of this early revenue act, nor in the legislative history of the many subsequent congressional reenactments of this same basic provision, indicating that Congress intended that bona fide "educational" or "religious" organizations must also meet all characteristics of a common-law charity. To the contrary, the interpretive regulations issued by the Internal Revenue Service in connection with these revenue acts, and followed by the Service for over 50 years, uniformly interpreted the word "charitable" in its "popular and ordinary sense" as meaning "relief of the poor," rather than in its broader common-law sense. Not until 1959 did the Internal Revenue Service broaden its regulatory definition of "charitable" beyond merely "relief of the poor" to include purposes such as "advancement of religion," "advancement of education or science," and "lessening of the burdens 26 C.F.R. Sec. 1.501 (c) (3) −1(d) (2) . Even then, of Government." however, that same regulation, defines "educational" without any reference to the concept of charity, thus reflecting the Service's pre-1970 view that, although "charitableness" is not confined to "relief of the poor," an "educational" organization need not also be "charitable" in order to qualify for tax-exempt treatment under Section 501 (c) (3). In sum, Mr. Chairman, we were unable on the most painstaking examination of the statute and its history to find support for the position - advanced by the IRS for the first time in 1970 - that private schools pursuing racially discriminatory policies could be denied a tax exemption. Indeed, the IRS had itself long maintained that such a denial would be unauthorized agency action. It was in fact arguing that very position in Green at the time of its sudden reversal in 1970 on explicit directions from the White House. Nor could we find evidence of congressional action subsequent to 1970 that suggests ratification by both the House and Senate of the Service's practice in this area over the last eleven years. To the contrary, Congress recently expressed grave reservations concerning the authority of the IRS to deny tax-exempt status to organizations deemed to be in violation of public policy. Sponsors in both the House and the Senate of the Ashbrook Amendment to the Treasury, Postal Service and General Government Appropriations Act of 1980 maintained that the Service lacks authority to deny taxexempt status to private educational institutions because of racially discriminatory practices. In barring the prospective use of funds for such purposes in the Ashbrook Amendment, Congress made it abundantly clear that it was leaving undisturbed the status quo with regard to denials of tax exemptions between 1970 and 1978 so as to provide a full opportunity for the legislature to consider the correctness of the Service's interpretation of Section 501 (c) (3). By no conceivable stretch of the imagination can this legislative activity in connection with a rider to an appropriations bill be regarded as approval or ratification of the very construction of Section 501(c)(3) that was at the time being so roundly criticized. Congress intended The legal conclusion seemed to us, Mr. Chairman, to be inescapable. as deduced from the statute's language and legislative history, the Service's interpretive regulations, and subsequent congressional activity that Section 501 (c) (3) exempt from income taxation "educational" organizations that are not also "charitable" as surely as it exempts "charitable" organizations that are not also "educational." The contrary construction accorded the statute by the district court in Green and the Fourth Circuit Court of Appeals in Bob Jones and Goldsboro does a disservice to the most basic canons of statutory construction and we cannot in good conscience support that position. In reaching this conclusion, we looked as well at Title VI of the Civil Rights Act of 1964, 42 U.S.C. Sec. 2000d, to determine whether the grant of a tax exemption to a private school that racially discriminates would violate that federal statute. As you know, Mr. Chairman, Title VI prohibits racial discrimination under any program or activity "receiving Federal financial assistance," and the claim has been made by some that a tax exemption can be regarded as such assistance. Quite frankly, this contention is wholly without merit. Title VI defines "Federal financial assistance" in terms of specified generic types of aid: grants, loans and contracts other than contracts of insurance or guaranty. None of these categories, understood in their ordinary sense, includes tax exemptions. This is underscored by the legislative history of the 1964 Act, which includes considerable discussion of the There is one district court case, McGlotten v. Connally, purpose" of the statute to promote nondiscrimination was sufficient to override the plain language and one-sided legislative history. The logic of such reasoning has far-reaching ramifications. In essence, the district court in McGlotten viewed a tax exemption as a government subsidy, inexplicably equating it with a distribution of federal funds. If this view were to prevail, essentially all property and earnings of private parties would effectively belong to the government and a failure of Congress to tax would constitute federal financial assistance. The Supreme Court explicitly rejected that concept in Walz v. Tax Commission, 397 U.S. 664, 675 (1970), holding that a state tax exemption reflects only government restraint from demanding private financial support for the government, not a flow of assistance or revenues from the government to the exempt organizations. In our view, Walz is a complete answer to the Title VI assertion made in the McGlotten decision. Having reached the conclusion that an argument to support the interpretation that had been given to Section 501(c)(3) since 1970 should not be advanced in the Supreme Court, we felt compelled to recommend to the Treasury Department that it no longer pursue that course. There was clear recognition at both the Department of Justice and the Department of the Treasury that such a reversal of position would likely be misunderstood and mischaracterized by many as encouragement, or at the very least tolerance, on the part of the government of what are sometimes referred to as "segregation academies." When confronted with the identical politically explosive issue in 1970, the Nixon Administration allowed the IRS to proceed down a path that was politically attractive but legally unjustifed. One can certainly suggest that legislation should have been enacted in 1970 to accomplish the desired result. This Administration, Mr. Chairman, has, as you well know, declined to operate on such a basis. The President has time and again demonstrated his commitment to principle over political |