If Congress decides to enact legislation along the lines proposed by the administration, it should make it clear that the legislation sets a special rule with respect to invidious use of racial discrimination and not a general policy which could inadvertently undermine desirable charitable activities.

Finally, the proposed legislation would do nothing to resolve the basic constitutional issues involving racially discriminatory private schools. Spokesmen for Bob Jones and Goldsboro have conceded that if enacted, the proposed legislation in its present form would result in the denial of tax exemption to both schools.

However, the first amendment issues raised by these schools which are presently before the Supreme Court would remain unresolved. Presumably, if the Supreme Court accepts the administration's motion to declare these cases moot, Bob Jones and Goldsboro would then need to return to the courts beginning at the lower court level to seek judicial resolution of the First Amendment issue. Bob Jones has been in court for 10 years attempting to resolve this.

This would result in an obvious additional expense and delay to all parties in the litigation. I believe the administration should withdraw its motion that the cases be dismissed as moot, and permit critical constitutional issues to be resolved in the Supreme Court.

It should also be noted that if the Supreme Court dismisses these cases as moot, presumably the Government's counterclaim against Bob Jones for more than $400,000 in back taxes would also be dismissed. Yet, at the same time, the administration proposes to retroactively deny tax exemption to all racially discriminatory schools effective July 9, 1970. Why should Bob Jones receive a benefit, the dismissal of the counterclaim for back taxes, that all other schools similarly situated may be denied?

The administration's statement that the Service's denial of exemption to discriminatory schools was an attempt to govern through administrative fiat has called into question the fundamental integrity of the tax system. This characterization is totally inaccurate. Indeed, the Service's 1970 decision was made, as I said, at the highest levels of the Nixon administration, with the concurrence of the President at a time when the Service was under a preliminary injunction to deny exemptions to discriminatory schools in Mississippi. This decision has been followed for 11 years by both the Republican and Democratic administrations.

The duty of the Internal Revenue Service is not to make public policy but rather to enforce the tax laws as promulgated by Congress and interpreted by the courts.

In the course of carrying out this duty, it makes countless determinations as to the scope and application of the tax laws, including, for example, such diverse questions as methods of accounting, depreciation, corporate reorganization, and also whether an organization is legally entitled to exemption under section 501(c)(3).

In order to discharge its duty to enforce and promote compliance with the tax laws in an even-handed manner, the Service is required to promulgate guidelines that inform the public as well as revenue agents how the Service interprets the law. Congress

cannot be expected to enact legislation which is specific enough to focus on the facts and circumstances of each particular situation. The area of private schools is no different from any other area in the tax law in this respect.

The Service's early guidelines, 75-50, focus on publicity, reporting, and recordkeeping requirements. However, experience showed that these guidelines only prohibited private schools from maintaining a formal policy of discrimination, and did not consider whether they in fact discriminated.

Indeed, in 1978 Commissioner Kurtz observed that some private schools that were adjudicated to be discriminatory were nevertheless able to maintain exemptions through compliance with the Service's existing rules. It was in recognition of the need for more guidance that the Service took the unusual procedural step, in 1978, of publishing in proposed form for public comment revenue procedures which would set forth more specific criteria for determining whether a school was discriminatory.

The guidelines in the proposed procedure were derived primarily from the criteria set forth in the injunction issued by the Green court, and in standards supplied by the Supreme Court in Norwood v. Harrison.

The Service held public hearings at which more than 250 witnesses, including several Members of Congress, testified on the proposed procedure. It received more than 125,000 written comments. Many expressed concern about the treatment of the so-called reviewable schools under the proposed procedure. While it was considered appropriate for the Internal Revenue Service to shift the burden of proof in cases of adjudicated schools, there was some doubt as to the fairness of the proposed guidelines as they would apply to the reviewable schools, since the mere point in time in which a school was formed or was substantially expanded may be an arbitrary criterion by which to address whether it had discriminatory practices.

In addition, many objected to the mechanical nature of the tests, and raised problems that would be created for some church-related schools, schools for the handicapped, and other special schools. In those cases, it might be difficult, if not impossible, for such schools to meet the mechanical test, although the schools did not intend to be discriminatory.

The Service took these and other comments into consideration, and again published for public comment a revised procedure in February 1979. Although the first procedure may have gone too far, the revised procedure modified the guidelines substantially to eliminate the prima facie presumptions and the mechanical tests, and provided relief to certain denominational schools that do not have a racially discriminatory practice, but may not attract minorities because of their ethnic focus.

In addition, most important, it provided the national office appeals and review in order to assure uniform application of the criteria. Although some may disagree with the proposed guidelines, the Service is to be commended on the procedures followed in publishing proposed rules, soliciting comments, and then publishing revised rules, which took into account many of these comments and attempted to formulate evenhanded, workable guidelines.

I want to clarify one final issue with respect to the Service's authority in the private school area. The administration's recent announcement stated that the Treasury Department had concluded that this kind of judgment, that is to deny tax exemptions, which may mean life or death for certain organizations, is fundamentally a question for Congress.

This statement ignores the fact that in response to the Supreme Court's recommendations in the first Bob Jones case in 1974, Congress enacted legislation in 1976 permitting an organization denied exemption by the Service to seek declaratory judgment in either the Tax Court, District Court for the District of Columbia, or U.S. Court of Claims.

The purpose of the legislation was to give an organization an expeditious right to judicial review as a check against possible mistakes in interpretation or even abuse in the exemptions process by the Service.

Many organizations have won exemption by challenging the Service's determination on the declaratory judgment action. Indeed, I understand that five private schools in Mississippi denied exemption by the Service under the Green criteria have instituted declaratory judgment action to litigate their claimed right to exemption.

The Treasury Department apparently overlooked the availability of the declaratory judgment remedy when it asserted that the Service has the power of life or death over would be exempt organizations.

The administration's actions now highlight a problem that has confronted the Service, Congress and the courts in recent years. How can we achieve a uniform national policy with respect to discrimination in private schools? Since October 1, 1979, Congress has in effect prohibited the Service through the appropriations riders, from formulating any guidelines that go beyond existing rulings in setting standards of nondiscrimination in private schools.

However, the pre-1979 standards are clearly inadequate, since private schools adjudicated to be discriminatory in Federal courts have been able to maintain tax exemption by adopting paper policies of nondiscrimination.

As a result of the conflict between the Green decision and the appropriation riders, the Service is currently operating under one standard for Mississippi schools and another standard for all other schools. This creates unfair distinctions among schools throughout the Nation, and effectively precludes evenhanded enforcement of the law by the Internal Revenue Service.

What is needed is a uniform set of standards that will guide both revenue agents charged with enforcement of the tax law, and private schools seeking to comply with the law and thus maintain exemption. Indeed, such guidelines could preclude the need for intensive examination of schools which demonstrate voluntary compliance by meeting certain specified criteria.

The question is how to achieve these uniform standards. There are three possibilities.

First, the appropriation riders clearly do not provide the necessary guidance and should be repealed or allowed to lapse. Congress could legislate substantive guidelines, provided they are consistent

with the constitutional prohibition against racial discrimination. However, this would unnecessarily involve Congress in what amounts to be a regulatory process that the Internal Revenue Service has the personnel, expertise, and technical capacity to perform. If Congress subsequently determines that the Service's interpretation of what the law requires is incorrect, it may then intervene to provide substantive legislation.

Another possible source is the courts. The case of Wright_v. Regan is currently pending on petition for certiorari before the Supreme Court on the standing question. In that case the plaintiffs have asked the court to extend the Green injunction to the Nation as a whole.

If the standing issue is favorably resolved to the plaintiffs, a decision on the merits may provide guidance. In addition, these issues may be addressed if the Supreme Court decides the Goldsboro and Bob Jones cases, and any legislative action should clearly await Supreme Court review of the first amendment issues.

However, it is at best uncertain whether judicial guidelines will be provided, and if so, whether they will be sufficient to give both revenue agents and private schools the guidance that they need. The obvious source of guidelines is the Internal Revenue Service. This is appropriate, since the Service already has substantial experience in auditing private schools, and could bring this experience to bear in formulating standards that would be workable for audit purposes.

Moreover, it is the agency that will ultimately be responsible for carrying out the standards.

The second proposed procedure reflected an effort to reach a reasonable balance and achieve evenhanded equitable guidelines. By providing for national office review of proposed revocation or denial cases, the Service attempted to insure that each affected school would receive consideration at the highest administrative level.

I believe that Congress should permit the Service to formulate and issue new guidelines. In view of the sensitivity of the situation, the Service should first publish the guidelines for public comment, as it did with the proposed revenue procedures in 1978 and 1979. This would give interested parties, including private schools and Members of Congress, an opportunity to study and comment on the proposed guidelines.

The Service should then be given an opportunity to make changes in light of the comments, then adopt and implement the guidelines.

The implementation of the tax laws is an evolutionary process. Only time and experience will demonstrate whether the guidelines that the Service may adopt are reasonable and equitable. However, there are checks and balances within the system if the Service goes too far.

First, Congress clearly has the power to intervene and legislate, if it finds that the Service's rules are inequitable and contrary to the intent of the law.

Second, under the declaratory judgment procedures, a private school may challenge denial of exemption. If Congress is concerned that the Service may have too much authority to deny exemptions

on public policy grounds, it should consider liberalizing the declaratory judgment remedy, to give exempt organizations challenging denial of exemption on racial discrimination or other public policy grounds easier access to the courts to review the reasonableness of IRS actions.

To conclude, since the decision in Brown v. Board of Education in 1954, Congress, the courts and the executive branch have united to work for the eradication of racial discrimination in education. The law is clear. A private school that engages in racial discrimination is not entitled to exemption.

The administration's recent actions have had the unfortunate effect of appearing to favor racial discrimination in a manner that is harmful to the national public policy and repugnant to most Americans. To extricate itself from this politically damaging position, the administration is now seeking to place an unnecessary burden on Congress to adopt legislation that merely says that the law is the law.

I believe that Congress can best contribute to a solution by refusing to enact the administration's bill, and adopting a resolution such as that proposed by Congressman Rangel, which makes it clear that Congress views the proposed legislation as unnecessary since it would merely confirm the existing law.

In addition, Congress should eliminate the appropriations riders, which now stay the Service's hand, and permit the Service to issue guidelines as to whether private schools will be considered discriminatory. These guidelines would enable the Service to achieve evenhanded enforcement of the tax laws, and would provide substantive guidance for private schools that wish to comply with the law.

The administration has also attempted to use the exemption process as a means to manipulate the Supreme Court decision to hear the appeals in the Bob Jones and Goldsboro Christian School case. This action achieves nothing, and will cause all parties to the litigation needless delays and expense since the first amendment issue can ultimately be resolved only by the Supreme Court.

The administration's petition to vacate the appeal on grounds of mootness is unwise and should be withdrawn.

Finally, a word about private charity seems to me to be appropriate. The tax law fosters private charity because it can benefit narrower classes than is thought appropriate for Government-sponsored benefits. Tax benefits encourage diversity and should do so. Public policy intervenes only in the most extreme cases, and the fostering of racial discrimination is one of these very rare cases.

A philanthropist who wishes to endow a racially discriminatory institution is free in our society to do so, but he need not receive or expect a tax subsidy, however sincerely his action may be based on his personal beliefs.

Thank you.

[The statement of Mr. Sanders follows:]

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