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I, frankly, I have not seen anybody address this.

Senator PACKWOOD. I think that Congress may have the power to do so, and I think that we are better off arguing in the realm of policy rather than in the realm of constitutionality. This makes it clear that Congress should take action.

Thank you very much.

Mr. Dugan?


Mr. DUGAN. We are grateful to you, Mr. Chairman, and to your committee for holding hearings on the IRS revised revenue procedure for private tax-exempt schools, released February 9, 1979. We believe that the U.S. Senate and the House of Representatives are the proper places for determining law, not the offices of the IRS. My name is Robert Dugan. I speak on behalf of the National Association of Evangelicals with its 36,000 churches, as well as the several hundred member schools of our National Association of Christian Schools. Beyond that, on this issue I believe that we sense the mind of the 45 to 50 million evangelicals in the Nation. Let me now speak to two bills under consideration.

S. 103. To Provide the Internal Revenue Service may not implement certain proposed rules relating to the determination of whether private schools have discriminatory policies.

Agreement with IRS objectives. We deeply believe in the elimination of racial discrimination in our Nation. NAE and NACS have consistently maintained a policy in all our schools of nondiscrimination on the basis of race, color or ethnic origin.

That some private schools, purporting to be Christian, have been formed with discriminatory intent, is a matter of embarrassment to me. However, the most important reasons why parents have chosen to pay twice to educate their children are these: to provide a higher quality of education, a firmer disciplinary framework, and specific moral and religious instruction, resulting in a Christian world-andlife view.

Disagreement with IRS method. Regarding the proposed IRS procedure, it is not its stated objective, but its method, to which we object. Let me early compliment IRS for listening to the public in extensive hearings. Modifications have been made to its original proposal which would make it easier for schools to show that they are not discriminatory in admission policies. While we are grateful for small favors, the overall approach of this regulation is objectionable.

(a) The principal flaw is in the principle of the thing. It is our conviction that no school should have its tax-exempt status revoked unless it is adjudicated discriminatory on a case-by-case basis. IRS has not modified its approach of assuming that schools are guilty of discrimination, according to certain statistical guidelines, until they prove themselves innocent. We believe that the burden of proof should rest on the IRS to show discrimination based upon accusations and legal decisions.

The U.S. Supreme Court supported this conviction on November 13, 1978. Reversing a lower court decision which required New Hampshire's Keen State College "to prove the absence of discrimi

natory motive" in denying full professorship to a woman, the Court indicated that the burden should be upon the prosecution to prove guilt, rather than upon the defendant to prove innocence. Our criminal system does not require someone suspected of murder to prove the absence of a motive, but rather expects the accuser to find evidence of motivation beyond a reasonable doubt. Should not private educational institutions be treated at least that well?

(b) Some practical flaws: In section 3.03(c), "Facts" 8, 9, and 10 have no bearing on creating suspicion of maintaining racial discrimination. Since most parents have academic, disciplinary, moral and spiritual reasons for sending their children to private schools, it is only natural that most students will come from public schools. It is there that the shortcomings are felt.

In exempting certain religious groups with longstanding practice which itself is not racially discriminatory, IRS appears to be discriminating in order to destroy discrimination. This criterion, section 3.03(c)(6), would leave under suspicion new denominations which have not had time to develop a historical record on nondiscrimination; independent Christian schools which are parent-controlled, rather than parocial, with no historical entity behind them; and individual churches of denominations with congregational autonomy, where the historical practice and convictions of one local church may be quite different from those of another in the same denomination.

The criteria by which a reviewable school can show that it has undertaken actions designed to attract minorities may at best be difficult to fulfill and at worst illegal. I refer to section 4.03, 1-6. Insisting on minority recruitment, special programs, scholarships and tuition waivers, forces a religious organization to spend its money in a governmentally enforced manner. Government has no such dictatorial right.

Parents of the religious group itself, unable to secure scholarship aid for their own children, would be forced to produce funds to give scholarships to others. Insisting on recruiting minority teachers puts such schools in a predicament. The midwestern Christian liberal arts college which represents in the evangelical movement what Notre Dame University represents to Roman Catholicism, will graduate exactly one minority student with an education major this June.

Participating in sports and other collegiate activities with integrated schools will be beyond the financial capability of interscholastic competition, strictly for budgetary reasons. Finally, to insist that a school have minority board members could only presume that there are minority persons in the particular community of faith sponsoring a given school. Keep in mind that religious criteria are the sine qua non of qualification for board membership or faculty, in evangelical schools.

(c) The ultimate flaw: What a supreme irony it is that the wellintended effort of IRS would not just put a crack in the wall of separation between church and state, but it would smash a hole in the wall wide enough to drive the proverbial Mack truck through. If Government persists in forcing private religious schools to recruit minority students, Government will have become responsible for the evangelization and conversion of thousands of minority

children. While some might smile at this strange twist and even thank God for it, those of us who are committed to the separation of church and state choke at the prospect of Government's causing children to become converts of any faith or denomination. Evangelism must be a totally free and voluntary activity.

In the Schempp case, the U.S. Supreme Court indicated that to withstand the strictures of the establishment clause, there must be a secular legislative purpose and a primary effect that neither advances nor inhibits religion. The IRS approach, by unwittingly advancing religion, would fly directly in the face of that decision. Passage of S. 103 would require that additional legislation be developed prior to the end of 1980, in order to remedy the flaws of the proposed IRS regulation. Delay would be better than enforcement of the dubious regulation, but NAE prefers and recommends that the Finance Committee develop legislation that would allow the removal of tax-exempt status from schools only after they are adjudicated discriminatory by due process, and that the legislation would eliminate the category of reviewable schools from the IRS regulation.

We thus support S. 995, introduced recently by Senator Jesse Helms, which would require the Secretary of the Treasury to obtain a judicial finding of racial discrimination before terminating or denying tax-exempt status to a private school on the grounds of racial discrimination.

S. 449, to amend the Internal Revenue Code of 1954 to provide that the tax exemption of certain charitable organizations and the allowance of a deduction for contributions to such organizations shall not be construed as the provisions of Federal assistance. There is an urgent need for Congress clearly to stipulate its intent concerning tax exemption. The IRS attitude that we grant tax-exemption really should reflect a different spirit, namely, that we recognize certain organizations, by their very nature, as tax exempt.

Implicit in the thinking of many Government officials, is the concept that nontaxation is somehow abnormal. The assumption that Government has a right to tax everything, whether animal, vegetable or mineral, seems totalitarian and therefore repugnant. The National Association of Evangelicals strongly support S. 449, in order that tax exemption will once and for all be distinguished from Federal subsidy. We believe that voluntary, nonprofit, charitable and religious organizations and institutions, should have taxexempt status that is not considered Federal support for the following reasons:

(A) Such groups should be free to accomplish altruistic objectives without governmental interference. (B) Their pluralistic benefits enhance national life. (C) Their inherent nontaxability is evident. (D) A Constitutional illegality exists otherwise.


European visitor Alexis de Tocqueville noted a unique quality in colonial America. He marvelled that, when needs developed in communities, the people voluntarily associated themselves together and organized to meet those needs. The opportunity for individuals voluntarily to participate in elemosynary organizations is one of

the blessings of a free society. Such organizations accomplish altruistic objectives which neither government nor business is attaining, or perhaps could attain.


There should be no need to argue the point that churches, charitable organizations, voluntary groups, and other nonprofit institutions have a vital role in enhancing pluralism in our Nation. Supreme Court Justice Brennan articulated this viewpoint in his concurring opinion in the Walz decision:

Government grants exemptions to religious organizations because they uniquely contribute to the pluralism of American society by their religious activities. Government may properly include religious institutions among the variety of private, non-profit groups which receive tax exemption, for each group contributes to the diversity of assocaition, viewpoint, and enterprise essential to a vigorous, pluralistic society.


Yale Law School Professor Boris Bittker points out that the very nature of charitable and nonprofit organizations makes them nontaxable. Congress recognized this fact in the first modern revenue act of 1913. Professor Bittker states:

Neither the net income concept nor the ability to pay rationale for income taxation can be satisfactorily applied to charitable organizations. The exemption of these organizations from income tax is not a preference or a special favor, requiring affirmative justification, but an organic acknowledgement of the appropriate boundaries of the income tax itself.

If non-profit organizations do not have income in the ordinary sense, as we have argued, their exemption from income taxation is not properly classified as government aid, raising an establishment clause problem. It is rather, a normal or even inevitable corollary of the economic and philosophical foundation on which the income tax law rests.

In more specific reference to religious nonprofit churches and organizations, the freedoms secured by the religious clauses of the first amendment have been elevated above the other freedoms enunciated in that amendment. We shall not take time to develop this contention in our testimony.

Throughout the history of our Nation, however, the Bill of Rights has enjoyed a position of special importance. In West Virginia v. Barnett, the U.S. Supreme Court said:

The very purpose of a Bill of Rights was to withdraw certain subjects from the vicissitudes of political controversy, to place them beyond the reach of majorities and officials, and to establish them as legal principles to be applied by the courts. One's right to life, liberty and prosperity, to freedom of speech, to freedom of the press, to freedom of worship, and assembly and other fundamental rights, may not be submitted to vote. They depend on the outcome of no election.


In the landmark Everson case in 1947, the Court stated thatneither a state nor the federal government can set up a church. Neither can pass laws which aid one religion, aid all religions, or prefer one religion over another. No tax in any amount, large or small, can be levied to support any religious activity or institutions, whatever they may be called, or whatever form they may adopt to preach or practice religion.

In the light of this ruling and many others since that time, it is patently clear that if we construe tax exemption as Federal assistance, then our several decades of tax exemption for nonprofit, religious organizations have constituted a blatant violation of the establishment clause of the first amendment. Certainly that has not been the case.


The passage of S. 449 would clarify ambiguities that have existed in the minds of many Government officials, concerning the meaning of tax-exempt status for certain organizations in relationship to the Federal Government. S. 449 would erect a fence around charitable, nonprofit organizations, and have the effect of posting "Keep Out" signs where all governmental intruders could see them. Thank you, Mr. Chairman.

Senator PACKWOOD. Thank you. The next witness will be Rev. L. Samuel Martz, on on behalf of the Independent Fundamental Churches of America.

Mr. Martz?

STATEMENT OF REV. L. SAMUEL MARTZ ON BEHALF OF INDEPENDENT FUNDAMENTAL CHURCHES OF AMERICA Reverend MARTZ. I am Reverend L. Samuel Martz, speaking on behalf of the Independent Fundamental Churches of America. I would like to speak in opposition to the IRS revised guidelines on tax-exempt status of private schools and offer my support to Senate bills 103 and 449. The IFCA passed a resolution in 1978 opposing encroachment and unnecessary control by Government over the ministry of Christian schools. I feel that the IRS was insensitive to many of us who testified at the December hearings, because the new guidelines have not changed very much from the original revenue procedure. Also, I think there are contradictions and inconsistencies in the IRS revised proposal.

I see a great difference between nondiscrimination and racial balance. I think they have lumped these together.

The principle of precedence is very strong in government. There is no precedence anywhere for the "reviewable" school issue. That is why I feel that this bill should be passed by the Senate.

We are opening the door for church and state separation issues. The Christian school is a vital part of the ministry of the church. This issue will not be settled in this room today. This is getting into a new issue which I think will get us into a lot of difficulty. Most parents send their children to a Christian school for religious reasons, not for racial reasons.

The public schools in America are very unsettled. The academic scores are going down, while the Christian schools are continuing to give quality education. I think also that the IRS policy violates various private school guidelines, the Amish and various other schools. Therefore, I would encourage support of Senate bill 103. IRS has shown its incompetency at this point and I urge you to support Senate bill 449 concerning tax exemption.

Senator PACKWOOD. Thank you.

Reverend Nicholls?

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