cases was that the 14th amendment applied only to State action rather than private action, the first groping efforts of the IRS in the 1960's were to say that any private schools that segregated that got State support, were to be denied tax-exempt status.

That was probably the existing situation in 1970, when the case of Green v. Connally was brought up in the District Court for the District of Columbia. That was a class action brought on behalf of black students in the State of Mississippi whose contention was that the Internal Revenue Service had not been enforcing the rule against tax exemptions to racial discriminatory schools vigorously enough.

The three-judge Federal court in that case issued a ringing decision in which they held that this was a violation of law: First of all, taking the word "charitable" as it appeared in the statute there was a great historical gloss to be applied to this, and it meant in effect "consistent with the public policy of the United States."

The public policy of the United States had been clearly enunciated, Brown v. Board of Education, forbade segregated education. Title VI of the 1964 Civil Rights Act had been enacted in the interim, which provided that no Federal funds could be used to pay for any institution that has discriminated on the grounds of race.

Mr. GIBBONS. Mr. Rosenthal, move the mike a little closer to you. Mr. ROSENTHAL. Sorry. Please tell me if you can't hear, if I am not close enough.

Title VI of the 1964 Civil Rights Act provided that no Federal money was to go to any institution that discriminated on the grounds of race or certain other forbidden grounds.

This was all before the Green v. Connally case in 1970, and all cited by the court as reasons for showing what the public policy of the United States was. It was not necessary to go to the point of saying that Title VI specifically said that a tax exemption was a form of financial payment by the Government to the school in question Title VI might be construed either way, and I don't believe it has come up authoritatively. The point is it asserted a clear-cut public policy opposed to any kind of Government assistance to segregation.

Finally, the Court pointed out that if the Government does give this kind of assistance through tax exemptions to institutions that segregate, it would raises grave constitutional difficulties, in connection with the equal protection clause as carried over to the Federal Government by the fifth amendment. At least there would be great doubt, and it is a standard principle of statutory construction that one tries to construe a statute in such fashion as to avoid a difficult and serious constitutional issue rather than to meet one head on.

The parties in that case were black parents and schoolchildren in Mississippi, but the decision of the case, the precedent was a national one. One can say that as far as any actions that the Government might take now in granting tax exemptions in cases of this kind might be a contempt of court only if they applied to schools in Mississippi, but it clearly is a precedent.

This was a precedent for the entire country, just as Brown v. Board of Education may have involved schools in Topeka, Kans., and a few other companion cases, but it announced a rule of law

that was binding upon all of the courts throughout the entire country.

Green v. Connally was taken up to the United States Supreme Court on appeal, not by the original parties, but by a party named Coit, who was, I believe, a parent of a white school child in one of the segregated academies who wanted the tax exemption to be continued, so this was a clear controversy up to that point.

I want to emphasize that the Supreme Court affirmed Green v. Connally in the case named Coit v. Green in 404 United States. It was not merely a denial of certiorari, refusal to review. It was a clear-cut affirmance without opinion, in other words, making that holding binding, and a precedent for the entire United States.

Since that time, there have been revenue rulings implementing the Green decision in 1971, 1972, and 1975, and I mention those dates only to illustrate that this isn't a partisan political matter. Those were years within the Nixon and Ford Administrations.

Also, there was more action in some other forums. In the Supreme Court, the case of Norwood v. Harrison which superficially might seem to involve altogether different issues, nevertheless came up and I think is quite in point.

This is in 413 United States in 1973. The question was whether it was constitutional for a State to give free textbooks to a private educational institution that segregated, and the Supreme Court held that it was unconstitutional for the State to do so. It cited the Green case as authority for the proposition that giving that kind of help to a segregated institution would be a violation of the Constitution of the United States, and if anyone has any doubt, this was not a decision of the Warren Court.

It was a unanimous, I believe, decision of the Burger Court with the opinion written by Chief Justice Burger, who stated among other things, and I quote, "Racial discrimination in State-operated schools is barred by the Constitution, and it is also axiomatic that a State may not induce, encourage or promote private persons to accomplish what it is constitutionally forbidden to accomplish."

In other words, if the same rule applies to the Federal Government under the fifth amendment, and if it is constitutionally forbidden to the States to encourage private segregation, it is constitutionally forbidden to the Federal Government to do so, and I think the Norwood case is quite solid authority for that proposition.

In 1972, a District of Columbia District Court case, McGlotten v. Connally, said that in connection with private social clubs that the same considerations did not obtain as with schools, and that the tax exemption should be granted to private social clubs even though they discriminated.

Congress overturned that in 1976, I believe the section of the Internal Revenue Code that incorporates the change is 501(i). The committee's statement that reported out this bill made it very clear that it was trying to make the law as to social clubs conform to what it already understood the law to be with respect to schools. The Senate Committee report noted that: "Discrimination on account of race" in the case of a social club, "is inconsistent with an educational institution's tax-exempt status under 501(c)(3) and with its status as a charitable contribution donee under Section 170."

In other words, the premise of making this change with respect to social clubs was that we already had such a law with respect to educational institutions.

In 1976, the Supreme Court heard another case, called Runyon v. McCrary, in which it applied 42 United States Code, Section 1981, a very old provision, a modern codification of a rule that goes back to 1866 under the 13th amendment, and the Court held that 42 U.S.C. 1981 specifically forbade private schools from discriminating on the grounds of race or color.

This is all part of the public policy of the United States and there is a long line of cases that say that one does not give a charitable deduction to any organization whose practices violate the public policy of the United States. Just as in a motor vehicle case it was held that paying of fines for sending overweight trucks was against the public policy of the State and the fines were therefore not deductible, one could hardly claim racial discrimination was within public policy and therefore entitled to an exemption.

Mr. Chairman, does that buzzer mean I should stop or anything? I am not too familiar with your procedures.

In 1978 and 1979, the Internal Revenue Service proposed a series of guidelines that were intended to put more teeth into the prohibitions against racial discrimination in schools for those who sought tax exemption for those schools.

A number of questionnaires and various tests were proposed. These were criticized as complex and burdensome, and in riders to appropriation bills the Congress voted in effect to forbid the Internal Revenue Service from spending any money on implementing that kind of questionnaire or regulation, but once again, the premise for that kind of thing was that the basic rule that it was illegal to give a tax exemption to a school that discriminated, that was reaffirmed in connection with these two amendments.

Representative Dornan stated, in introducing one of them on the floor of the Congress, "Let me emphasize that my amendment will not affect existing IRS rules which IRS has used to revoke tax exemptions of white segregated academies under Revenue Ruling 71 and 75-50," and similarly, in submitting his amendment, Representative Ashbrook stated on the floor, "My amendment very clearly indicates on its face that all the regulations in existence as of August 22, 1978 would not be touched. My colleagues surely know that existing revenue procedure 75-50 would be in effect."

So on all these counts, we have every indication that Congress was aware of the rule, and had no desire to change it.

If we look over what has happened in the Federal courts since, there have been three fairly recent appellate decisions, all going the same way, and that is that these schools that discriminate are not entitled to a tax exemption. These three cases in 1980 and 1981, which you have heard of, were Bob Jones University v. the United States, in the Fourth Circuit, Goldsboro Christian Schools, Inc. v. the United States in the Fourth Circuit, and Prince Edward's School Foundation v. the United States in the Court of Appeals of the District of Columbia.

All I can say in conclusion is that we have the solid history of a statute construed uniformally one way, with court decisions con

stantly coming out the same way, with every indication of awareness and agreement on the part of Congress as to that effect.

I agree completely with the President that we ought not to give tax exemptions to schools that discriminate. I think the case is overwhelming that existing law achieves that result without any need for any kind of change. I think it is a terribly bad idea to propose new legislation which may throw all of that into doubt.

It seems like the worst possible way to take a problem that is already solved, and unstick the entire thing and throw it up for uncertain results when no one can quite predict what is going to happen.

I can't advise this committee, which is much more expert than I am on the procedures of Congress, on how best to deal with this messy situation which the administration, I think, has put itself into to its own embarrassment and subjected this committee and Congress to considerable inconvenience.

I think this committee has the expertise to know best how to proceed in a matter of this kind. Thank you.

Chairman ROSTENKOWSKI. Professor Sanders, you may proceed.

STATEMENT OF MICHAEL I. SANDERS, ADJUNCT PROFESSOR OF LAW, GEORGETOWN UNIVERSITY, PAST CHAIRMAN AND SPECIAL ADVISER TO THE EXEMPT ORGANIZATION COMMITTEE, SECTION OF TAXATION, AMERICAN BAR ASSOCIATION

Mr. SANDERS. Mr. Chairman and members of the committee, my name is Michael Sanders. I am a practicing lawyer in Washington, D.C. I have specialized in Federal tax matters first as a trial attorney with the Department of Justice, then with the Treasury Department in the Office of Tax Legislative Counsel, and since 1970 in private practice.

I am past chairman of the Committee on Exempt Organizations of the American Bar Association. I am also an adjunct professor: Georgetown University Law Center, where I teach tax-exempt organizations in the graduate tax program.

I am neither a Constitutional nor civil rights lawyer. Nevertheless, in my experience as a practicing lawyer and as a professor of exempt organizations, I have reviewed the statutory and judicial history involving tax exemption for racially discriminatory private schools.

I am testifying today in my individual capacity. A copy of my prepared statement has been introduced and should be made part of the record.

Since 1970, it has been the policy of the Internal Revenue Service to deny tax exemption to racially discriminatory private schools. This decision was made at the highest levels of the Nixon administration after review of the civil rights legislation and the Supreme Court decisions such as Brown v. the Board of Education. It was followed by an injunctive order in the Green decision which was affirmed by the Supreme Court in 1971, was enforced by Congress in 1976, and has been followed by every Federal appellate court that has considered the issue.

In a series of three announcements over the past month, the administration has called into question the legal validity of Green

and its progeny, accused the service of governing by administrative fiat and sought dismissal of the Supreme Court appeals in Bob Jones and Goldsboro Christian Schools which involved religious schools, and raised important constitutional questions.

Finally, the administration has asked Congress to adopt needless legislation. The administration's new position raises fundamental questions regarding the separation of powers. It has apparently misconceived the constitutional division of powers and the proper rule of an executive agency, the Department of Treasury, in carrying out its assigned function.

Indeed, the action may be viewed as an attempt through executive fiat to manipulate the branches of government to achieve a result that would serve certain private purposes at the expense of the national welfare.

The starting point in analyzing the administration's position is Green v. Connally. This case has been well analyzed by Professor Tribe and Dean Rosenthal.

I have interpreted the Green case in my statement. As a tax lawyer, I would like to use my time to discuss the impact of the recent administration actions, to focus on the role of the Internal Revenue Service in enforcing the law, and to address the legal options that are available to achieve a uniform national policy on racial discrimination in education.

First, with respect to Congress, the administration has said that the Service has no authority to deny tax exemption to discriminatory schools, and has asked Congress to pass legislation to provide such authority.

This interpretation is incorrect.

There is no legal basis for the Service, the agency charged with the enforcement of the tax laws, to take any other position. In my view, the proposed legislation is unnecessary since it would merely confirm the correctness of the Service's and the Court's interpretation of the law.

Legislation would be needed only if Congress wanted to change existing law to permit discriminatory schools to receive tax exemption.

Indeed, if Congress acts on the proposed legislation, it will unavoidably cast doubt on the validity of the Green decision. Moreover, proponents of discrimination in private schools would likely use the legislative process to raise unrelated issues such as sex discrimination in an attempt to delay or avoid compliance with the law. Although I do not believe that the proposed legislation is needed, I will briefly comment now on several problems with the language in H.R. 5313, the administration's bill.

First, the bill does not provide guidance or criteria pursuant to which the Service could determine whether a school is nondiscriminatory. In addition, the bill's focus on whether a school has "refused" to act in a nondiscriminatory manner is ambiguous.

Must the school actually refuse to admit a black in order to be in violation, or is the legislation directed at the intent to discriminate as well? I also note in general that the draft does not distinguish between impermissible racial discrimination and permissible private philanthropy which benefits limited classes, such as scholarships for blacks.