about the same time as local desegregation and the school has never enrolled a black student nor employed a black teacher. The memorandum notes that the revised version of the Procedure reflects a more flexible approach than did the original version and, thus, is more closely in line with the Norwood decision, particularly with respect to what is required to refute an inference of discrimination and with respect to what is an adequate relationship of a school's formation to desegregation. decision. The last part of Section D considers the recent Bob Jones The briefing memorandum notes the conflict between the Green and Bob Jones decisions, but concludes that in view of the summary affirmance of Green by the Supreme Court, the Green decision remains the better precedent. The briefing memorandum then goes on, in Section E, to discuss the general question of the burden of proof in tax cases. Because many of the criticisms of the Procedure were directed at the manner in which it places the burdens of proof, as between the IRS and schools, the staff believed that it was necessary to review the general rules in tax cases in order to place the Procedure in the proper perspective. This section of the memorandum observes that, but for several narrow exceptions, the burden of proof is always on the taxpayer or the tax-exempt entity in tax controversies and, further, that giving the government this advantage involves no constitutional violation. The Section continues by noting that a constitutional violation may be engendered if a tax rule creates what is called an "irrebuttable presumption" without adequate justification. In the case of the Revenue Procedure, an irrebuttable presumption would exist if it were impossible for private schools to refute an inference of racial discrimination. However, the memo concludes that the flexibility of the revised version of the Procedure provides for the consideration of appropriate refutational evidence and thus no irrebuttable presumption is involved. Section F of the briefing memorandum considers whether the 20 percent safe harbor provision of the Procedure is violative of the Bakke decision, as some critics claimed. Under the proposed Procedure, if a school has 20 percent of the percentage of minority children in its community, no inference of discrimination arises. If the school has less than 20 percent, the Service will determine whether the school's minority enrollment is, nonetheless, significant considering its particular facts and circumstances. concludes that this is not a racial quota of the type proscribed The memo The memo by the Bakke decision. In Bakke, the court held illegal an absolutely rigid quota that pushed out white applicants, but the court also upheld "race consciousness" in admission decisions. observes that the standard actually applied by the Procedure is quite flexible and that the 20 percent determination is only a safe harbor test. Further, if the safe harbor test is not met, the Procedure looks to many other facts and circumstances before holding a school discriminatory; thus the link between failing the 20 percent test and the loss of a school's exemption is significantly attenuated. The briefing memorandum then proceeds, in Section G, to consider the complex and important First Amendment concerns raised by the revised Revenue Procedure. The section analyzes at some length the court cases under the Establishment Clause and the Free Exercise Clause of the First Amendment as well as the related concepts of excessive entanglement, accommodation, and the application of the Fifth Amendment. This section of the briefing memorandum concludes that: --the often cited Walz case does not support the --denying tax exemption to discriminatory reli- --the provisions of the Revenue Procedure appear --the Procedure's accommodation of religious 2. --while entanglement is a concern and the IRS --the Establishment Clause and the Fifth Amend- The Issue Briefs: The second half of the materials, in Appendix II, consists of a series of Issue Briefs prepared to assist the Subcommittee Members after the conclusion of the Subcommittee hearings and these were directed at particular questions that arose at the hearings. The The first brief responds to the question of whether white flight to discriminatory private schools actually occurs; in other words, is the Revenue Procedure addressing a real or an imagined problem. The brief reviews the existing analytic literature on the subject of white flight from public schools undergoing desegregation. brief concludes there is significant academic agreement that the phenomenon of white flight from desegregating public schools does exist, particularly in districts having accessible suburbs and a large minority population. Further, case studies have documented that in some instances the departing white students attend segregated private schools. None of the statistics or studies indicate the degree of this phenomenon on a national basis. The second issue brief, set out in Section C of Appendix II, considers whether previous IRS guidelines, primarily Revenue Procedure 75-50, are adequate to ensure that discriminatory private schools would not continue to enjoy federal tax exemption, as critics of the new Procedure have urged. The brief concludes that Revenue Procedure 75-50 placed its primary emphasis on the adoption and publication by private schools of non-discriminatory policies. Because of this narrow focus, 75-50 has been an inadequate standard to assure that schools are, in fact, operated on a non-discriminatory basis, although it is also noted that the IRS has not been aggressive in its application of 75-50. Nevertheless, the brief concludes that this flaw appears to be inherent in the terms and clear emphasis of Revenue Procedure 75-50, and further that, in any case, revenue agents clearly have difficulty in going beyond the policy and publicity requirements of 75-50 because of the subjectivity of the judgements required and the lack of clear guidance as to how various factors are to be weighed. The next issue brief, in Section D of Appendix II, reviews how the IRS planned to implement the proposed Revenue Procedure. The brief discusses staffing requirements and notes that the Service intended to place considerable reliance on questionnaires and correspondence with private schools. Sequential contacts were envisioned, with many schools eliminated from further contact at each stage. The brief notes that such an approach would minimize the inconvenience experienced by the vast majority of private schools. The issue brief in Section E of Appendix II considers whether the proposed Revenue Procedure would have an unfairly heavy impact on the South, because of the focus of the Procedure on areas of desegregation and the disproportionate amount of legally required desegregation that has taken place in the South. The brief includes statistical compilations that are indicative of the levels of government supervised desegregation in different regions. Definitive conclusions could not be reached because the total number of districts that should be desegregated is unknown. However, some adjustments can be made in order to eliminate those districts where no integration is necessary. These adjusted statistics indicate that there has been a substantial amount of legally required desegregation in all parts of the country, although the South does lead in its degree of such desegregation. In Section F of Appendix II, the brief considers the effect of restricting the IRS to revoking only the exemptions of private schools that have been adjudicated to be discriminatory. urged that if further actions were needed to assure that discriminatory schools did not receive the benefits of tax exemption, a better avenue was to have the issue of whether a school was dis Many criminatory determined by a court. The brief notes that a major difficulty with this approach is that under present law the IRS could not litigate the issue of discrimination with a school prior to revoking its exemption; thus if the IRS is to be the party to raise the issue, a new right of action would have to be created legislatively. If not, the issue could not arise unless a third party litigated the question of racial discrimination with the school; this process would result in very uneven application of the law since the IRS would be restricted to examining only those schools where someone else had initiated the inquiry. This brief goes on to point out that under the present provisions which provide for declaratory judgement proceedings, adequate access to judicial review of an IRS proposed revocation does exist. Further, Section 7428 of the Internal Revenue Code substantially protects tax exempt entities from harm in connection with unjustified IRS revocation of their exempt status by ensuring the continued deductibility of most contributions while the suit is pending. Finally, the brief notes that such changes as have been suggested would have an adverse impact on the administrative processes for the IRS and the courts and could also operate to burden private schools with unnecessary legal expenses. The issue brief set out in Section G of Appendix II examines whether there is judicial authority for the specific examples listed in two areas of the proposed Procedure: first, the examples of factors tending to indicate that the formation or substantial expansion of a private school either was or was not related in fact to public school desegregation; and, second, the examples of programs and activities reasonably designed to attract minority students that adjudicated or reviewable schools can undertake in order to retain their tax exemptions. For the first set of examples, the brief concludes that there is adequate specific or general legal authority for each of the listed 14 factors. For the second set of examples, the so-called "affirmative action" examples, the brief concludes that there is once again specific or general legal authority for all of the acts and programs listed. However, no case known to the staff has |