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Even more to the point, the Green court said: "it is not remotely suggested by intervenors [parents of children enrolled in white private schools] that they fear lest their schools will undertake only activities that are innocent, i.e., not racially discriminatory, yet be wrongly condemned as discriminatory." Id. at 1166-67.

The proposed Procedures would deny exemptions and deductions without any evidence whatsoever "of acts and practices constituting discrimination." Under these proposals, exemption is denied on the ground of something which may have happened 10 or 20 years ago—the inception of the school-and on the ground of the refusal of the black community to accept the schools' invitation to students to enroll. It is, therefore, most emphatically suggested in this situation that schools will "undertake only activities that are innocent" and "yet be wrongly condemned as discriminatory." This is not a remote possibility; it will be a virtual certainty in many instances.


Once a school has been branded "reviewable" by reason of the arbitrary criteria set forth in paragraph 3.03 of the proposed Procedure, Section 4.02 thereof imposes upon the school the burden of proving its innocence of discrimination. The school must "show that it has undertaken actions or programs reasonably designed to attract minority students on a continuing basis."

This is flatly contradictory to the holding in Norwood v. Harrison, 413 U.S. 455, 471 (1973) that: "no one can be required, consistent with due process, to prove the absence of violation of law."

In the Norwood case, the Supreme Court construed the complaint "as contemplating an individual determination as to each private school in Mississippi. . . ." 413 U.S. 470. It went on to say that: "relief on an assumption that all private schools were discriminatory, thus foreclosing individualized consideration, would not be appropriate this school-by-school determination may be cumbersome, but no more so than the State's procedure of ascertaining compliance with educational standards. No presumptions flow from mere allegations; no one can be required, consistent with due process, to prove the absence of violation of law." Id. at 471. The interpretation by the District Judge in Norwood on remand, which pays lip service to the above opinion while drastically departing from the principle there enunciated, has never been subjected to appellate review. However, even that case was decided in an aura of massive resistance throughout the entire state to the integration of the state's public schools. The presumption resorted to in the remanded Norwood case arose out of a unique situation which no one contends applies generally today throughout the United States. Therefore, even if the Norwood presumptions were valid when enunciated (a highly doubtful presumption), it is totally arbitrary to apply the presumption nationwide, as the proposed Procedure would do.


The strong objections on the part of hundreds of thousands of citizens to the original proposed Revenue Procedure has caused a revision of the proposed Procedure. This revision, however, is primarily cosmetic. The unfair, arbitrary and discriminatory presumption of guilt remains.

The proposed Procedure constitutes an unconscionable attack upon religious education in the United States. The vast majority of the schools which would be affected by the proposed Procedure are Christian, religious schools. Furthermore, the proposed Procedure deliberately has excluded the majority of Catholic and Jewish schools, and now aims its attack almost exclusively at Protestant schoolsan especially invidious religious discrimination.

While the disastrous effects of busing on the public school systems of the nation have no doubt contributed to the success of private schools since that practice began, it is totally unfair, arbitrary and wrong to presume that every private school created or expanded during this period has done so in order to escape racial integration. It is totally unconscionable to invoke punitive government actions against hundreds of thousands of Protestant Christians whose only motives are to provide their children with an excellent education in an acceptable moral atmosphere.

The existing Revenue Procedure 75-50 already requires tax-exempt schools to pursue nondiscriminatory policies if they are to retain tax exemption. It contains an invitation to minorities to file a complaint against any exempt private school which discriminates in practice. There have been few, if any, complaints filed.

Even if the IRS should rightfully be engaged in shaping national social policies, its existing procedures are more than adequate to do so.

The proposed Procedure will not open to minorities any school doors. The doors of the tax exempt schools are already wide open. The blacks refuse to attend such schools.

The proposed regulation will have one primary effect-to punish private schools for having come into existence subsequent to public school integration.

It should be totally, completely and finally abandoned.

Senator PACKWOOD. The subcommittee will stand in recess. [Whereupon, at 3:15 p.m. the subcommittee was recessed, to reconvene at the call of the Chair.]

[By direction of the chairman the following communications were made a part of the hearing record:]


Mr. Chairman, I oppose the implementation of the Internal Revenue Service's revised "Proposed Revenue Procedure on Tax-Exempt Schools."

Under the revised proposal, the Internal Revenue Service-in the absence of a final decision by a Federal or State court or administrative agency-deems a private elementary or secondary school's tax-exempt status to be reviewable if that school: Was formed or substantially expanded at a time of public school desegregation in the community;

Does not have a significant minority enrollment (defined as 20 percent of the percentage of the minority school age population in the community); and

Was, in fact, created or substantially expanded due to public school desegregation in the community.

I commend the Internal Revenue Service's attempt to define these elements more tightly in its revised proposal than it had in the original version; and, I appreciate its willingness to consider a variety of mitigating circumstances in the evaluation of these three criteria. However, the IRS proposal still constitutes an unacceptable presumption of guilt which places a burden of proof upon private schools to demonstrate their innocence. Should a private school, merely on the face of the three criteria, be flagged as a potentially reviewable school, it would have to demonstrate to the satisfaction of the IRS that the special nature of its curricula was not designed to exclude minorities. . . or that minority students, faculty or board members participated in the creation or expansion of the school . . . or that its founders, officers, or substantial contributors were not associated with efforts to oppose desegregation . . . or other mitigating circumstances.

In the case of a school that is deemed reviewable, the school may prevent the revocation of its tax-exempt status only by passing one of two tests: a significant minority enrollment test or a good faith test. To meet these tests, the school must open to IRS review its student recruitment, enrollment and financial assistance policies, its faculty recruitment and employment policies, its curricula (in the case where it can show a special minority-oriented course or courses), its participation in extracurricular activities, and the composition of its board members.

Requirements such as those I have just noted not only place an enormous burden of proof upon the school, they also represent an unhealthy opportunity for Federal intrusion by the IRS into the most fundamental areas of private school education and operation. And, even in its willingness to consider a variety of mitigating circumstances, the IRS is still offering a proposal that contains far too many areas for bureaucratic interpretation and manipulation. Of course, IRS maintains that the proposal's flexibility is designed so that only the real targets-private elementary and secondary schools that practice racial discrimination—are reached. But the IRS proposal goes too far.

I am also troubled by the IRS involvement in social policymaking inherent in this procedure. And I am concerned about the potential effects of such a procedure upon the Constitution's strict separation of Church and State. Furthermore, I believe there is a race consciousness inherent in so much of the IRS proposal that serious questions as to its permissibility should be considered in light of the Supreme Court's decision in Regents of the University of California v. Bakke (U.S., 98 S.Ct. 2733), a decision which, in itself, has perhaps raised as many questions as it has answered.

We all know of the tremendous public concern over the Internal Revenue Service's proposal. Like other members of the Senate, I have received hundreds of letters from concerned parents, who have chosen private education for their children . . . not on the basis of racial bias, but because of the genuine concern they have for a quality education. As a family from Colorado Springs wrote:

"Segregation played no part whatsoever in our decision of a school. All children have always been welcome, regardless of race.

"We do oppose the inferior education the children receive in public school. That and a desire for a Christian education were our reasons for choosing a Christian school. The schools in our area are very over-crowded and their educational program is inferior. Also we oppose the smoking, drugs, bad language, etc., that are found freely in public schools."

A mother and father from Arvada wrote:

"Our children used to go to public schools right up to high school and we didn't like what we saw and heard. Teachers in public schools never seem to have time for children, nor do they seem to care if the work gets done, or if anything was learned. "There are over 135 private schools in our greater Denver area; thousands of people send their children there to learn, and we are all willing to pay the price for their tuition, besides paying for public schools through taxes and bonds, without using public schools and their facilities.

"Our school has Spanish, black, and white children; we are not against a child's color or creed, we just want all our children to have a basic education, so that they are all able to read, write, and add. We know of children in 8th grade public school who are not even able to sign their own name."

A Denver mother who sends her son to a private school noted:

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the small classes and personal attention provide significantly better education than the Public School System.

"We made plans to send him to this school before 'busing' was considered in our city. We have chosen to live in an older inner-city neighborhood where the children he plays with are of various races. He has classmates who are black, Mexican, and Indian.

"We and the other parents are not wealthy. We struggle to pay the tuition. The donations at our school are low, and the school struggles to pay its bills. We, as a group, could not handle the expense of recruiting additional minority students and providing them with scholarships."

And, a father from Lakewood wrote:

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I have to struggle hard to send my children to a church-run, Christian school. My job has me working unusual hours, but I have to work extra jobs to pay the tuition for the education my children are receiving.

“I am a Spanish-speaking minority. I am sending my four children to a Christian school because I believe they get the religious training that they would never get in public school."

Mr. Chairman, these are the voices of concerned parents who want a quality education for their children and are trying to provide that to the best of their abilities. They are properly fearful of the Federal Government's heavy-handed interference in education. especially interference by the Internal Revenue Service. I believe the issues raised in this proposed revenue procedure are far, far too serious to be decided at an administrative level. Accordingly, I have cosponsored, with Senator Hatch and others, S. 103. Our bill would prohibit the Secretary of the Treasury from implementing any guidelines for determining whether private taxexempt schools have forfeited their tax exemptions through the adoption of racially discriminatory policies until December 31, 1980. Enactment of our legislation would give the Congress additional time to consider this issue and tailor a more refined and more appropriate remedy for the problem than the current revised "Proposed Revenue Procedure on Tax-Exempt Schools."

I thank the Committee for this opportunity to participate in their consideration of this matter.


Thank you, Mr. Chairman, for the opportunity to participate in your consideration of Internal Revenue Service proposals regarding the tax exempt status of private schools. At the outset, I would like to emphasize my fundamental belief that tax policy must be formulated by the Congress, and that the IRS, the revenue collecting agency of the executive branch, must confine itself to the administration and enforcement of congressionally formulated tax policy. For this reason, I will primarily address the role of the Congress in this controversy as it relates to my bill, H.R. 96, which would require a court decision before revocation of exemption and which enjoys wide support in the House.

Mr. Chairman, the 16th amendment to the Constitution provides that "the Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, . . . This proposal by the IRS, published in the Federal Register on August 22, 1978 and reissued on February 9, 1979, represents a further erosion of

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legislative power to the executive branch. Further, because this proposal is so comprehensive in nature, it would serve as a precedent for assumption of authority by executive branch agencies which the Congress can ill afford to accept.

It is indeed unfortunate that such a conflict between the branches of government has occurred over the issue of racial discrimination. Certainly, no one condones racially discriminatory policies, and everyone believes that institutions which are truly discriminatory should not enjoy a tax exempt status. However, the determination that an institution is racially discriminatory is a matter which properly should be adjudicated by the judicial branch of government and not left to the arbitrary whim of an executive branch bureaucrat. This need is made even more urgent because of the precarious position in which many praiseworthy non-discriminatory schools would be placed were the proposed rule adopted.

Any school formed or substantially expanded during a period of public school integration which does not have a significant minority student population would be subject to review by IRS. A significant minority student population is defined as a percentage equal to 20 percent of the proportion of school age minorities in the community served by the private school. However, many private schools serve a larger or smaller area than the community in which they are located and may find themselves in a reviewable status based on criteria unfairly applied. The expansion of a private school is another factor which, while it may be indicative of a racially discriminatory history, is more likely to be only an indication of the successful educational performance of the school's administrators. These arbitrarily established standards must be considered in light of their consequences for many private schools. Section 3.03(c) of the proposal states that "ordinarily, the formation or expansion of a school at the time of public school desegregation in the community will be considered to be related in fact to public school desegregation."

Despite this assumption, which a bureaucratic official may be expected to use to authorize an adverse decision, IRS itself recognizes the need for factors which have to be considered in mitigation, such as the abnormal expansion of a community, the fact that certain students are not drawn from the public schools, or that the school's expansion is roughly equivalent to other years not in the reviewable period.

While the earlier proposal was inflexible in its requirements, the February 9 guidelines are singularly susceptible to bureaucratic misinterpretation due to their broadness. Further constitutional difficulties other than the unauthorized assumption of power are obvious should this proposal be adopted. For example, the constitutional precept of due process is substantially disregarded. Certain private schools would be reviewed simply because of an administrative balancing of factors which will undoubtedly vary in outcome from case to case. To submit worthy non-discriminatory schools to such a test is not only unfair on its face, but will, for many financially precarious schools, have consequences which were obviously not envisioned by IRS. Aside from the severe chilling effect even a potential classification as racially discriminatory would have on contributors facing a loss of tax exemption, the legal and administrative expense of proving itself to be non-discriminatory would be an impossibility in many cases. By providing for judicial appeal of IRS determinations under its latest proposal, the service has attempted to provide a semblance of fair treatment, but for many of these schools, it also represents the possibility of costly legal action in order to prove its own non-discrimination. In other words, the burden of proof is still on the institution, and this runs contrary to our basic tenet of innocent until proven guilty. The entire administrative procedure outlined in this latest proposal is inequitable and costly to our citizens. Furthermore, the potential damage in relation to benefit achieved is so overwhelming as to clearly and undeniably indicate that this proposal should not be adopted by the Internal Revenue Service.

Also presenting unacceptable constitutional uncertainty is the express inclusion of religious schools in the proposal. The first amendment provides provides for noninterference of government in the practice of religion. Any change in the delicate relationship between church and state carries with it serious social and political questions which must be considered by the Congress and not by an administrative agency.

Certainly, despite IRS promised consideration of circumstances peculiar to individual schools, the opportunity for abuse or misjudgement regarding the reviewable status of religious schools is a real possibility. The interference of the Federal Government through its executive agencies, other than ensuring that educational instruction is adequate for each student and conducted in a safe environment, is totally unwarranted and represents an unconstitutional intrusion into the freedom of religious practice as guaranteed by the first amendment.

Mr. chairman, it is difficult for me to understand why IRS has not come to the congress for direction in addressing the problem of racial discrimination in private

schools when considering the potential constitutional and social problems associated with the formulation of criteria for determining standards. As I understand it, IRS bases its authority to issue its proposal on "public policy" as interpreted by the courts. Surely, the Congress can give the best and most specific guidance on policy to IRS, since as the elected representatives of the people we are best equipped to reflect the views of the public. This is especially true in an area characterized by controversy and in which the Congress is constitutionally charged with responsibility for the formulation of public policy.

For this reason, I have introduced legislation, H.R. 96, which would directly address the problem of racial discrimination by private schools by amending section 501(c)(3) of title 26 of the U.S. Code to provide that tax exemption be revoked only when a private school has been properly adjudicated as racially discriminatory by a state or federal court. This amendment is completely consistent with the constitutional safeguards and current procedures for utilization of the judicial process provided by the Civil Rights Act of 1964 as amended.

This bill, which has been cosponsored by 88 of my colleagues from both sides of the aisle and all parts of our country, would maintain our tradition of innocent until proven guilty by shifting the burden of proof to the accusor, whether it be the IRS or an individual plaintiff denied admission or suffering similar treatment for reasons of racial discrimination. By shifting the burden of proof, H.R. 96 would allow a school to properly defend itself against charges of racism, an accusation which can not be taken lightly, in a truly adversary proceeding involving a justiciable controversy, a crucial element lacking in the IRS proposal. In this situation, attention would be focused on those schools which actually have given probable cause to suspect discrimination, rather than blanket accusation of all schools which were founded or happen to have been expanded during a certain period of time. Most importantly, an adjudication of racial discrimination in the courtroom is a more likely setting to adduce an accurate description of the facts.

The Congress must address the discrimination problem presented to it by the IRS while working to preserve its own constitutional prerogatives. This can best be done by clarifying procedures which IRS must use to revoke the tax exempt status of institutions which are truly discriminatory-not by allowing the executive branch to generate its own guidelines which are so broad as to be subject to considerable abuse of legislative intent-but by giving specific guidance to IRS in a manner which is fair to the vast majority of private schools which are worthy, non-discriminatory educational institutions.

In view of the constitutional difficulties inherent in this proposal, and in light of the potentially grave financial and social consequences of implementation, I urgently and strongly recommend that that IRS be requested to defer any action implementing this proposal until Congress has addressed the issue. Certainly, IRS should have an important role in advising the Congress. But the formulation of policy is a constitutionally mandated legislative function, and IRS must know in no uncertain terms that it is required to confine itself to the proper and equitable administration of our tax laws.

Again, Mr. Chairman, I appreciate having the opportunity to appear today to assist in your consideration of this important national issue.


(b) Tax on unrelated business income.-An organization exempt from taxation under subsection (a) shall be subject to tax to the extent provided in part II of this subchapter (relating to tax on unrelated income), but, notwithstanding part II, shall be considered an organization exempt from income taxes for the purpose of any law which refers to organizations exempt from income taxes.

(c) List of exempt organizations.-The following organizations are referred to in subsection (a):

(1) Corporations organized under Act of Congress, if such corporations are instrumentalities of the United States and if, under such Act, as amended and supplemented, such corporations are exempt from Federal income taxes.

(2) Corporations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to an organization which itself is exempt under this section.

(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying

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