Lapas attēli

Nolan, John S.:

Section of Taxation, American Bar Association, statement

Joint statement, February 4, 1982.

New York State Bar Association, Tax Section, Ruth G. Shapiro, letter.
Parker, Frank, Lawyers' Committee for Civil Rights Under Law, letter and

Pennell, John S., joint statement...

Redman, Lipman, joint statement

Scheifly, John E., joint statement...

Section of Taxation, American Bar Association, John S. Nolan, statement
Shapiro, Ruth G., New York State Bar Association, Tax Section, letter.

Simmons, Sherwin P., joint statement..

Smith, William H., joint statement.

Taichert, Robert D., joint statement
Terry, Thomas D., joint statement

Walters, Johnnie M., Greenville, S.C., letter.

Treiger, Irwin L., joint statement.

Wolfman, Bernard, joint statement...








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Appendix I-Motions and briefs filed by the Department of Justice
Appendix II-Background documents received from agencies.






The committee met at 10 a.m., pursuant to notice, in room 1100, Longworth House Office Building, Hon. Dan Rostenkowski (chairman of the committee) presiding.

Chairman ROSTENKOWSKI. Today's hearing has been called as part of the oversight responsibility of the Committee on Ways and Means with respect to the administration of the Federal tax laws. Much has been said in recent weeks about the administration's reversal of a longstanding policy denying tax-exempt status to racially discriminatory private schools. Many of us in Congress are deeply disturbed by the implications of this decision.

The purpose of this hearing is to determine how and why the decision was made. The committee will be particularly interested in exploring the legal justification for the administration's change in policy.

In view of the substantial number of court decisions including decisions of the United States Supreme Court interpreting the Constitution, existing civil rights laws and other Federal statutes, the burden is clearly on the administration's witnesses who will appear before us today to convince this committee and the American public that their decision is justified and that legislation is in fact necessary.

In preparation for these hearings, I requested documents, briefs and other legal memoranda from the Treasury Department, the Justice Department, and the Internal Revenue Service which are relevant to this issue.

Many of the questions that will be raised by members today are provoked by issues presented in these materials. This committee is principally concerned with the administration's decisionmaking process, and the considerations, whether legal or philosophical or political, that may have been given in reversing this longstanding policy against racial discrimination. in private education.

Second, the committee is equally concerned with the legal justification and the legal consequences of the administration's policy. We will first hear from a panel of legal scholars, experts who have studied this issue from the constitutional and legal perspective. Before we hear the administration's witnesses we need to es


tablish a framework for assessing the legal basis for their actions and the consequences of their decision.

Second, we will receive testimony from former officials of the Internal Revenue Service and the Tax Division of the Department of Justice, from past Democratic and Republican administrations. Then, we will hear the administration officials directly involved in the decisionmaking process.

We will conclude the hearings with the Commissioner of Internal Revenue Service, who will be asked to address questions on the effect of the administration's decisions on tax administration. Since this is an oversight hearing with a specific inquiry at issue, I will ask all witnesses to briefly summarize their statements, so that most of their time can be devoted to questions from members of the committee.

At this time I would like to ask unanimous consent that the press release notifying the public of this hearing and the documents that were made available to this committee from the administration be made part of the record. Is there objection?

The Chair hears none.

[See appendix beginning at p. 419 for the documents referred to. The press release announcing the hearing follows:]

[Press release of Tuesday, Jan. 12, 1982]


Hon. Dan Rostenkowski (D., Illinois), Chairman of the Committee on Ways and Means, U.S. House of Representatives, announced today that the Committee on Ways and Means will hold hearings, beginning Thursday, February 4, 1982, to review the Administration's recently announced decision to reverse the long-standing interpretation of federal law requiring the denial of tax-exempt status to racially discriminatory private schools and to ask the Supreme Court to vacate two lower court decisions denying the tax-exempt status of Bob Jones University and Goldsboro Christian Schools.

At the February 4, 1982, hearing the Committee will hear testimony from Administration witnesses representing the Justice Department, the Treasury Department and the Internal Revenue Service and from invited witnesses. The hearing will begin at 10 a.m. in 1100 Longworth House Office Building.

In announcing this hearing, Chairman Rostenkowski stated, "This action by the Administration has major tax and public policy implications. The Administration apparently is now taking the position that a private school is entitled to tax-exempt status whether or not it follows racially discriminatory practices. This action is an attempt to reverse numerous court decisions, including Supreme Court decisions, based on long-standing principles regarding the conduct of charitable organizations and well-defined public policies against racial discrimination. While all of us in Congress are aware of the difficulties involved in determining whether racial discrimination exists in individual cases, the Committee on Ways and Means has a responsibility to determine what the Administration's tax policy is in regard to discriminatory private schools generally and what the consequences of such policies will be in terms of a uniform standard for tax administration nationwide. In addition, the Committee has a responsibility to examine whether the Administration's action is consistent with the law as enacted by the Congress and as interpreted by the courts."


The policy that private schools may not racially discriminate and maintain their tax-exempt status was first established in Green v. Connally. This policy has since been upheld in subsequent court decisions. In the Green case, the court found that it was not consistent with Congressional intent to allow tax-exempt status for activi

ties that were contrary to public policy enacted in federal statutes such as Section 601 of the Civil Rights Act of 1964.

To effectuate this policy regarding tax exemptions for private schools, the Internal Revenue Service published its first revenue ruling on the issue in 1971 and later provided more specific guidance in Revenue Procedure 75-50. However, in 1976, the adequacy of IRS's procedures for determining whether private schools discriminate in practice was challenged by the Green plaintiffs. In reaction to this suit, the IRS proposed a new revenue procedure and issued it for public comment in August, 1978, and again, in a revised form in February of 1979. However, the IRS has been prohibited from implementing new procedures as a result of a specific legislative rider added to Treasury Department appropriation bills since 1979.

In October, 1981, the Supreme Court granted petitions for certiorari in the cases of Bob Jones University and Goldsboro Christian Schools. In both these cases, the IRS had denied tax-exempt status to these private schools on the grounds that these schools practiced racial discrimination contrary to U.S. public policy. In both cases, the action by the IRS was upheld on appeal by the Fourth Circuit Court of Appeals. In September, the Administration acquiesced in the granting of certiorari by the Supreme Court in both these cases. On January 8, 1982, the Administration filed a motion in the Supreme Court asking the Court to vacate the Fourth Circuit's judgments in both these cases. In addition, the Treasury Department has initiated steps to grant Bob Jones University and Goldsboro Christian Schools tax-exempt status under section 501(c)(3) of the Internal Revenue Code, to refund to both schools Federal social security and unemployment taxes in dispute, and to revoke revenue rulings relied upon to deny these schools tax-exempt status.

Chairman RoSTENKOWSKI. Mr. Conable is recognized.

Mr. CONABLE. Mr. Chairman, thank you for recognizing me. The administration's January 8 initiative with regard to taxexempt status for racially discriminatory schools has forced this committee to focus on this exceedingly difficult issue. I can't say that any of us relish dealing with this, but now that it has been thrust so squarely before us we have no choice but to consider it thoughtfully and carefully, and as dispassionately as possible.

Judging from our past actions, it will not be easy to reach a conclusion as to the best course of action. In 1979 our Subcommittee on Oversight held lengthy hearings on proposed IRS revenue procedure. A staff report was issued but the committee refrained from any further action.

Twice we have voted on the floor of the House on riders to the Treasury Department appropriations bills to prevent the enforcement of any rule, policy, procedure, guideline, regulation, standard, court order or measure issued after August 22, 1978, which would affect schools' tax-exempt status.

As recently as last July 30, 28 of the 35 members of this committee supported that rider, an indication perhaps of our collective reluctance to move forward on this knotty issue until we were more sure of our ground. I do not pretend the issues in this vote were identical to those before us today. I mention it to demonstrate how difficult the problem is.

At the request of the administration, I have introduced their proposed legislation so that we can have it before us as we consider an apppropriate course of action. I hope the discussion this morning will be constructive and enlightening. I hope that any actions we decide to take will be arrived at dispassionately and that the results of our deliberations will make a strong appeal both to justice and to logic.

Thank you, Mr. Chairman.

Chairman ROSTENKOWSKI. Mr. Rangel is recognized.

Mr. RANGEL. Mr. Chairman, I want to commend you for your prompt response to the administration's attempt to reverse our Nation's longstanding national public policy of eliminating racial discrimination in educational institutions.

We do recognize that this follows a policy of changing the attitudes that we have had and reversing the advances that have been made in the area of civil rights. I would like to point out, Mr. Chairman, that I have had the opportunity to hear some of the testimony, read a lot of it, and to discuss the matters that we will be looking into today with staff members. I think it is going to become abundantly clear at this hearing that there is a wide conflict between the facts as written and some of the testimony that has been given.

Because it is my considered opinion that the issues that are coming before this committee go far beyond the legislation that has been introduced at the suggestion of the President, I hope that this committee would be receptive to the idea, if it does arise, that the witnesses for the administration, that their testimony be taken under oath. It appears to me that if in fact the record proves that a political solution to a problem was reached at the expense of the Constitution, the courts and the people of the United States, that this committee has the responsibility to provide a record in case this matter is referred to the Judiciary Committee.

Thank you.

Chairman ROSTENKOWSKI. The Chair would also ask unanimous consent that Mr. Hance, who is unable to attend the meeting, have an opportunity to include a statement for the record.

[The prepared statement follows:]



I am pleased that the Ways and Means Committee is holding prompt and extensive hearings on the issue of tax exempt status of private schools. I was dismayed, as most people were, with the sudden reversal in national policy taken by the Administration last month on this issue-a reversal on a policy, I might add, which originated with President Nixon and which has been enforced by both Democratic and Republican Presidents since then.

There is little if any question in my mind and in the minds of legal scholars that the Administration has the authority to deny tax exempt status to schools with demonstrated discriminatory practices. Both the 1964 Civil Rights Act and case law over the past ten years refute the Administration's policy reversal in this regard. I am not convinced by the Administration's assertion that new legislation is necessary in order to enforce what has been public policy for a decade. I believe, instead, that the Administration should concentrate on more sensible enforcement of its existing authority to deny tax exempt status to private schools that discriminate. In the past, Congress has prevented the Internal Revenue Service from issuing regulations on tax exempt status which were both arbitrary and burdensome on private educational institutions. I believe, however, that a vast majority of Members of Congress is opposed to the complete policy reversal taken by the Administration early last month.

I am totally opposed to racial discrimination and believe that there are situations in which an administration has the responsibility and even the duty to deny tax exempt status to racially discriminatory educational institutions. A tax exemption constitutes a financial subsidy from all taxpayers of all races. Any school enjoying tax exempt status, then, should maintain an admissions policy open to individuals of all races and national origins.

It is my hope that the Administration will admit its mistake and enforce existing law in the area of tax exempt status for private schools. I also hope that this hearing will provide some insight into what has become a very controversial issue.

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