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specifically mentioned a minority oriented curriculum as an example of affirmative steps, and thus this example would have a lesser legal standing. The brief concludes that the important point is that, if the example is retained, it should be made clear that no inference be permitted to arise from the absence of a minority oriented curriculum.

The next issue brief, in Section H of Appendix II, analyzes the standards embodied in public school desegregation cases. It reviews the important public school desegregation cases from Brown to the present and assesses whether judicial standards have changed in recent years and whether the standards in the Revenue Procedure are acceptable in comparison. The analysis concludes that courts have developed new approaches as they proceeded from cases where schools had been segregated by law to those that had not been, and further, that in recent cases there has been more concern with the scope of the remedy, perhaps because the evidence of system-wide violative intent was not always so apparent as formerly. However, the steadfast and guiding standard has been one of intentional segregation and the Revenue Procedure, particularly as revised, does well in setting up tests to identify schools which discriminate intentionally.

Section I of Appendix II, considers the further question of what the Supreme Court has held must be shown in order to prove the existence of intentional discrimination in employment and housing cases. It also considers whether the standards adopted in the proposed Revenue Procedure are in accord with these principles. The brief notes that in employment and housing cases, discrimination must be intentional in order to violate the Constitution and that in many cases statistical evidence indicating disproportionate racial impact has been used, accompanied by some other facts which support an inference of discrimination. It further notes that once

such evidence is shown, the defendant is allowed to rebut the inference. The brief concludes that the approach of the proposed Revenue Procedure is in accord with this pattern.

The last issue brief, in Section J of Appendix II, discusses the question of how conflicting Constitutional demands should be

reconciled.

The brief notes that generally the Supreme Court

tries to balance such demands, but where this is not possible, the Court has given some sort of priority to competing constitutional demands. The brief observes that Green held that the principle of Freedom of Association under the First Amendment gave way to the Equal Protection concept embodied in the Fifth Amendment in the case of tax aid to at least those discriminatory private schools which are secular in nature.

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As discussed in the preceding sections, the legal analysis conducted by the Ways and Means Oversight Subcommittee staff indicated that the IRS was, in general, on firm legal ground in deciding that its present procedures were inadequate for determining whether exempt schools were discriminatory. Thus the staff's analytic

efforts then turned to the terms of the proposed Revenue Procedure itself. The Subcommittee staff concluded that the revised version of the proposed Revenue Procedure was a vast improvement over the original version because it provided a much more flexible and realistic approach for the determination of whether private schools are racially discriminatory and included a certain amount of "accommodation" for private religious schools in apparent recognition of First Amendment concerns. Even so, after extensive analysis the staff concluded that further improvements could be made to clarify the proposed Procedure in several important respects, to better conform the Procedure to existing legal precedents, and to ease the burden it would place on some private schools. These conclusions and resulting staff recommendations are described and discussed in this section.

The staff concluded that significant improvements to the revised proposal could be made in the following general areas: (1) purpose of the proposed Revenue Procedure; (2) criteria for the determination of reviewable schools; (3) definition of community; (4) examples of actions and programs reasonably designed to attract minority students; and (5) deductibility of contributions and deferral of final revocation of tax-exempt status (i.e., a "grace period").

A.

Purpose of Proposed Revenue Procedure

As indicated by the Subcommittee staff's research and legal analysis, the Constitution forbids only intentional discrimination. In certain areas, Congress has gone beyond this and statutorily proscribed acts that have disproportionate racial impacts even though they may not be the result of an intention to discriminate. There is, however, no clear indication that Congress meant this lesser standard to apply in determining whether certain private schools are entitled to an exemption from taxation. Therefore, in the view of the Subcommittee staff, the IRS need only concern itself with identifying private schools that intentionally discriminate. Toward this end, the purpose and consequently the reach of the proposed Revenue Procedure should be clarified, for example, by stating in Section 1 (and other appropriate parts) that the Procedure's guidelines will be applied to determine whether private schools have policies of intentional discrimination.

A very important distinction must, however, be made. While the staff believes that it should be made clear that the Procedure will reach only intentional discrimination, no direct evidence of mental state need be obtained to justify such a finding of intentional discrimination. Rather, the Supreme Court has held that intentional discrimination can be inferred from a party's acts and practices, past and present. Thus, the Subcommittee staff finds the basic inferential approach of the proposed Revenue Procedure entirely valid. Commissioner Kurtz testified at the Subcommittee hearings that the Procedure would identify only schools which had intentionally discriminated. The staff believes this view to be quite reasonable. However, an express statement of this limitation seems desirable to improve the understanding of the Procedure on the part of IRS employees and the public.

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The revised proposed Revenue Procedure concerns only private schools that have been held racially discriminatory by a final court or administrative decision and those private schools determined to be "reviewable" under the terms of the revised Procedure. Under the revised Procedure, three criteria must be met before a

private school will be considered to be "reviewable."

These three

criteria are: (1) the private school was formed or substantially expanded at the time of public school desegregation in the community served by the private school; (2) the private school does not have a significant minority student enrollment (as defined in the Procedure); and (3) the creation or substantial expansion of the private school was related in fact to public school desegregation in the community. The Subcommittee staff believes that two of these cri

teria need modification.

1. Significant Minority Student Enrollment: The first criterion focused on by the staff appears in Section 3.03(b) of the revised proposal and defines what constitutes a significant minority student enrollment. It provides that a private school will always be considered to have a significant minority student enrollment if 20 percent or more of the percentage of minority school age population in the community are enrolled in that school. However, that section also provides that whether a private school's minority student enrollment is significant depends on all relevant facts and circumstances. As a result the 20 percent standard is merely an objective "safe harbor." In fact, Section 3.03(b) provides, "[C]onsideration will be given to special circumstances which limit the school's ability to attract minority students

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A

single example is provided as to what constitutes such special

circumstances:

an emphasis on special programs or special cur-
ricula which by their nature are of interest
only to identifiable groups which are not com-
posed of a significant number of minority
students

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As discussed at the hearing, it is expected that this example will be applicable to schools that serve special groups, like the Amish or Hebrew schools. Since there are, for example, very few black children of the Hebrew faith, it is important that the proposed Revenue Procedure should apply appropriate expectations to such schools when considering their level of minority enrollment. It might have been thought that schools, like the Hebrew schools, would feel secure under this provision so long as they

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