. Instead, the
certificates state simply that Hobby Lobby and Mardel were created for the purpose of
“engaging] in any lawful act or activity for which corporations may be organized under
the Oklahoma General Corporation Act.” Consistent with these certificates, the
plaintiffs’ complaint concedes that both Hobby Lobby and Mardel are “privately held, for-
profit corporations[s]. . . organized under Oklahoma law.”

Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1165 (10th Cir. 2013) (en banc) (Briscoe &
Lucero, JJ., concurring in part and dissenting in part) (citations omitted). Thus, such article
restrictions may sway some judges. In contrast, however, the two dissenting judges also stated:

[I]f all it takes for a corporation to be categorized as a “faith based business” for purposes
of RFRA is a combination of a general religious statement in the corporation’s statement of
purpose and more specific religious beliefs on the part of the corporation’s founders or
owners, the majority’s holding will have, intentionally or unwittingly, opened the floodgates
to RFRA litigation challenging any number of federal statutes that govern corporate
affairs . . . .

Id. at 1174 (suggesting that article restriction might be insufficient or at least problematic).
478. The Tenth Circuit’s en banc plurality in Hobby Lobby twice used the term “faith-based,”

once while quoting the Mardel complaint and once while referring to a Ninth Circuit opinion. Id. at
1122, 1131 (majority opinion).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 59

or for a term—dedicated to be used for the stated purposes.479 The entity would
be authorized to enter commercial transactions but would do so in a manner
restricted either by statute or by the articles of incorporation. Such restrictions
might require Sabbath closings and educational programs, and they might forbid
actions contrary to the religious beliefs—such as serving alcohol or funding
abortions. Restrictions would also require that a portion of the profits be used
directly4*” for the accomplishment of goals consistent with the stated religious
beliefs.481

States already incorporate churches, either as not-for-profit entities or as
special religious entities.4*’ Hence, no constitutional objections should arise
because any restrictions would be voluntary. The statute could, similar to the
typical B corporation statute,483 provide for annual certification by a third
party—perhaps a religious denomination or group of churches, synagogues, or
mosques.

An entity organized under such a statute should be a person for purposes of
RFRA; after all, it would be a specific type of religious entity. Thus, if Hobby
Lobby and other litigants were to reorganize as such an entity, the standing
issues they currently face would become moot. While conversion to FBC status
might not alter the First Amendment rights of an entity, it would provide courts
with a mechanism for distinguishing commercial nonreligious entities from
commercial religious entities. Accordingly, FBC status would have real,
practical effects, as opposed to the questionable effectiveness of both B
corporation and L3C statutes.484

Significantly, two dissenting judges in the Tenth Circuit’s en banc Hobby
Lobby opinion effectively invited states to adopt such a statute.485 Chief Judge
Briscoe, joined by Judge Lucero, stressed not only the federal but also the “state
law” characterization of corporations as religious.486 Judges Briscoe and Lucero
emphasized an important point that was missed in most, if not all, of the cases:

479. See, e.g., S.C. CODE ANN. § 33-31-202 cmt. I (2006) (stating that for nonprofit
corporations to meet the requirements of tax provisions their articles “contain limitations on
corporate activity and restrictions on the use and distribution of corporate assets”).

480. Direct use, as opposed to indirect use, is a distinction common to the law of charities.
Direct connotes the entity actually doing something, rather than merely making grants to other
entities, which would be an indirect act. See I.R.C. §4943(d)(l) (2006).

481. “Accomplishing” a charitable (or religious) purpose—as opposed to merely “furthering”
such a purpose—is an important distinction in the tax law of charities. Compare Treas. Reg.
§ 1.501-1 (c)(3)- l(c)(l) (2013) (referring to accomplishing an exempt purpose), with Treas. Reg.
§ 1.501-l(c)(3)-l(e) (2013) (discussing activities which “further” an exempt purpose).

482. See, e.g., N.J. Stat. Ann. § 16:1-1 (2008) (explaining the process of incorporating a
religious society or congregation).

483. See 1A Fletcher et al., Fletcher Cyclopedia of the Law of Corporations
§ 70.50 (Supp. 2013).

484. See supra Part IV.D.2.a-b.
485. See Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1166 (10th Cir. 2013) (Briscoe

& Lucero, JJ., concurring in part and dissenting in part).
486. Id.

60 So u t h C a r o l in a L a w R ev iew [Vol. 65: 1

corporations are almost always creatures of the states,48, and state law is,
therefore, arguably critical in determining whether a particular entity is religious.
Yet, state law has been an insignificant factor in all of the litigation.4 8 In
particular, the dissenting judges stated:

Significantly, the majority, despite employing the unique
characterizations of “faith based companies” and businesses with “a
religious mission,” does not cite to a single source in support of this new
legal category of for-profit corporation.

That is because it cannot. As far as I can determine, neither the United
States Supreme Court nor any federal circuit court, until now, has ever
used the phrase “faith based company, ” let alone recognized such a
distinct legal category of for-profit corporations. Nor, as far as I can
tell, has the United States Supreme Court or any federal circuit court, until
now, recognized a for-profit corporation as having a “religious mission.”
Finally, Oklahoma state law, under which Hobby Lobby and Mardel
were formed and currently exist, does not recognize any such unique class
o f corporation,489

The first three sentences of the quotation included above are arguably
misleading. In any event, the last sentence is the most important, for it suggests
that Oklahoma—or any state—could effectively moot the standing controversy
by officially recognizing faith based commercial entities either as faith based
corporations or as faith based limited liability companies. Indeed, legislators in

487. Under Title 36 of the United States Code, Congress charters approximately 100 entities—
such as the Boy Scouts of America—which generally are corporations domiciled in the District of
Columbia. See, e.g., 36 U.S.C. § 30901 (1916) (chartering the Boy Scouts of America).

488. See generally cases cited supra note 2.
489. Hobby Lobby, 723 F.3d at 1166 (10th Cir. 2013) (emphasis added) (Briscoe and Lucero,

concurring in part and dissenting in part). Thus, the dissent harshly—and arguably inaccurately—
criticized the majority. Yet, the plurality—incorrectly denominated by the dissent as the majority—
cited a Ninth Circuit opinion referring to a “faith-based . . . organization.” Id. at 1131 (citing
Spencer v. World Vision, Inc., 633 F.3d 723 (9th Cir. 2010) (per curiam)). Granted, that was not
quite a “faith-based company,” but to be precise, World Vision, Inc. was a corporation and thus a
“company,” albeit one organized under a state not-for-profit act. Further, Judge O’Scannlain,
concurring in Spencer, cited Justice O’Connor’s concurrence in Corp. o f the Presiding Bishop o f the
Church o f Jesus Christ o f the Latter Day Saints v. Amos, which declined to make a nonprofit versus
for-profit distinction. Spencer, 633 F.3d at 734 & n.13 (O’Scannlain, J., concurring) (citing Corp.
of the Presiding Bishop of the Church of Jesus Christ of Latter Day Saints v. Amos, 483 U.S. 327,
349 (1998) (O’Connor, J. concurring) (“In Amos, the Supreme Court expressly left open the
question of whether a for-profit entity could ever qualify for a Title VII exemption.”)). Granted,
this was not quite a Supreme Court or circuit opinion recognizing the category of faith based for-
profit entities; however, it does comprise of concurring opinions from both the Supreme Court and a
federal circuit stressing that the existence of the category is an open question. Hence, it arguably
amounts to something more than “not a single source,” as asserted by the Hobby Lobby dissenters.
Hobby Lobby, 723 F.3d at 1166.

2013] C o r p o r a t io n s , T a x e s , a n d R e l ig io n 61

multiple states—led by members of the Oklahoma House and Senate—are
actively preparing legislation precisely aimed at accomplishing this goal.490

e. The Profit versus Not-for-Profit Dichotomy

The government refers multiple times to “for-profit secular corporations,” 491
apparently distinguishing them from not-for-profit corporations, which may or
may not be religious.492 Similarly, the Hobby Lobby dissent distinguished
between for-profit and not-for-profit entities.49’ The dichotomy, however, is
both simplistic and misleading. To the extent that the dichotomy exists, the
government has it exactly backwards because the argument logically favors
Hobby Lobby’s position and hurts the government’s argument.

i. Not Code-Based

First, the categories for-profit and not-for-profit are merely state law
creations with labels only loosely related to financial or economic reality.494
Nothing in the typical state not-for-profit act requires not-for-profit entities to
suffer losses, and nothing penalizes them for making profits.495 Thus, the label is
one of convenience, at most, and not one of substance. Indeed, nothing would
preclude a charitable entity from organizing under a general business corporation

490. Interview with members of the Oklahoma House and Senate (July 12, 2013) (notes on
file with author).

491. See, e.g., DOJ Brief, supra note 84, at 2-3, 15-16.
492. For a discussion of the false secular/religious dichotomy, see supra note 375.
493. See, e.g., Hobby Lobby, 723 F.3d at 1172 (en banc) (Briscoe & Lucero, JJ., concurring in

part and dissenting in part) (distinguishing between for-profit and nonprofit entities). The
Conestoga majority repeatedly stressed the for-profit nature of the corporation as an important
factor, but did not use the term nonprofit’, however, the dissent criticized the majority for its
“flawed” for-profit versus nonprofit distinction. See Conestoga Wood Specialties Corp. v. Sebelius,
No. 13-1144, 2013 WL 1277419, at *1, *2 (3d. Cir. 2013); id. (Jordan, J., dissenting) at *6-7, *9-
10 (citations omitted).

494. See, e.g., Consumer Union of U.S., Inc. v. State, 840 N.E.2d 68, 93 (N.Y. 2005)
(discussing the similarities of influence exerted and power wielded between not-for-profit and for-
profit corporations).

495. The Model Nonprofit Corporations Act expressly permits commercial transactions such
as buying, selling, and leasing property, as well as investing and lending money. See MODEL
NONPROFIT CORP. A c t (3d ed. 2008). Although the Act defines a “business corporation,” it never
defines the term “nonprofit.” It defines a “charitable corporation” as follows:

(5) “Charitable corporation” means a domestic nonprofit corporation that is operated
primarily or exclusively for one or more charitable purposes.
(6) “Charitable purpose” means a purpose that:

(i) would make a corporation operated exclusively for that purpose eligible to be
exempt from taxation under Section 501(c)(3) or (4) of the Internal Revenue Code, or

(ii) is considered charitable under law other than this [act] or the Internal Revenue
Code.

Id. § 1.40(5)—(6).

62 So u th C a r o l in a L a w R ev iew [Vol. 65:1

act.4% The charitable entity might suffer greater organizational costs497 or
greater state maintenance costs; it may also incur some inconvenient collateral
consequences if it were to apply for state property or sales tax exemptions.49X
But such an entity—if it met all the technical requirements of the collateral
statutes—could operate a church or a food bank, and could still qualify for
property tax exemptions, sales tax exemptions, and other such benefits. The for-
profit label might precipitate bureaucratic questions and result in unnecessary
accounting or legal fees, but the entity should ultimately prevail. The not-for-
profit label conferred by states thus streamlines such collateral issues by
providing a basic framework of rules that otherwise would need to appear in the
articles of incorporation, bylaws, or both.499

For example, Florida has both a general business corporation act500 and a
not-for-profit corporation act.501 Florida also imposes a tax on real property50’
and grants exemptions to property used for “religious, literary, scientific, or
charitable”50” purposes, but only if the entity “is not used for profitmaking
purposes.”504 To determine whether “the property is used for a profitmaking
purpose,” the statute does not focus on which act—the general business
corporation act or the not-for-profit act—authorized the entity; instead, it applies
criteria that focus on how the entity operates.505 Most of the factors in the statute
look to the “reasonableness” of various transactions, such as salaries and prices;
however, both human shareholder-owned corporations, as well as traditional
charities, can satisfy those factors by simply paying and charging fair market
value for property and services.506 The real distinguishing factor tests whether

496. See generally MODEL Bus. CORP. ACT §§ 3.02-03 (2010) (describing the lawful
purposes and powers of corporations).

497. In Florida, at least, the incorporation cost is the same, and the annual maintenance fees
are also the same. Corporation Fees, Fla. Dep’T OF STATE DlV. OF CORPS.,
http://sunbiz.org/feecorp.html (listing total fee for incorporation for both for-profit and nonprofit
corporations as $78.75) (last visited Sept. 25, 2013).

498. One can easily posit a revenue agent or a property appraiser initially balking at granting a
sales tax or property tax exemption to a general business corporation; however, the relevant statutes
do not typically preclude it. See, e.g., Sales tax exempt organizations, N.Y. STATE DEP’T OF
TAXATION & FIN., http://www.tax.ny.gov/bus/st/exempt.htm. (listing “not-for-profit” status as a
factor for a sales tax exemption) (last visited Sept. 13, 2013). The New York Department of
Taxation and Finance also—incorrectly—equates the term generally with “(c)(3)” status, which has
no “not-for-profit” substantive, let alone organizational, requirement. See id.

499. See, e.g., Wilson Area Sch. Dist. v. Easton Hosp., 747 A.2d 877, 878, 882 (Pa. 2000)
(finding that a hospital operated by a for-profit parent corporation was a charitable entity and
therefore eligible for a property tax exemption).

500. See FLA. STAT. §§ 607.0101-607.1907 (2007 & Supp. 2013).
501. See §§ 617.01011-617.2105.
502. See §§ 200.001-200.185 (determining the millage rates which the counties and other

taxing authorities, as opposed to the state, actually impose).
503. See FLA. STAT. § 196.196 (2007).
504. See § 196.196(b)(4).
505. See § 196.195 (determining profit or nonprofit status of an applicant).
506. See id.

http://sunbiz.org/feecorp.html

http://www.tax.ny.gov/bus/st/exempt.htm

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 63

“no part of the subject property, or the proceeds of the sale, lease, or other
disposition thereof, will inure to the benefit of its members, directors, or officers
or any person or firm operating for-profit or for a nonexempt purpose.”507
Essentially, this provision mirrors the federal private inurement requirement for
charitable status, which has nothing to do with the existence of profits.508 Thus,
the title to the act, as well as some of the operative language, appears to make a
profit/nonprofit distinction; however, the actual distinction regards the people
with whom the profits inured are used, as opposed to whether the profits exist.300

Second, the profit/nonprofit dichotomy does not exist for federal charitable
tax purposes,510 and it only nominally exists for general federal tax-exempt
purposes.5″ The most favored type of federal tax exemption—under §
501(c)(3)— confers charitable status such that the entity is partially exempt from
income taxes, and contributions to it are generally deductible.5’2 Nothing in the
Internal Revenue Code, the Treasury Regulations, or the jurisprudence requires
charities to be nonprofits.5′ ’ Similarly, nothing requires them to organize or
operate under state not-for-profit statutes.514 Thus, the dichotomy the
government repeatedly propounds does not exist.5’5 As a result, the courts
should be especially cautious not to fall into the same mistake.

ii. “Not-for-Profits ” Often Have Profits516

Many charities make profits, with hospitals and schools being the most
common examples. Certainly, both the statute and the regulations permit
charities to operate profitmaking activities that comprise a majority—or even
all—of what they do.5’7 In such cases, the for-profit activities must be per se

507. See § 196.195(3).
508. See I.R.C. § 501(c)(3) (precluding exemption for organizations whose “earnings” inure

“to the benefit of any private shareholder or individual”) (emphasis added).
509. See id.
510. See supra note 409.
511. See id. § 501(c)(4) (requiring nonprofit status for social welfare organizations). However,

in reality, this requirement does not exist.
512. See e.g., id. § 501 (c)(3)—(4); Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114, 1186

n.10 (10th Cir. June 27, 2013) (noting that a variety of corporate forms do not mirror the bright line
for-profit/nonprofit distinction).

513. See supra note 512.
514. See supra notes 495-96.
515. See DOJ Brief, supra note 84, at 2-3, 15-16 (referring to “for-profit secular

corporations”).
516. In his dissent in Conestoga, Judge Jordan made the mirror point that business

corporations often have goals and activities comparable to nonprofit entities. Conestoga Wood
Specialties Corp. v. Sebelius, No. 13-1144, 2013 WL 3845365, *18 & n.18 (3d. Cir. 2013) (relying
in part on the “B corporation” movement).

517. Presbyterian & Reformed Publ’g Co. v. Comm’r of Internal Revenue, 743 F.2d 148, 156
(1984) (“As the Tax Court itself observed, ‘the presence of profitmaking activities is not per se a bar
to qualification of an organization as exempt if the activities further or accomplish an exempt
purpose.’” (quoting Aid to Artisans Inc. v. Comm’r of Internal Revenue, 71 T.C. 202, 211 (1978))).

64 So u t h C a r o l in a La w R e v ie w [Vol. 65:1

charitable’,518 that is, they must actually accomplish an exempt purpose.519
Charities may also conduct for-profit activities that merely further an exempt
purpose.520 In those cases, the profitmaking activity must be less than primary,
but may still be substantial.521 A common example involves a beauty shop in a
center for the elderly522 or a gift shop in a hospital.523 Neither activity is per se
charitable, and neither could stand alone and enjoy tax-exempt status; however,
each—in context—can further a primary exempt purpose and, thus, to the extent
it so furthers the purpose, be exempt from federal income taxation.524

In addition, charities may have substantial investment income from real
property rents, royalties, interest, dividends, and capital gains—both short- and
long-term.525 These amounts need not have the slightest relationship to the
purpose for which the organization is exempt.526 Just how substantial the
amounts can be is unclear, but they can undoubtedly involve huge sums of
money, as well as large amounts of employee time and efforts.527 They cannot,
however, be debt-financed, unless substantially all of the activity is substantially
related to the exempt purpose;528 in that case, the charity can do as much as it
wants, related or not. And even the exception to the debt-financed prohibition
has an exception for debt-financed neighborhood acquisitions anticipated to be
used for related purposes, generally within ten years.

But that is not all. Charities may also conduct any insubstantial for-profit
commercial activity, with the definition of “insubstantial” being roughly fifteen
percent of all its activities.530 The profits are subject to tax if the charity

518. This is a phrase this Author coined in teaching and in writing about the tax law of
charities over the past thirty-two years. See DARRYL JONES, STEVEN WILLIS, DAVID BRENNEN, &
B ev e r l y M o r a n , T h e Ta x La w o f C h a r it ie s 117 (West) (2d. 2007) (3d ed. forthcoming 2014,
Le x is ).

519. See Treas. Reg. § 1.50 l(c)(3)-l (c)( 1) (2013).
520. See § 1.501(c)(3)-1(e) (2013).
521. See § 1.501 (c)(3)-1 (c)( 1) (requiring that the organization’s primary purpose be

accomplishing exempt purposes).
522. See Rev. Rul. 81-61, 1981-8 C.B. 355 (1981) (stating that the operation of a beauty shop

in a senior citizens center is not “unrelated trade or business”).
523. See Mercy Med. Ctr., Inc. v. Dep’t of Revenue, No. 3213, 1992 WL 310208, at *310 (Or.

T.C. 1992) (finding a hospital gift shop eligible for tax-exempt status).
524. See Rev. Rul. 81-61, 1981-8 C.B. 355.
525. I.R.C. § 512(b)(l)—(5) (2006).
526. See generally Daniel Halperin, Is Income Tax Exemption for Charities a Subsidy?, 64

Ta x L. R e v . 283, 297-98, 99 (2011) (discussing how a charity can use its surplus income for
charitable purposes or other business activities).

527. See generally id. at 287 (noting that “investment income is extremely important” for
some charitable organizations).

528. See I.R.C. § 514(b)(l)(A)(i) (2006).
529. See id. § 514(b)(3)(A).
530. See JONES ET AL., supra note 518, at 155-57 (citing Manning Ass’n v. Comm’r, 93 T.C.

596, 611 (1989) (holding that did not carry its burden of proving that it operated exclusively for
exempt purposes); World Family Corp. v. Comm’r, 81 T.C. 958, 965 (1983) (finding a religious
organization was entitled to a tax exemption because no more than ten percent of its expenditures
were devoted to the nonexempt activity); Church in Bos. v. Comm’r, 71 T.C. 102, 108 (1978)

2013] C o r p o r a t io n s , T a x e s , a n d R el ig io n 65

regularly carries on the activity in a manner commensurate with its
competition.531 If, however, substantially all of the activity work is performed
by volunteers, the tax does not apply. ‘ 32

Indeed, this could go on; however, the point should be evident: most
charities are labeled not-for-profit by state law for bureaucratic convenience, as
the label aids others—including state authorities—in classifying and readily
identifying organizations.53′ But they need not actually be nonprofit, and many
make substantial profits.5 ’4 Thus, the dichotomy that the government asserts—
the for-profit versus the not-for-profit—is a layman’s fiction that does not exist
for those schooled in the law of tax-exempt organizations.5 ’5

A related dichotomy, however, does exist: human shareholder-owned
corporations exist to serve the purposes of the owners.536 In contrast, charities—
and most other tax-exempt entities—exist to serve the purposes of themselves as
stated by their creators.3 7 They do not, however, operate to serve the purposes
of their members, officers, directors, or even their founders.538 To do so would
trigger problems with private inurement, 539 private benefit,540 self-dealing,541 and
excess benefit transactions.54″ From that perspective, what the government calls
for-profit corporations have a substantially greater identity with their owners

(ruling that making expenditures amounting to twenty percent of an organization’s revenues in
furtherance of a nonexempt purpose was “substantial”).

531. See I.R.C. § 512(a)(1) (2006).
532. See id. § 513(a)(1).
533. See supra notes 494—99 and accompanying text.
534. See supra notes 517-24 and accompanying text.
535. See supra notes 510-15 and accompanying text.
536. See People v. Kelly, 16 N.E.2d 693, 695 (111. 1938) (citing Kocis v. Chi. Park Dist., 198

N.E. 847, 854 (111. 1935)) (“A corporate purpose has been defined to be some purpose which is
germane to the objects for which the corporation was created, or such as has a legitimate connection
with that object and a manifest relation thereto.”).

537. MODEL N o n p r o f it C o r p . A c t § 3.01(a) (3d ed. 2008) (“Every nonprofit corporation
has the purpose of engaging in any lawful activity unless a more limited purpose is set forth in the
articles of incorporation.”).

538. Charities must be both organized and operated for charitable purposes. See I.R.C.
§ 501(c) (requiring that charitable corporations be organized for one or more of the purposes).

539. See id. (prohibiting tax-exempt corporations from allocating any part of net earnings to
inure “to the benefit of any private shareholder, or individual”).

540. The private benefit doctrine is related to, but distinct from, the private inurement
restriction. See generally JONES ET AL„ supra note 518, at 345-400 (citations omitted) (describing
the private benefit restriction).

541. See I.R.C. § 4941(a)(1) (placing a heavy excise on “self-dealing” between a private
foundation and a disqualified person).

542. See I.R.C. § 4958 (imposing an excise on “excess benefit transactions” between a public
charity and a disqualified person). Note, however, that the § 4958 definition of “disqualified
person” differs dramatically from the § 4941 definition of “disqualified person.” Compare id.
§ 4958(f)(1) (defining disqualified person as “any person who was, at any time during the 5-year
period ending on the date of such transaction, in a position to exercise substantial influence over the
affairs of the organization”), with id. § 4946(a)(1) (defining a disqualified person with respect to a
private foundation).

66 So u t h C a r o l in a La w R e v iew [Vol. 65: 1

than what the government calls not-for-profit entities, which in most cases
cannot legally have such an identity.543 That point directly relates to the
important associational or representative standing issue. The government
appears to have no problem with nonprofit entities using associational or
relational standing on behalf of members; however, the government objects to
associational or relational standing by even closely held business corporations.544
The analysis, however, should result in the opposite conclusion because business
corporations have much greater identity with their owners than do charities with
their members.

Hi. Many Types o f Nonprofit Entities Exist: Lumping Them
Together is Wrong

The government appears to wrongly lump all nonprofit entities together in
its flawed, almost pejorative dichotomy.545 One might easily infer that for-
profits exist to make money, while nonprofits exist for some eleemosynary
reasons.546 Yet, there are many tax-exempt—and nominally “nonprofit for state
law”—entities that have significant business or commercial purposes, as well as
operations.547 Thus, for-profit or profit seeking and not-for-profit are not
appropriate labels to use to distinguish the litigants from some category of more
favorable entity.

(a) Business Leagues

Under § 501(c)(6), an organization may obtain federal tax-exempt status as a
business league.54* Business league entities exist to support the “business” and

543. See N.Y. NOT-FOR-PROFIT CORP. § 102(A)(5) (McKinney 2010) (defining a not-for-
profit corporation as a corporation formed “exclusively for a purpose or purposes, not for pecuniary
profit or financial gain” in which “no part of the assets, income, or profit of which is distributable
to, or enures to the benefit of, its members, directors or officers”). Unions, business leagues, social
clubs, and veterans groups are exceptions. See, e.g., Guide Int’l Corp. v. United States, No.
89C2345, 1990 WL 86874, at *2 (N.D. III. 1990) (stating that a business league must “promote the
common business interest of its members and also seek to improve conditions in one or more line of
business”); I.R.C. 1RM 4.76.13 (Mar. 1, 2003) (explaining the requirements of veterans groups);
Boris I. Bittker & Lawrence Lokken, Fed. Tax’n of Income, Estates & Gifts 1102.4.1 (3d.
ed. 2012) (citing House Ways and Means Comm. & Senate Finance Comm., 91st Cong., 1st Sess.,
Treasury Department, Tax Reform Studies and Proposals, pt. 3, at 317 (Comm. Print 1969))
(allowing social clubs to focus on meeting the social and recreational needs of its members).

544. See supra Part II.A.
545. See Brief for the Appellees at 45, Hobby Lobby Stores, Inc. v. Sebelius, No. 12-6294,

2013 WL 3216103 (10th Cir. June 27, 2013) (citing 78 Fed. Reg. 8462 (Feb. 6, 2013) (comparing
the religious accommodations available to nonprofit versus for-profit corporations).

546. See Conestoga Wood Specialties Corp. v. Sec’y of the U.S. Dep’t of Health and Human
Servs., No. 13-1144, 2013 WL 1277419 at *10 (3d Cir. 2013) (discussing the distinction between
nonprofit and for-profit corporations).

547. See supra Part IV.D.2.e.ii.
548. I.R.C. § 501(c)(6) (2006).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 67

thus the commercial purposes of a “line of business.”549 The American Bar
Association and the American Medical Association are typical examples of
business leagues.5311 Both entities are nominally not-for-profit under state law;
however, they exist for commercial—and thus ultimately profitmaking—
purposes.551 Generally, such organizations create separate charities—such as the
American Bar Endowment—which qualify under § 501(c)(3) and serve more
“public” purposes.552

(b) Social Clubs

Under | 501(c)(7), an organization may obtain federal tax-exempt status as a
social club. 3 Social clubs exist to support the “social” purposes of members.354
Country clubs are common examples. 55 They operate restaurants, bars, golf
courses, and tennis clubs.556 The entities are nominally not-for-profit under state
law, but they often exist at least significantly for commercial—and thus
ultimately profitmaking—purposes; they certainly charge members and guests
for meals, greens fees, tennis courts, lessons, and facilities usage.537

(c) Social Welfare Organizations

Under § 501(c)(4), an organization may obtain federal tax-exempt status as a
social welfare organization.336 Social welfare entities generally exist for the
same purposes as § 501(c)(3) entities; however, contributions to them are not
deductible, and substantial lobbying and political activities are permitted.559

549. Guide Int’l Corp. v. United States, No. 89C2345, 1990 WL 86874, at *2 (N.D. 111. 1990)
(stating that a business league must “promote the common business interest of its members and also
seek to improve conditions in one or more line of business”).

550. See B it t k e r & Lo k k e n , supra note 543, U 102.3.1.
551. See, e.g., Better Bus. Bureau v. United States, 326 U.S. 279, 285 (1945) (holding that a

business league organized as a not-for-profit was overly commercial and not entitled to tax-exempt
status).

552. Charities from the American Bar Association, AM. BAR ASS’N,
http://www.americanbar.org/about_the_aba/charities.html (last visited Sept. 13, 2013).

553. I.R.C. § 501(c)(7) (2006).
554. BITTKER & LOKKEN, supra note 543, 1 102.4.1 (citing House Comm, on Ways and

Means & Senate Comm, on Finance, 91st Cong., 1st Sess., Treasury Department, Tax Reform
Studies and Proposals, pt. 3, at 317 (Comm. Print 1969)).

555. See I.R.C. IRM 4.76.16.2(b) (Apr. 1, 2003).
556. See id; see, e.g., Warfield v. Peninsula Golf & Country Club, 214 Cal. App. 3d 646, 651,

655 (1989) (explaining that the country club membership in dispute was a membership at a
nonprofit social club which operated a bar, restaurant, golf course, tennis courts, swimming pool,
and pro shops).

557. See supra notes 555-56.
558. I.R.C. § 501(c)(4)(A) (2006).
559. See I.R.C. IRM 4.76.13 (Mar. 1,2003).

http://www.americanbar.org/about_the_aba/charities.html

So u t h C a r o l in a L a w R e v iew68 [Vol. 65: 1

Interestingly, § 501(c)(4) is the only provision that openly—though only
nominally—requires the entity to be nonprofit.560

(d) Labor Unions

Under § 501(c)(5), an organization may obtain federal tax-exempt status as a
labor, agricultural, or horticultural organization.561 These include unions, which
exist primarily to aid the commercial interests of member workers.562 Such
entities may be tax-exempt and may even be organized under a state not-for-
profit act;563 however, they are arguably as commercial as the employer
corporations with whom they deal.

iv. The Commerciality Doctrine: That’s Not the Point
Either

The government—as well as some courts—also appears to create a
dichotomy between commercial and noncommercial activities.564 On the
surface, the distinction is reminiscent of the “commerciality doctrine” found in
federal tax law.565 Essentially, the commerciality doctrine precludes overly
commercial enterprises from obtaining or retaining tax-exempt status.566 The
concept of overly commercial, however, has many nuances.567

As explained earlier, many commercial tax-exempt entities are per se
charitable, such as schools and hospitals.568 Many others conduct substantial
commercial activities.569 Accordingly, two similar issues can arise. First, an
entity may exist to promote the commercial interests of its creators, members, or
the business community in general. An example is the Better Business Bureau

560. See I.R.C. § 501(c)(4)(A) (applying to “[c]ivic leagues or organizations not organized
for-profit but operated exclusively for the promotion of social welfare”).

561. § 501(c)(5).
562. See I.R.C. IRM 4.76.14.3 (Mar. 18, 2002).
563. See, e.g., Tex. BUS. ORGS. CODE ANN. § 2.002 (2006) (providing that a labor union may

be a nonprofit entity).
564. DOJ Brief, supra note 84, at 16-17 (citing United States v. Lee, 455 U.S. 252, 261

(1982); Swanner v. Anchorage Equal Rights Comm’n, 874 P.2d 274, 283 (Alaska 1994)).
565. See David A. Brennen, The Commerciality Doctrine as Applied to the Charitable Tax

Exemption for Homes for the Aged: State and Local Perspectives, 76 FORDHAM L. REV. 833, 847
(2007) (“[A] charitable institution may conduct what looks like a commercial activity but still be
entitled to charitable income tax exemption under federal law so long as the activity is conducted in
a manner that does not significantly advance non-charitable purposes.”).

566. See id. (stating that a charitable organization must only be primarily charitable, not
exclusively so).

567. See id. at 849 (citing Better Bus. Bureau v. United States, 326 U.S. 279 (1945))
(discussing some of the nuances of the overly commercial concept).

568. See 26 C.F.R. § 1.501 (c)(3)—1 (d)( 1 )(i)(f) (2008); JONES ET AL., supra note 518, at 116.
569. See Brennen, supra note 565, at 847.
570. See id. at 848 (citing Better Bus. Bureau, 326 U.S. at 894).

2013] C o r p o r a t io n s , T a x e s , a n d R e lig io n 69

(BBB).”71 In 1945, the Supreme Court denied “educational” status to the BBB in
Better Business Bureau v. United States,512 concluding that the entity was overly
commercial.”7’ The entity, however, remained nonprofit and tax-exempt as a
business league.”74 Exceptions to the overly commercial rule exist, such as
Monterrey Public Parking Corporation575—an exempt charity that was organized
to foster the business climate in downtown Monterey—and Orton Standard
Pyrometric Cones, which manufactures pyrometric cones for profit.576

Second, some entities conduct business activities that are commercially
feasible in some parts of the country, but not in others. Common examples
involve art galleries577 and theater groups.578 What exists as charitable in one
part of the country may be too commercial in another.579 The distinction
involves actual or feasible competition from similar enterprises, the operation of
which inures to the benefit of the owners.580

Thus, one cannot distinguish commercial enterprises from noncommercial
enterprises based on charitable or other motives just as one cannot fairly
distinguish profit entities from nonprofit entities based on operations.581 Instead,
the real distinction involves who benefits from the commercial operations and
the profits.”82 That distinction, however, says nothing about the religious or
moral goals of the entity, which may or may not be consistent with either
category. Instead, the distinction mostly helps identify which entities are closely
related to and share the interests of their human controllers. Entities whose
operations and profits benefit human owners naturally identify more closely with
those owners than entities whose operations and profits inure only to themselves,
noncontrolling third parties, or the public at large. Hence, in deciding which

571. See id.
572. 326U.S. 279.
573. Id. at 284 (involving exempt status for purposes of employment taxes, which as the Court

explained, closely followed those for income taxes).
574. Id. at 285 (reasoning the business league exemption for income tax did not apply for

employment taxes).
575. See Monterey Pub. Parking Corp. v. United States, 481 F.2d 175, 177 (9th Cir. 1973).

How a parking lot, which appears to foster a business climate to the benefit of downtown business
owners, was successful in obtaining charitable exempt status is one of tax law’s greatest mysteries.

576. See Orton v. Comm’r, 56 T.C. 147, 148 (1971). The Orton court ignored the 1954 repeal
of the destination of income test and thus found that the process of earning profits was exempt if the
proceeds solely benefitted exempt purposes. See id. at 164.

577. See, e.g., Goldsboro Art League v. Comm’r, 75 T.C. 337, 344 (1980) (holding that the
purpose of an art gallery operated by a charitable organization was primarily to foster community
awareness and appreciation of art, which therefore made it exempt from federal taxation).

578. See, e.g., Plumstead Theatre Soc’y, Inc. v. Comm’r, 74 T.C. 1324, 1330-31 (1980)
(holding that a nonprofit corporation operating a theatre operated exclusively for charitable and
educational purposes).

579. See id.
580. JONES ET AL., supra note 518, at 152-53.
581. See Brennen, supra note 565, at 849-50.
582. See I.R.C. § 501(c)(3) (precluding exemption for organizations whose “earnings” inure

“to the benefit of any private shareholder or individual”).

70 So u t h C a r o l in a La w R e v ie w [Vol. 65: 1

category has greater identity with the religious and moral views of those who
control the entities, the nod logically goes to those entities that inure to the
benefit of human shareholders. Yet, that is exactly the opposite of what the
government argues.583

V. How Fa r M ig h t T h is R e a c h ?

People conduct commercial business in many formats. Perhaps the courts
will find religion, standing to assert an owner’s religion, or both religion and
standing compatible with all. Or perhaps they will not. Assuming the courts
decide to make distinctions, ultimately either the courts or lawmakers must
actually draw the lines. As explained herein, the for-profit/not-for-profit
distinction is flawed.584 The religious/secular distinction assumes the conclusion
that whether an entity operates for a religious purpose is a question of fact.585
But other factors are useful, particularly the identity of interest between the
entity and the owners.

The following subsections contain a list of the most common forms of doing
business, along with a brief analysis of how the form might relate to the issues
involved with the contraceptive cases.586

A. Corporations

Corporations are mostly creatures of the states.587 They take on different
formats for both state and federal purposes, some of which overlap.

1. C Corporations

A C corporation is a taxpayer under federal law; it pays taxes on income but
does not deduct dividends.58 Shareholders must pay taxes on dividends
received.589 For family law purposes, retained earnings from C corporations
would not traditionally be considered income to the owner.590 As a result, this
category presents the most difficult case for associational or representative

583. DOJ Brief, supra note 84, at 16-17 (citing United States v. Lee, 455 U.S. 252, 261
(1982); Swanner v. Anchorage Equal Rights Comm’n, 874 P.2d 274, 283 (Alaska 1994)).

584. See supra Part IV.D.2.e.
585. See supra note 375 (showing that the distinction between secular and religious is often

blurry).
586. See infra Part II.0.9-12.
587. 1 FLETCHER ET a l ., supra note 169, § 2.50, at 10.
588. 14a William Meade Fletcher et al., Fletcher Cyclopedia of the Law of

CORPORATIONS § 6972, at 453 (perm, ed., rev. vol. 2008).
589. See id.
590. Cf. id. § 6972, at 454 (explaining that corporate losses of a C corporation cannot be

reported on individual shareholders’ income tax returns); see also supra notes 211-13 (discussing
cases that have imputed relating corporate income on shareholders and cases that have not).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 71

standing. By choosing C status, the shareholders collectively choose to be as
separate from the entity as possible.391 Still, C status alone should not be
dispositive, as it is merely one factor—albeit a significant one—in assessing how
distinct owners are from the owned.

A second factor is the ability of a C corporation to have multiple classes of
shares.592 For example, it can have preferred shares, common shares, or classes
in between or subordinate to both.393 Different classes typically have varying
voting rights, as well as varying rights to distributions.594 The existence of such
varying rights strongly militates against associational standing because the
various classes differ in how they relate to the entity and, thus, almost certainly
differ in how they relate to each other.595

2. Close Corporations and Closely Held Corporations

Many states have special statutes for “close corporations.” 596 In such cases,
the entities typically have few shareholders, which means that they are generally
closely held.3 Statutes generally relax some—if not many—of the formalities
normally expected of a corporation.598 As a result, the statutes tend to blur the
distinction with a partnership.399 The term closely held is not a general corporate
term of art;600 instead, it is descriptive of an entity with relatively few
shareholders, most of whom are closely related.601 One might also refer to a

591. See generally 14a Fletcher ET al., supra note 588, § 6973, at 454 (“A C corporation is
a separate taxable entity, independent of its shareholders, for federal income tax purposes.”).

592. 11 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of
CORPORATIONS § 5086, at 47 (perm, ed., rev. vol. 2011) (explaining the traditional classes of
shares).

593. See id. § 5086, at 48 (“Common and preferred by no means exhaust the variations in class
shares.”).

594. See id. (describing how class shares differ).
595. See generally id. § 5086, at 47-51 (citations omitted) (explaining different types of

classes of shares and how they relate to one another).
596. See, e.g., 15 PA. CONS. STAT. §§ 2301-09 (1990) (defining a “close corporation” as a

corporation that elects to become subject to the provisions of the Pennsylvania close corporation
law). Oklahoma, the home state of both Hobby Lobby and Mardel, does not have a statutory close
corporation provision.

597. 1A FLETCHER ET al., supra note 483, § 70.10, at 6 (listing one of the characteristics of
close corporations as having a small number of shareholders).

598. Typically, the shareholders run the entity rather than a board of directors. See, e.g., Ga .
Code Ann . § 14-2-922 (2003) (allowing for the elimination of the board of directors for close
corporations); Mo. Ann . Stat. § 351.805 (2012) (permitting a close corporation to operate without
a board of directors).

599. 1A FLETCHER ET. AL., supra note 483, § 70.10 (citations omitted).
600. Some states define “closely held.” See, e.g., 15 Pa . Cons. St at. § 1103 (defining a

business corporation as one that has less than thirty shareholders or is a statutory close corporation).
601. See Cynthia S. Grandfield, The Reasonable Expectations o f Minority Shareholders in

Closely Held Corporations: The Morality o f Smalt Businesses, 14 DePaUL BUS. L.J. 381, 383
(2002).

72 So u t h C a r o l in a L a w R e v iew [Vol. 65: 1

closely held corporation as a “family business.”602 Family businesses have no
special federal tax status; they might be Cs or they might be Ss.603 For
associational or relational standing, however, their nature appears critical.604 A
corporation with millions of shareholders could hardly have a unanimous, or
nearly unanimous, religious belief;6Cb indeed, one strains to imagine how it could
have any religious belief at all.606 Yet, one can easily imagine a corporation with
three or four closely related shareholders being operated—at least in the eyes of
the owners—“for” religious purposes.607 Thus, the number of shareholders and
how they are related is arguably among the most significant of factors.

3. S Corporations

S status is a tax status elected for federal—and often state—tax purposes.608
It results in the entity being a “pass through entity.”609 As a result, the
shareholders—of which there may only be a single class610—must pay tax on the
earnings.6″ Further, many shareholders typically face significant family law
consequences from S status.6″ Section 1361 permits an S corporation to have up
to 100 shareholders,613 and nothing requires them to be related.614 Thus, S status

602. See generally 3 WILLIAM MEADE FLETCHER ET AL., FLETCHER CYCLOPEDIA OF THE
LAW OF CORPORATIONS § 844.20, at 227 (perm, ed., rev. vol. 2010) (explaining the fiduciary duties
owed when the business resembles a “family business”).

603. See generally 14A FLETCHER ET AL., supra note 591, § 7033.30, at 597 (discussing the
potential issues with taxing a closely held corporation).

604. See supra Part II.A.
605. Such corporations are distinguished from members of an association, such as a church, in

which membership itself signifies agreement with a particular creed.
606. See Conestoga Wood Specialties Corp. v. Sec’y of the U.S. Dep’t of Health & Human

Servs., No. 13-1144, 2013 WL 1277419, at *4 (3d Cir. Feb. 8, 2013) (Garth, J„ concurring)
(explaining that, as a “for-profit corporation designed for commercial success,” the plaintiff was
“without membership in any church synagogue, or mosque and without religious convictions”).

607. See, e.g., Hobby Lobby Complaint, supra note 20, at 2 (stating that the Green family, who
owns and operates Hobby Lobby, believes they are “obligated to run their business in accordance
with their faith”).

608. C. Andrew LaFond & Jeffrey J. Schrader, Multistate Tax Considerations for S
Corporations, J. ACCT., Feb. 2011, at 54.

609. See generally l.R.C. § 1 (h)( 10) (2006) (defining pass through entity). Twenty-five code
sections use the term “pass through entity.” Generally, they do so to coordinate tax benefits between
the owner/beneficiaries and the entity. See id.

610. See l.R.C. § 1361(b)(1)(D); see also § 1361(c)(4) (permitting variation in voting rights
within the single class of stock).

611. See l.R.C. § 1 (h)( 10) (defining pass through entity).
612. See, e.g., Zold v. Zold, 911 So. 2d 1222, 1233 (Fla. 2005) (holding that Florida courts

must look at the equities involved to determine whether to respect the corporate form of closely held
businesses for purposes of determining income for alimony and child support purposes); see also
14a FLETCHER ET AL., supra note 591, § 7026.70, at 579 (describing consequences to shareholders
from claiming S corporation status).

613. IR.C. § 1361(b)(1)(A).
614. See § 1361(c)(1) (treating “related” shareholders as a single shareholder for purposes of

the 100-shareholder limitation).

2013] C o r p o r a t io n s , T a x e s , a n d R e lig io n 73

alone should not be determinative of associational or representative standing to
assert religious rights; however, it should be a significant factor. With S status,
the shareholders choose to be taxed as an association or partnership, rather than
as a corporation.61″ Because of the significant consequences that flow from that
choice, electing S status closely identifies the owners with the owned entity.616
If an entity were to couple that election with having relatively few shareholders
who are closely identified with each other, then the practical significance of the
separate entity begins to evaporate.617 As the Senate said in 1954, such an entity
is “essentially a partnership.”618 As such, associational standing should be easy
to obtain.

4. LLC

An LLC is a hybrid because it is effectively treated as a corporation for state
law purposes, but typically as a partnership for tax purposes.616 An LLC is
actually a “company,” rather than a corporation; thus, it is an association.620 If
an LLC has a close identity of interests among its members, it should have little
problem asserting associational standing.621 Whether an LLC uses the default
partnership tax treatment—or instead elects S status—should not affect that
conclusion. If, however, an LLC were to elect C status, a court might want to
examine the issue more carefully.

5. L3C

An L3C is a type of LLC62″ that has a stated purpose to foster particular
societal goals.6″3 Yet, it remains a profitmaking entity with members.624 An
L3C should have no problem asserting associational standing, assuming the
requisite closeness of identity among the member’s beliefs.625

615. 14a F l e t c h e r ET AL., supra note 591, § 7025.50, at 577.
616. See generally id. (citing I.R.C. § 1366(a)—(b)) (explaining that shareholders must report

the corporation’s income and losses on their own income tax returns).
617. See supra note 165.
618. See supra note 189.
619. See 1 FLETCHER ET AL., supra note 169, § 20, a t 38.
620. Id.
621. See, e.g., Allee v. Medrano, 416 U.S. 802, 830 (Burger, C.J., concurring) (stressing the

“identity of interest” between the union and the members in finding that the union had standing to
assert members’ free speech rights).

622. 1 FLETCHER ET al., supra note 169, § 20 (perm, ed., rev. vol. Supp. 2013).
623. See id. (describing an L3C as a “profit-generating entity with a social mission as its

primary objective”).
624. See id.
625. See supra Part II.A.

74 South Carolina Law Review [Vol. 65:1

6. B Corporations

A benefit corporation (B corporation) is similar to an L3C, except that it is a
corporation rather than an association.6″*’ Its stated purposes—to foster
particular social issues—suggest a significant identify of interests and beliefs
among the owners.627 While that status alone should not be determinative of
standing, it is clearly is relevant. Assuming a particular B corporation elects S
corporation flow-through tax status, and further assuming that the owners are
relatively few and closely identified with each other, it should not have difficulty
asserting associational standing.628

B. Partnerships

Partnerships are associations;629 as a result, one might expect that
associational standing would be a simple matter for these entities. But, like
corporations, partnerships come in several flavors.6’”

1. Limited Partnerships

A limited partnership has at least two classes of owners: a class with general
liability for partnership obligations and a class with limited liability.6’̂ 1 The
second class—limited partners—is roughly comparable to preferred
shareholders.6’2 Their existence is a factor that logically militates against
associational standing because of limited partners’ inherent conflict of identity
with general partners.6’3

626. See generally 1A FLETCHER, supra note 483, § 70.50 (“A benefit corporation (B
corporation) is a new class of corporation that uses the corporate form to solve social and
environmental problems.”).

627. See id. (“Its purpose is to create a positive impact on society and the environment, even if
it sacrifices profit to do so.”).

628. See supra Part II.A.
629. See generally 1 FLETCHER, supra note 169, §§ 18, at 36 (defining a partnership as “an

association of two or more persons to carry on, as co-owners, a business for profit”).
630. See generally id. (discussing the different types of partnerships).
631. See id. § 19, at 37 (citing UNIF. Ltd. P’SHIP ACT § 120(11) (2011)).
632. Compare id. (explaining that a limited partner is not personally liable for the obligations

of the limited partnership), with 11 FLETCHER, supra note 592, § 5304, at 502 (explaining that state
statutes can expressly exempt preferred shareholders from liability). See also Andrew J. Willms,
Family Limited Partnerships and Limited Liability Companies: New Estate Planning Tools fo r the
90s, 61 WlS. LAW. 17, 17 (1994) (“[LJimited partners are similar to holders of nonvoting corporate
stock.”).

633. See generally Mary E. Brumder, Investor Protection and the Revised Uniform Limited
Partnership Act, 56 WASH. L. REV. 99, 108-09 (1980) (explaining the possible conflict of interest
problems that can arise in a limited partnership).

2013] Corporations, Taxes, and Religion 75

2. Family Limited Partnerships

A family limited partnership (FLP) may very well have significant identity
of interests among the partners, even those of differing classes.634 The same is
true of family limited liability companies.63’1 Each is also a commonly used
vehicle to hold property for transfer from one generation to another.636 Each is
useful as an estate planning tool because the value of general partnership
interests is more likely to appreciate than the value of limited partnership
interests.637 As a result, the use of the vehicle results in a “freeze” of the owner’s
investment and, thus, potentially reduces the estate tax.638

Despite the valuation discounts often granted to FLPs because of the non­
unity of ownership, few people actually create such an entity unless the family is
generally unified.639 Though the government has been unsuccessful in
combating such entities for estate tax purposes, the identity of familial interests
is likely strong.640 As a result, associational standing should be possible. Thus,
courts should be hesitant to make a sharp limited partnership/general partnership
distinction.

3. General Partnerships

General partnerships are business associations in which the partner-owners
own the business property and are directly responsible for tax liabilities.641
Associational standing should be easy to obtain, assuming the requisite identity
of interests is present.642

634. See generally Willms, supra note 632 (stating that a family limited partnership usually
issues general and limited partnership interests).

635. See generally Ronald H. Jensen, The Magic o f Disappearing Wealth Revisited: Using
Family Limited Partnerships to Reduce Estate and Gift Tax, 1 PITT. Tax Rev . 155, 155 n.l (2004)
(explaining that a family limited partnership can have the same tax implications as a limited liability
company).

636. See id.
637. See id.
638. See Troy Renkemeyer, Comment, The Family Limited Partnership: An Effective Estate

Planning Tool, 64 UMKC L. REV. 587, 591 (1996) (citing David Evaul et al., New Estate Freeze
Rules: Tax and Business Planning Impact on Partnerships, 9 J. PARTNERSHIP TAX’N 48, 48 ( 1992)
(explaining that one o f the ways family limited partnerships can reduce taxes is through estate
freezes).

639. See generally Jensen, supra note 635, at 198-99 (discussing how a family limited
partnership which can be very effective in a “happy family scenario,” can cause more trouble when
disputes arise).

640. See generally Evaul et al., supra note 638, at 48-49 (explaining how family limited
partnerships are still useful for estate planning purposes despite Congress’s attempt to reduce anti­
estate freeze rules).

641. 1 FLETCHER ET AL., supra note 169, § 18, at 36.
642. See supra Part II.A.

76 S o u t h C a r o l in a L a w R e v ie w [Vol. 65: I

C. Trusts

Trusts come in two flavors: complex and simple.643 Complex trusts are
taxpayers: beneficiaries pay tax on distributed income, but the trust pays tax on
retained income.644 Beneficiaries later receive some credit for taxes previously
paid on distributions of retained income.64″3 Because the trust is separate from
the beneficiaries for tax purposes—or at least substantially so— the trust and the
beneficiaries do not have an identity of interests.646 Indeed, the ability of the
trustee to retain income separately places him in conflict with the
beneficiaries.647 This is unlike a corporate decision to retain income because
shareholders and management are often the same in corporations.648

In contrast, simple trusts are not taxpayers.649 They exist when the trustee is
required to distribute all income at least annually.630 The income beneficiaries
must report their distributive share of income.63′ Tax law requires this result

652regardless of whether the trust actually makes the required distributions.
Although simple trusts are entities, their strong identity with income
beneficiaries suggests the likelihood of associational standing—assuming no
conflict exists between the income and principal beneficiaries.633

D. Estates

Estates are entities under most state laws,654 as well as federal tax law.655
During administration, which can be brief or long, an estate is a taxpayer.656

643. See George Taylor Bogert et al., Bogert’s Trusts and Trustees § 266 (2012).
644. See id. § 267.
645. See id.
646. See id.
647. See BOGERT ET AL., supra note 643, § 266 (explaining that when trustees retain income in

the trust it can be taxed at a higher rate).
648. See Zenichi Shishido, Japanese Corporate Governance: The Hidden Problems o f

Corporate Law and Their Solutions, 25 DEL. J. CORP. L. 189, 192 n.5 (2005) (“In practice,
debtholders, employees, and management are all shareholders at the same time.”).

649. See BOGERT ET AL., supra note 643, § 266. However, if the trustee elects not to distribute
all of the trust’s income, it will be taxed as a complex trust. See id. (citing I.R.C. § 641 (2006);
Treas. Reg. § 1.641(b)-! (2013)).

650. See id. (citing I.R.C. § 651(a)(1)).
651. Id (citing I.R.C. § 252(a)).
652. Id. (citing I.R.C. § 252(a)).
653. See supra Part II.A.
654. In Louisiana, one refers to it as the “succession of X ‘ rather than the “estate of X.” See

LA. Civ. CODE ANN. art. 871 (2010) (defining a succession as the “transmission of the estate of the
deceased to his successors”). Although a succession exists to manage the decedent’s property, it is
less than a separate entity. Prior to 1825, a Louisiana succession was a fictitious entity, but changes
in the Code of 1825 adopted the French concept of immediate seisin (sometimes seizen) rather than
the more traditional deferred seisin used in Roman and Spanish law. See Kathryn Venturatos Lorio,
Louisiana Civil Law Treatise, Vol. 10, “Successions and Donations” at § 4:4 (2012) (citing Las
Siete Partidas, Bk. 6, Tit. 6, L. 11 & Bk. 6, Tit. 14, L. 1 (1252)).

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 77

State laws var^, but generally, the executor owes fiduciary duties to the various
beneficiaries. 5 Conceivably, a faith based sole proprietorship—for which
associational standing is irrelevant—might be subject to estate administration for
a significant period. During such a period, the sole proprietorship status of the
business would cease. As a result, standing issues could arise regarding whether
the estate might assert the religious beliefs of the heirs or legatees. As with other
forms of doing business, the issues are complex. They should center, however,
on the identity of interests among the relevant beneficiaries, as well as the extent
to which those beneficiaries agree on the religious beliefs asserted.

VI. C o n s e q u e n c e s fo r La w y er s

However the courts ultimately decide Hobby Lobby and similar cases, tax
and entity planners should be familiar with the issues involved. Unless the
courts hold that religious freedom extends to all aspects of commerce—however
conducted—the cases will provide distinctions, if not bright lines. Practitioners
should be familiar not only with the constitutional distinctions,658 but also with
the statutory ones under RFRA.559 At the very least, one planning a commercial
transaction should heed the following:

1. Know your client and know whether any religious beliefs—
whatever that may mean—are important to your client and whether
the loss of the power to exercise them is a deal breaker. Thus, some
clients might prefer sole proprietorship or partnership forms, rather
than corporations.

2. Understand the importance of labels and whether labeling the
client’s views as religious might cause the client to be less protected
than if the client’s views are labeled as nonreligious. The courts are
unlikely to decide this issue directly; however, if the government’s
arguments prevail, such labeling distinctions will be plausible. In
contrast, consider whether overt religious statements in entity
charters might have an impact. Consider how far the government’s
view might reach.

655. See generally 85 C.J.S. Taxation § 2080 (2013) (describing state and federal tax
implications of estates).

656. See id.
657. See, e.g., Punts v. Wilson, 137 S.W.3d 889, 891 (Tex. App. 2004) (“The relationship

between an executor and the estate’s beneficiaries is one that gives rise to a fiduciary duty as a
matter of law.” (citing Huie v. DeShazo, 922 S.W.2d 920, 923 (Tex. 1996))).

658. See supra Part II.
659. See supra Part III.

78 South Carolina Law Review [Vol. 65: 1

3. Recognize that the government’s view sharply limits religious
claims by corporations—both C corporations and S corporations.
According to the Oklahoma district court, it also limits claims
asserted by limited partnerships.66″ To be consistent, that view—if
successful—might also extend to LLCs and complex trusts, each of
which has significant aspects of separate entity status. General
partnerships, simple trusts, cooperatives, and sole proprietorships,
however, appear fundamentally different. How this might apply to
an estate is also interesting. Estates are entities in most, but not all,
states;661 however, the doctrine of seisen662—and the limited life of
an estate—suggests it is more akin to a human.

Of significance here, the Court may ultimately decide that separate entities
(such as corporations) lack religious rights, but that nonentity forms (such as
general partnerships) retain the religious rights of their owners.663 If so, then
logically states that recognize estates as separate fictitious entities may cause
sole proprietorships to lose religious rights upon the death of their owners. In
contrast, domiciliaries of states that follow the doctrine of seisin—such as
Louisiana—would see proprietorship religious rights continue upon the death of
an owner.664 Hobby Lobby and related cases, however, are unlikely to provide
an answer beyond the specific facts involved, which deal with closely held
corporations.666

660. Hobby Lobby District I, 870 F. Supp. 2d 1278, 1288 (W.D. Okla. 2012).
661. See supra note 655.
662. The doctrine of seisin is one of civil law. See supra note 654. Heirs are seised of

property immediately upon the death of the prior owner, even if an administered estate has legal
title for a period: “En termes de Jurisprudence, Le mort saisit le vif, Des qu’un homme est mort, ses
biens passent a son heritier legitime, sans qu’il soit besoin d’aucune formalite de justice.”
Dictionnaire de I’Academie Francaise, UNIV. OF CHICAGO, http://portail.atilf.fr/cgi-
bin/getobject_?p.21:25./var/artfla/dicos/ACAD_1932/IMAGE/ (last visited Sept. 14, 2013). “In
law, Death seizes life: When a person dies, his property passes to his legitimate heirs without the
need for any legal formalities.” See La. Civ. CODE ANN. art. 934 (2012). The equivalent
essentially exists in common law jurisdictions to the extent that an executor owes fiduciary duties to
the beneficiaries. The executor may have legal title through the estate, but not be an equitable
owner; instead, traditionally in England and the United States, equitable ownership vests
immediately in the heirs. See, e.g., McArthur v. Scott, 113 U.S. 340, 378 (1885) (noting that it has
long been settled in England and America that estates “should always be regarded as vesting
immediately”).

663. See supra Part V.D.
664. See supra note 654.
665. See supra Part I.A.

http://portail.atilf.fr/cgi-bin/getobject_?p.21:25./var/artfla/dicos/ACAD_1932/IMAGE/

http://portail.atilf.fr/cgi-bin/getobject_?p.21:25./var/artfla/dicos/ACAD_1932/IMAGE/

2013] C o r p o r a t io n s , T a x e s , a n d R elig io n 79

VII. C o n c l u s io n s

Morality is relevant to commerce. Perhaps several decades ago the business
of a corporation was solely to make money for the owners.666 Wisely—or not—
American society and legal thought appears to have discarded that single-minded
viewpoint.667 Businesses widely appear to embrace social responsibility and
moral codes.668 In many instances, the government imposes such obligations on
them.667 Inevitably, such a changed atmosphere has given rise to businesses
claiming religious rights for themselves or for their owners.

In all likelihood, courts will adopt a standing theory akin to associational
standing such that some general business corporations will be able to assert the
religious beliefs and rights of their owners. Courts will likely limit such
holdings to closely held businesses that elect S status for tax purposes and have
unanimity—or very close to it—in shareholder beliefs. Failure to do so will
encourage such businesses to reorganize as general partnerships, simple trusts, or
perhaps as LLCs, depending on where courts appear to draw the lines. As a
result, the ultimate consequences of owners asserting religious rights in
commercial affairs would be the same. The difference would be an effective
penalty on religious owners who adopt the corporate format; hence, courts would
be ill-advised to adopt such an arbitrary line.

If that prediction is correct, courts will not soon reach the more substantial
question regarding whether corporations themselves have religious rights either
under RFRA or under the Constitution.

666. See Milton Friedman, The Social Responsibility o f Business Is to Increase Its Profits,
N.Y. TIMES, Sept. 13, 1970, at SMI7.

667. See Margaret M. Blair, A Contractarian Defense o f Corporate Philanthropy, 28 STETSON
L. REV. 27, 27-28(1998).

668. See id.
669. See id.

Copyright of South Carolina Law Review is the property of University of South Carolina Law
Review and its content may not be copied or emailed to multiple sites or posted to a listserv
without the copyright holder’s express written permission. However, users may print,
download, or email articles for individual use.