have made in this critical area by reverting to a system of segregated schools financed with the help of federal tax exemption. If legislation is necessary to resolve this conflict, my primary concern is drafting legislation which tells the government how it can constitutionally determine whether or not a private religious school is racially discriminatory. I think it is important that a policy is developed which allows the IRS to make a determination about racial discrimination without becoming embroiled in the issue of examining whether or not an underlying religious belief is racially discriminatory. It is my preference that a policy is developed which looks at whether the school denies minority applicants equal educational opportunities, without ever examining the basic tenets of the religion. Once again, I must commend Chairman Dole for holding a series of hearing on this issue to provide all interested parties with a full and fair opportunity to be heard. This legislation touches important Constitutional freedoms valued by all Americans, and the comments of these witnesses should help us devise a sensible solution to this difficult problem. STATEMENT BY SENATOR GARY HART Mr. Chairman, I appreciate the opportunity to make a brief statement to the committee as you begin your hearings on the issue of tax-exempt status for private schools that practice racial discrimination. I commend Chairman Dole for bringing the committee to act quickly on this issue and for working in good faith to help resolve the controversy over the Federal Government's position on this issue. Mr. Chairman, I believe the Administration's confusing policy reversals on this issue of the last few weeks have been unfortunate and unnecessary. They represent an insensitivity not only to the law and the progress made on civil rights in the last quarter century but more important, an insensitivity to the fundamental moral values which have been the foundation for such progress. The new statute which President Reagan has now proposed and which is now pending before this committee only adds further to the unnecessary confusion. Current Federal law is clear. As the U.S. Commission on Civil Rights has pointed out, the Constitution, title IV of the 1964 Civil Rights Act, and the Internal Revenue Code authorize, indeed require the IRS to deny tax-exempt status to private schools which discriminate on the basis of race. The courts have already interpreted Federal law in this manner. For this reason, I have submitted, with Senator Durenberger and Senator Moynihan and 26 other cosponsors a resolution which will put the Congress firmly on record against tax-exempt status for private schools that practice racial discrimination. The concurrent resolution states the sense of the Congress that current Federal law clearly authorizes and requires the Internal Revenue Service to deny taxexempt status and deductibility of contributions to private schools that discriminate on the basis of race. Mr. Chairman, I urge the committee to seriously consider this resolution as an alternative to the legislation pending_before you. The point which this resolution makes about the adequacy of current Federal law reflects the view of the U.S. Commission on Civil Rights and a number of civil rights organizations. By adopting this resolution Congress would make a strong statement that current Federal law is, and has been clear on mandating that tax-exempt status be denied to private schools that discriminate on the basis of race. Again, I appreciate the Chairman providing me this opportunity to make this statement. TEXT OF SENATE CONCURRENT RESOLUTION 59 Resolved by the Senate (the House of Representatives concurring), Whereas, the Congress provided the legislative basis for denying tax exemption to private schools that discriminate because of race when it passed the Civil Rights Act of 1964. Whereas, in 1971, the U.S. District Court of the District of Columbia stated in Green v. Connally that: "The Internal Revenue Code provisions on charitable exemptions and deductions must be construed to avoid frustrations of Federal policy. Under the conditions of today they can no longer be construed so as to provide to private schools operated on a racially discriminatory premise the support of the exemptions and deductions which Federal tax law affords to charitable organizations and their sponsors," and the Supreme Court of the United States has affirmed that decision. Whereas, it has been the policy of the Internal Revenue Service since 1970 to deny the benefits of tax-exempt status and deductibility of contributions to racially discriminatory private schools. Therefore be it resolved, it is the sense of the Congress that current Federal law clearly authorizes and requires the Internal Revenue Service to deny tax exempt status and deductibility of contributions to private schools that practice racial discrimination. BACKGROUND RELATING TO THE EFFECT OF RACIALLY DISCRIMINA- PREPARED FOR THE COMMITTEE ON WAYS AND MEANS AND THE COMMITTEE ON FINANCE BY THE STAFF OF THE JOINT COMMITTEE ON TAXATION INTRODUCTION The Senate Committee on Finance and the House Committee on Ways and Means have scheduled public hearings on the Federal Government's policy regarding the effect of racial discrimination on the tax-exempt status of private schools. The Finance Committee hearing is scheduled for February 1, 1982, and the Ways and Means Committee hearing is scheduled to begin on February 4, 1982. This pamphlet has been prepared by the staff of the Joint Committee on Taxation in connection with these hearings. The first part of the pamphlet is an overview of the matters described in more detail in later parts. The second part describes recent developments relating to the Administration's position on the effect of racially discriminatory policies on tax-exempt status for private schools. The third part briefly describes Internal Revenue Code provisions relating to tax-exempt status for schools and deductibility of contributions to schools. The fourth part describes, in chronological order, developments regarding the effect of racially discriminatory policies on tax-exempt status for private schools, including court decisions and Internal Revenue Service rulings and procedures. The fifth part describes court decisions as to the taxexempt status of Bob Jones University and Goldsboro Christian Schools, Inc. Finally, the sixth part of the pamphlet describes the Administration's legislative proposal relating to denial of tax-exempt status to private schools which have policies of racial discrimination. (1) I. OVERVIEW This overview summarizes various judicial, administrative, and legislative actions involving the tax-exempt status of certain organizations and the question of racial discrimination. The Internal Revenue Code provides tax-exempt status under section 501 (c) (3) for organizations which are "organized and operated exclusively for religious, charitable, scientific, or educational purposes ***"Generally, organizations exempt under section 501(c)(3) are entitled to receive contributions which are deductible by the donor under section 170. In 1954, the U.S. Supreme Court, in Brown v. Board of Education,1 held that racial discrimination in public education was unconstitutional. Prior to 1970, the IRS policy on tax exemptions for private schools was that tax-exempt status was available to racially discriminatory private schools so long as those schools were not receiving aid from a State or political subdivision of a State so as to make operation of the school unconstitutional or in violation of Federal law. On July 10, 1970, during the litigation of Green v. Connally, the IRS announced that private schools which practice racial discrimination would not be recognized as tax exempt under section 501(c) (3) or as eligible for tax-deductible contributions under section 170.3 The U.S. District Court for the District of Columbia held, in Green, that racially discriminatory private schools are not entitled to the Federal tax exemption provided for educational organizations and that gifts to such schools are not deductible as charitable contributions by, the donors. The District Court, in Green, placed the IRS under a permanent injunction to deny tax exemptions to private schools in Mississippi that practice racial discrimination as to students. The Court also ordered the IRS to implement its decision by requiring such schools to adopt and publish a nondiscriminatory policy and provide the IRS with information to enable the IRS to determine if the schools discriminate on the basis of race. The U.S. Supreme Court affirmed, per curiam (without opinion), the District Court's decision in Green." 1347 U.S. 483 (1954). 2330 F. Supp. 1150 (D.D.C.) aff'd per curiam sub nom. Coit v. Green, 404 U.S. 997 (1971) (hereinafter Green). 3 See IRS News Release, July 10, 1970. At the time of the IRS News Release, the IRS was under a U.S. District Court preliminary injunction not to approve any application for tax-exempt status by any private school in Mississippi or determine that any contribution to such school was deductible unless the IRS affirmatively determined that the school was not part of a system of racially segregated private schools operated as an alternative for white students seeking to avoid desegregated public schools. See Green v. Kennedy, 309 F. Supp. 1127, 1150 (D.D.C. 1970), appeal dismissed sub nom. Cannon v. Green, 398 U.S. 956 (1970). 'Coit v. Green, 404 U.S. 997 (1971). |