II. OVERVIEW OF THE ISSUES AND SUMMARY OF THE A. Introduction The foregoing summary of testimony is indicative of the very great quantity and diversity of testimony presented to the Subcommittee. A large number of both supporters and opponents of the proposed Revenue Procedure were heard during the Subcommittee's five and one half days of testimony. On balance, opponents outnumbered supporters, but very strong feelings were expressed on both sides. The Subcommittee became quickly aware of the great difficulty and complexity of the issues involved. What follows is an overview of the key questions raised in regard to the proposed Procedure and a summary of the staff's analyses, along with resulting findings and conclusions, that were prepared prior to and after the hearing to assist the Subcommittee in its review of this area. 1. Background: On August 22, 1978 the Service published the original version of its proposed Revenue Procedure, a set of internal guidelines intended to guide IRS examinations of private school admission policies. These guidelines provoked a tremendous outpouring of objection and some support. Objectors urged, generally, that the guidelines were harsh, inflexible, unfair and, moreover, that they were drafted after consulting with civil rights groups, but not with schools. Supporters regarded them as objective and Overall the guidelines posited a stricter position than was evident in existing legal precedents. Although, the IRS explained that it was only seeking comment by publishing the proposed Procedure, a kind of chain reaction began. necessary. On February 13, 1979 the IRS published its revised version of the Revenue Procedure. This revised version reflected a considerably more balanced and reasoned approach. Nonetheless, while opposition decreased somewhat, the mistrust engendered by the original version in many cases carried over to the revised version. By publishing the original proposal before seeking public comment, the IRS had failed to communicate the impression that it was truly receptive to all public input. While extensive public hearings were held by the IRS after the original proposal was published, the feeling remained that it did so too late, and only reluctantly, under public pressure. 2. The Procedure: Regarding the justification for the revised version of the proposed Revenue Procedure, both the purpose and approach of the revised Procedure are based on substantial legal authority. Generally, the IRS has been judicially charged with the obligation not to allow discriminatory public schools to enjoy the benefits of tax exemption. The approach used by the revised Revenue Procedure, one which determines discrimination inferentially based on a detailed review of the facts and circumstances surrounding a school's formation and its present makeup, and provides for the consideration of rebuttal evidence, follows that articulated in an often cited district court decision dealing with state-provided textbook aid to private schools. While questions can be raised about particular details, overall the specific elements of the Procedure are supported by clear authority or, in areas where there is a conflict of authority, by the weight of authority. For some, the key problem with At the same time, there has been concern over the absence of a judicial decision precisely on point that resolves all of the questions with the IRS Procedure, in particular, a decision involving a religious private school held to be ineligible for a tax exemption, under either the Internal Revenue Code or the Constitution, because the school was determined to be discriminatory based on factors cited in the Revenue Procedure. this lack of specific authority is the belief that aid provided by means of tax exemption is fundamentally different than other types of aid, such as textbook aid. Nevertheless, existing legal authority suggests that such an absolute distinction cannot properly be made. However, there is not a case precisely indicating whether the manner of proving discrimination should be the same for tax and non-tax aid or how the manner of proof should be adjusted for religious versus non-religious schools, particularly where the religious school's admissions policies are closely intertwined with sincere religious convictions. Other objections have been raised because the Service's primary precedent on the manner of proof issue is a decision at the district court level. It should be noted, however, that while a lower court decision, it is fundamentally in line with existing Supreme Court standards for proving the existence of discrimination in a variety of contexts. Nevertheless, because of the lack of a decision precisely on point and because of the enormous difficulty of the legal issues involved, many of the Members of the Subcommittee have indicated that further judicial guidance is necessary. However, such guidance may very likely not be forthcoming in the short term. Two suits pending However, if the House amendments to the Treasury appropriations bill are re- bar raised by the appropriations amendments may even prevent the IRS from revoking the exemptions of the 20 schools that have been adjudicated to be discriminatory by federal court decisions. B. Summary of Analyses Before and after the Subcommittee's hearings, the staff prepared extensive materials for the Subcommittee Members which attempted to identify and analyze the major issues concerning the proposed Revenue Procedure. These materials are contained in Appendix I and II of this report, and they discuss primarily the revised */The first, the reopening of the original Green litigation, has been limited by the trial judge to a consideration of whether the IRS is in compliance with the original injunction. The court will apparently not consider modification of the 1971 injunction. That injunction emphasized publication of a non-discriminatory policy as the touchstone for continued exemption for private schools. The Wright case, filed in 1976, seeks a new injunction with a less formalistic scope, but is considered vulnerable, at least at the trial level, to the government's assertion that the plaintiffs lack standing to sue under recent Supreme Court interpretations of that concept. 50-499 O 79 - 2 February 9th version of the Procedure since the Subcommittee's hearings were held after this version had been published. What follows is a summary of those materials, noting the key issues identified and the major conclusions reached in the staff's analy ses. 1. The Briefing Memorandum: The Briefing Memorandum, contained in Appendix I, begins by discussing the case of Green v. Connally, the suit by civil rights plaintiffs which held that discriminatory private schools were not entitled to the benefits of federal income tax exemptions. Green triggered IRS efforts to make sure that private schools met at least minimum standards of This section also touches on the events leading non-discrimination. to the issuance of the proposed Revenue Procedure, particularly the renewed suits by civil rights plaintiffs which prodded the IRS to consider modifying its standards. The next section of the memorandum summarizes the provisions of the original (August, 1978) version of the proposed Procedure and the revised (February, 1979) version. In Section D, the memorandum begins its in-depth discussion of issues presented by the proposed Revenue Procedure. The first key issue explored is the legal basis for the revised Procedure and the major cases are discussed and described. The first case reviewed is Green v. Connally and the discussion focuses on the decision's applicability to private schools across the country, whether the IRS has fully affected Green's mandates and the current precedential status of the decision. The Green decision enjoined the IRS from allowing Mississippi private schools to retain their tax exemptions unless the schools adequately publicized a non-discriminatory policy and provided the IRS with documentation that would let the Service determine whether the school had "actually established" non-discriminatory policies. This injunctive relief applied only to Mississippi; however, the Court also rendered a declaratory judgement of general applicability. The section notes that the IRS is also under a general obligation to administer the tax laws uniformly across the nation. Regarding the extent to which the IRS has implemented the mandates of the Green decision, the section reviews the administrative positions the IRS published in response to the case. The most significant, Revenue Procedure 75-50, established the general rule that tax exempt private schools must publish a non-discrimination policy. As applied by the IRS, 75-50 requires at most that a school annually publish its non-discrimination policy. The section concludes that this might not in all cases meet the Green publicity standard of being "reasonably effective" in bringing the non-discrimination policy of a private school to the attention of minority students. The Green decision was affirmed summarily by the Supreme Court yet questions have arisen about the precedential validity of the decision. The section discusses the precedential status of a summary affirmance both for the Supreme Court (i.e., a limited precedent, less binding than a plenary decision) and for lower courts (i.e., a full precedent). It continues by reviewing the Supreme Court's opinions since Green, noting most significantly that the Supreme Court seemed to affirm the Green decision again in Norwood but that this authority was somewhat clouded by the court's opinion in the Bob Jones decision. The memorandum notes that if the court had wished to overturn the Green decision, the Bob Jones case offered the opportunity; yet the court did not do so, and thus the Green case should be regarded as valid precedent. memo also observes that in any event the IRS remains fully bound by the permanent injunction issued by the district court in the Green case. The Section D next discusses the decision Norwood v. Harrison which held discriminatory private schools ineligible for state textbook aid. It notes that the revised Revenue Procedure follows the approach of the Norwood court by first determining whether certain circumstances exist with respect to a school that give rise to an inference of discrimination, and next determining if there is any evidence that would refute this inference. Norwood held that an inference of discrimination arises when a school's formation was |