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I. SUMMARY OF SUBCOMMITTEE'S HEARINGS

A.

Introduction

On February 20, 21, 22, 26, 28 and March 12 of 1979 the Ways and Means Oversight Subcommittee held hearings on the IRS proposed Revenue Procedure concerning the tax exempt status of private schools (Serials 96-11 and 96-12). Revenue Procedures are, in essence, guidelines that the Service issues to its agents in the field; in this case the guidance pertained to the revocation of federal tax exemptions for private schools found to be racially discriminatory. The IRS initially proposed this Revenue Procedure in August 1978, received public comments culminating in December hearings on the Procedure, and then on February 9, 1979 issued a revised proposed Procedure which was the principal focus of the Subcommittee's hearings. Many of the legal scholars, individual private schools, associations of private schools and public agencies that submitted testimony at the Subcommittee's hearings had previously presented their views to the IRS about the original proposed Procedure. Accordingly, many of the witnesses offered testimony that compared and contrasted the versions, preferring provisions of one over the other. The purpose of this section is to summarize the views generally expressed by various witnesses and types of witnesses at the Subcommittee's hearings.

Both versions of the proposed Procedure attempt to give practical effect to an IRS policy established in 1971 that private schools having racially discriminatory policies or practices should not enjoy tax exemption or the benefit of charitable deductions under Sections 501 (c) (3) and 170 (c) (4) of the Internal Revenue Code. Accordingly each version specified factual circumstances that would justify revoking the exemptions of, and disallowing charitable deductions for, private schools that do not in turn convince the IRS that they have a policy of racial nondiscrimination. The details of the original and revised versions of the Revenue Procedure are discussed in Part I of the Appendix. Suf

fice it to say at this early juncture that while both versions took substantially the same approach, the revised version provides considerably more flexibility and pays considerably more attention to the unique facts and circumstances of each school. Some witnesses

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thought the IRS had created too many "loopholes" by these changes, while others criticized the IRS for the excessive burdens the revised Procedure would place on "innocent" schools in certain unique circumstances.

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As a general matter, opponents of the proposed Revenue Procedure outnumbered supporters among the witnesses who testified before the Subcommittee. On the specific level, the myriad of policy, legal and factual issues were seen somewhat differently by each individual. Nonetheless, the witnesses can be separated into general points of view for the purposes of reviewing the major points of the testimony. Civil rights organizations and government agencies agreed that current procedures are inadequate and thus these witnesses basically supported the need for something beyond existing IRS guidelines. Many of the associations of religious and secular private schools preferred the revised Procedure to the original, August version, but the fundamentalist Christian schools considered either Procedure to be a violation of their religious freedoms, and the Jewish schools were concerned that the revision would still penalize them because most of their schools have few, if any, minority students.

Individuals who provided the Subcommittee with detailed discussions of the legal issues disagreed radically with one another (for example, compare William Ball's testimony with that from Professor Laurence Tribe of Harvard Law School), but the law school professors generally supported the revised Procedure. gressmen's views about the Procedure revealed a broad spectrum of positions.

C. Extent of White Flight

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Members of the Subcommittee were especially concerned to know Neither how serious the problem is that the IRS intends to correct. the IRS, HEW, Justice nor the U.S. Commission on Civil Rights could provide nationwide estimates of the number of racially discriminatory private schools currently enjoying federal tax benefits. However,

both

Arthur Fleming, Chairman of the U.S. Commission on Civil Rights, and James P. Turner, Deputy Assistant Attorney General, Civil Rights Division, Justice Department, stated to the Subcommittee that white flight from public schools undergoing desegregation has substantially frustrated efforts to establish unitary school systems. The League of Women Voters and HEW presented documentation to this

effect.

While the witnesses did not know how many so-called "segregation academies" are presently enjoying tax benefits, nevertheless, both the IRS and the U.S. Commission on Civil Rights reported that the IRS's current guidelines cannot ensure that such schools do not obtain the benefits of tax exemption. The Commission reported that its Spring, 1978 examination of Mississippi private schools identified seven schools that had passed muster under current standards in Revenue Procedure 75-50, even though they had been found by courts to be discriminatory. The IRS said there are about twenty such schools nationwide.

D. Authority of IRS to Promulgate the Procedure

The IRS's legal authority to promulgate the revised proposed Procedure was an important legal issue discussed at the Subcommittee's hearings. Some witnesses appeared to argue that the IRS has no justification for promulgating the Procedure without more specific guidance from either the courts or the Congress itself, while others argued only that it would be preferrable if the courts or Congress first clarified the issue. Congressman Robert Dornan of California falls within the first category of witnesses, whereas Duke Law School Professor William Van Alstyne's written statement is an example of the second kind.

Generally testimony as to whether the IRS has any legal basis at all for promulgating the revised Procedure focused on the precedential value of the 1971 court case that ordered the IRS to revoke the tax exemptions of racially discriminatory private schools in Mississippi--Green v. Connally. The IRS, the Justice Department and Professors Bernard Wolfman and Laurence Tribe of Harvard Law

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