10). The observed number is six. Using the Castaneda formula, the standard deviation is 3.08 (the square root of 200 times .05 times .95 equals the square root of 9.5 which equals 3.08). The difference between the expected number of black students of ten and the observed number of black students of six is equal to four. Therefore, the observed rate is 1.29 standard deviations from the expected rate (4 divided by 3.08 equals 1.29). The disparity between the observed number and the expected number is not statistically significant because it is not two or three standard deviations as required by Castaneda, supra at n.17.

The IRS, however, in its regulation, has stacked the statistical deck in its favor. It only uses general population racial statistics and ignores specific qualifications which are necessary for admission to religious schools. Applying the Castaneda formula according to the IRS method results in statistical significance. The IRS contends that the availability pool in our hypothetical is fifteen percent. Two hundred students were admitted to the school. The expected number of students is thirty. (200 times .15 equals 30). The observed number of students is six. Using the Castaneda formula the standard deviation is 5.04 (the square root of 200 times .15 times .85 equals the square root of 25.5 which equals 5.04). The difference between the expected number of blacks in the student body which is 30 and the observed number which is six equals 24. The observed rate is 4.76 standard deviations from the expected rate. (24 divided by 5.04 equals 4.76). This is statistically significant according to the Castaneda formula since it is more than two or three standard deviations from the observed value.

The battle is therefore joined over which availability pool of blacks is proper for statistical analysis. The IRS requires general population statistics and religious schools will argue for the percentage of those qualified to be admitted to those schools which are black. The Supreme Court has definitively spoken on this issue. In the employment discrimination case of Hazelwood School District v. United States, 433 U.S. 299 (1977), the Supreme Court noted that comparisons with the general racial population in the community are improper. The comparison must be to that portion of the population which is "qualified" for admission to the entity involved. The Court went on, and stated in footnote thirteen,

"In Teamsters, the comparison between the percentage of Negroes on the employer's workforce and the percentage in the general area wide population was highly probative, because the job skills there involved-the ability to drive a truck-is one that many persons possess or can fairly readily acquire. When special qualifications are required to fill particular jobs, comparisons to the general population (rather than to the smaller group of individuals who possess the necessary qualifications) may have little probative value." Id. at n.13 (emphasis supplied).

A determination of the proper availability pool of the minority from which statistics are calculated is crucial then to the decision on whether or not statistics can prove intentional discrimination. The Supreme Court requires that due consideration be given to the qualifications necessary for admission to an employer's workforce, or in this situation, to a student body. The lower Courts foresaw and have enforced this emphasis on the proper qualifications which define the relevant availability pool. 13

13

Use of the proper availability pool of blacks thus determines that statistics have no probative value in proving intentional discrimination in our hypothetical example. The expected number of blacks was ten but the observed number was six. This was only 1.29 standard deviations away from the expected rate. According to the Castaneda formula this was not statistically significant." By applying its simplistic analysis to religious schools which have specific religious criteria for admission the IRS has again evidenced its lack of expertise in the analysis of proof of discrimination.

V. ANALYSIS OF OTHER 14TH AMENDMENT PROBLEMS

Aside from the statistical error discussed above, other Fourteenth Amendment problems remain. (a) The basic error in the revised revenue procedure is its failure to follow the burdens of proof and proceeding which have been carefully laid out by the Supreme Court in great detail. The recent decision in University of California Regents v. Bakke,--U.S.-, 98 S.Ct. 2733 (1978), makes it clear that governmental action pursuant to the Fourteenth Amendment must utilize the standard of proof required

13 See, e.g. Kinsey v. First Regional Securities Inc., 557 F.2d 830 (D.C. Cir. 1977); Patterson v. American Tobacco Co., 530 F.2d 257 (4th Cir. 1976) Hester v. So. Railway, 497 F.2d 1374, 1379 (5th Cir. 1974); EEOC v. DuPont, 16 F.E.P. cases 847 (D. Del. 1977). See also B. Schlei and P. Grossman, Employment Discrimination Law (B.N.A. 1976), pp. 1172-81.

14 The Castaneda formula was reaffirmed in the educational context in Hazelwood School District, v. U.S., supra, at n.14.

by the Fourteenth Amendment. The Service must, therefore, set out and prove "intentional" racial discrimination. Without a finding of "intent" any analysis is defective.

In section 3.03(iii) the revenue procedure states that the creation or substantial expansion of a school is to be "related in fact to public school desegregation in the community." (Emphasis supplied.) What does this mean? Does it mean that intent or discriminatory purpose must be found? It appears not. Certainly in the four examples discussed above, schools were founded or expanded and drew students from the public schools. Is this a relation in fact to public school desegregation? These schools were founded for religious reasons. But under the Service's guidelines they would be found "reviewable schools," without any determination that they are "intentionally discriminating."

(b) Nor does the procedure clearly place the ultimate burden of proof and persuasion on the government. A prima facie case, as discussed above, can arguably be made by statistical proof concerning the racial composition of the student body, the time of the formation of the school and some other live testimony. The burden of going forward then shifts to the school in question. Once that school articulates a legitimate non-discriminatory reason to rebut the prima facie case, for example, the religious beliefs of its student body and the fact that insufficient minorities adhere to those beliefs in the community, the burden of going forward then shifts back to the Service to prove that this articulated reason is a pretext. The ultimate burden of proof always remains with the Service and it must be met by a preponderance of the evidence. But nowhere in the revised procedure is the decision-maker informed that he must always follow these burdens of proof, persuasion, and proceeding. The revised revenue procedure identifies "some" possible types of proof which could be offered at a hearing challenging a school's tax exempt status. But the procedure does not address the burden of proof and persuasion. The regulation leaves too much discretion in the Service's hands. It will lead to inevitable erroneous findings when legitimate religious freedom concerns are articulated as nondiscriminatory reasons.

(c) The revised procedure still evidences little awareness of the significance of the Supreme Court's decision in University of California Regents v. Bakke, supra. Detailed analysis of the Bakke decision reveals agreement by the majority of the United States Supreme Court on the following propositions. The Fourteenth Amendment requires an ultimate finding of intentional discrimination for violation of the United States Constitution. Secondly, unless a proven intentional constitutional or statutory violation has been shown, preferential classifications of one race over another cannot be sustained. The procedure in section 4.03 still puts the cart before the horse when it requires, for example, preferential treatment of minorities in the award of scholarships and other financial assistance without an earlier proven finding of intentional racial discrimination. The heart of the Fourteenth Amendment is the requirement that all citizens be treated equally regardless of their race or color. Preference for one race over another cannot be tolerated. McDonald v. Santa Fe Trail Transportation Co., 427 U.S. 273 (1976); TWA v. Hardison, 432 U.S. 63 (1977). The IRS cannot require the preferential treatment of one race over another unless, at the very lest, it has previously been proven that a school is discriminating. In the absence of such a finding, there is no power under our Constitution to order affirmative action in the form of financial aid, minority recruitment of students and professional staff, or changes in the curriculum taught in the classroom. Bakke teaches that a showing of impact or low minority enrollment is not enough to prove intentional discrimination. This factor is crucial when a Service decision maker must consider whether enough evidence has been introduced to carry the government's ultimate burden of proof and persuasion. Statistics and time of formation ordinarily will not be enough to prove discrimination if a legitimate non-discriminatory reason is articulated by the school in question. The logical showing necessary for the loss of exempt status simply will not be proven if this is all the evidence the Service has to rely upon.

(d) Finally, in Section 3.03(c) the procedure states that the "determination that a school's formation or substantial expansion is not related in fact to public school desegregation must be based on objective evidence." What can this possibly mean? A defendant cannot be restricted in the evidence he can introduce to disprove that he is intending to discriminate. Furnco Construction Corp. v. Waters, supra. Any relevant evidence must be admissible to disprove an allegation of intentional discrimination. If a pastor took the stand and stated that he preaches racial brotherhood from the pulpit each Sunday and that his school so teaches, this would be testimonial evidence. Would the Service consider it objective? The regulation offers no definition of this term and it seems that such evidence would be excluded and would not be considered probative. Such evidence would be highly relevant, howev

er, to determine the state of mind of the decision-maker who is supposedly discriminating. Proof of intentional discrimination relates to the subjective state of mind of a decision-maker. But the Service apparently seeks to limit such non-objective evidence. This again is an erroneous legal proposition under the Fourteenth Amend

ment.

VI. THE FIRST AMENDMENT RELIGION CLAUSES

The Service is a revenue producing institution. Its lack of expertise in the body of law relating to the Fourteenth Amendment has already been discussed. The Service has not shown any greater awareness of the Bill of Rights and the First Amendment problems which are raised by its revised revenue procedure. The procedure raises difficult questions concerning governmental neutrality towards religion, potential infringement of the free exercise of religion, the encouragement of state established religious beliefs, and excessive governmental entanglement with religion. The Service has rushed in where wise men ordinarily fear to tread.

A. Church and state

At the time that America was discovered many European nations had adopted a state religion. All citizens had to support this state religion, even if they personally did not accept the doctrines taught. Those who held differing beliefs often found themselves persecuted for those beliefs. A number of the first settlers in America were composed of these persecuted people. They saw America as a hope, not only for a new beginning, but as a place where they could worship God without restraint and according to their beliefs and practices. Because of the discriminatory practices experienced back home, these new Americans were determined to establish a government that would not allow their freedoms to be abridged. This determination is reflected in the Bill of Rights and specifically in the First Amendment.

Today, for some Americans the vision of our forefathers threatens to grow dim. As Justice Hugo Black remarked, "[t]oday most Americans seem to have forgotten the ancient evils which forced their ancestors to flee to this new country and to form a government stripped of old powers used to oppress them. But, the Americans who supported the Revolution and the adoption of our Constitution knew first-hand the dangers of tyrannical government." Black, The Bill of Rights, 35 N.Y.U. L.Rev. 865, 867 (1960). James Madison emphasized that "it is proper to take alarm at the first experiment with our liberties." Madison, A Memorial And Remonstrance, II Madison 183-191. Those first Americans saw the consequences of a violation of principle and were prepared to act against that violation before an illegal assertion of power strengthened itself through continual exercise. The alarm which has been raised in the religious community by the Services's revenue procedure should be viewed in this context; many individuals have recognized the danger involved in the principle the Service is asserting.

B. Governmental neutrality

The First Amendment religion clauses provide that "[c]ongress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof. . .' Considering the purposes behind both of these clauses, the Supreme Court has insisted on neutrality with respect to the government's stance towards religion. In Walz v. Tax Commission, 397 U.S. 664, 676 (1969) the Court noted:

"Few concepts are more deeply imbedded in the fabric of our national life, beginning with pre-revolutionary colonial times, than for the government to exercise at the very least this kind of benevolent neutrality toward churches and religious exercise generally, so long as none was favored over others and none suffered interference."

And in Roehmer v. Md. Public Works Board, 426 U.S. 736, 747 (1976), the Court emphasized that "neutrality is what is required." See also Żorach v. Clauson, 343 U.S. 306, 313-14 (1952); Walz, supra at 669; Wisconsin v. Yoder, 406 U.S. 205, 234 n.22 (1972).

The revised revenue procedure, however, provides in section 3.03(c)(6) that in an extraordinary situation the Service will consider the fact that:

"The school was formed or expanded in accordance with a long-standing practice of a religion or religious denomination which itself is not racially discriminatory to provide schools for religious education when circumstances are present making it practical to do so (such as a sufficient number of persons of that religious belief in the community to support the school), and such circumstances are not attributable to a purpose of excluding minorities."

This regulation violates the principle of governmental neutrality in several ways. Contrast the hypothetical fact situations above where Catholics sought to expand or form schools versus other faiths which established such schools despite the fact that they did not have a long history of private schools. The motivating force for these

latter denominations forming schools was dissatisfaction with discipline, the perceived philosophy of secular humanism which was being promulgated in the public schools and the desire to form a totally religious educational environment. Under the regulation these schools would have a greater likelihood of being adjudicated racially discriminatory than Catholic schools. The regulation apparently gives the Service the authority to define what is a long-standing practice of a religion. It also grants preference to those denominations which actually had schools in the past as against those which seek to establish schools in the present. Apparently the Service has set out to judge the religious truth of different faiths which at present seek to found schools. The Service will decide whether or not their religion requires schools. James Madison labeled the suggestion that "the Civil Magistrate is a competent Judge of Religious Truth" as an "arrogant pretention falsified by the contradictory opinion of Rulers in all ages, and throughout the world." The Supreme Court has simply said that government cannot inquire into the validity of a religious belief or practice. Government has no business assessing whether a particular religion's belief requires private schooling.

"Freedom of thought, which includes freedom of religious belief, is basic in a society of free men... Men may believe what they cannot prove. They may not be put to the proof of their religious doctrines or beliefs... The First Amendment does not select any one group or any one type of religion for preferred treatment." United States v. Ballard, 322 U.S. 78, 86-87 (1944). (Emphasis supplied.)

Less than a decade later, in Fowler v. Rhode Island, 345 U.S. 67, 69-70 (1953), the Supreme Court held that "it is no business of courts to say that what is a religious practice or activity for one group is not religion under the protection of the First Amendment" for another group.

When the Service in its regulation seeks to prefer one religious practice over another or seeks to determine the validity of the belief of the need for private schools it endangers the neutrality mandated by the First Amendment. The Service simply cannot inquire into the validity of such beliefs held by any denomination or prefer one denomination's beliefs over those of another.

C. The free exercise clause

Religious education is protected by the Free Exercise Clause of the First Amendment. In every case involving religious education that has been ruled on by the Supreme Court it has been found that Christian education is a religious activity protected by the First Amendment. For example, in Lemon v. Kurtzman, 403 U.S. 602, 609 (1970), it is stated that:

"Although the Court found that concern for religious values does not necessarily affect the content of secular subjects, it also found that the parochial school system was 'an integral part of the religious mission of the Catholic Church.'"

Justice Douglas, in his concurring opinion in the same case, stated this fact as follows:

"The analysis of the constitutional objection to these two state systems of grants to parochial or sectarian schools must start with the admitted and obvious fact that the raison d'etre of parochial schools is the propagation of a religious faith." Id. at 628.

And in Meek v. Pittinger, 421 U.S. 349, 366 (1975), the Court stated that:

"The very purpose of many of those schools is to provide an integrated secular and religious education; the teaching process is, to a large extent, devoted to the inculcation of religious values and beliefs."

Because of the religious influence in the teaching of secular subjects, the Court found that it could not approve funding even of secular instruction in private Christian schools.

The conclusion must be drawn that if the education of students by these private Christian schools is so religious as to violate the establishment clause when public funds are granted them, then the religious nature of the schools is also entitled to the protection guaranteed religion by the free exercise clause.

Once it is established that education is a religious liberty interest, for any governmental action to stand which directly or indirectly affects this religious interest, the balancing test provided in Sherbert v. Verner, 374 U.S. 398 (1963), must be applied. The State regulation must be justified by a "compelling state interest in the regulation of a subject within the State's Constitutional power to regulate.'" Id. at 403. More specifically,

"It is basic that no showing merely of a rational relationship to some colorable state interest would suffice; in this highly sensitive constitutional area, '[o]nly the

gravest abuses, endangering paramount interests, give occasion for permissible limitation.'" Id. at 406.

The later case of Wisconsin v. Yoder, 406 U.S. 205, 215 (1972) is in accord with this statement of the law.

"The essence of all that has been said and written on the subject is that only those interests of the highest order and those not otherwise served can overbalance legitimate claims to the free exercise of religion." See also Ohio v. Whisner, 41 Ohio St.2d. 181 (1976); Pierce v. Society of Sisters, 268 U.S. 510 (1925).

The revenue procedure enters this delicate area. It raises questions of compelling state interest at the intersection of legitimate claims under the free exercise clause of the First Amendment. The Supreme Court has pointedly observed that it has never addressed this type of question. Runyon v. McCrary, 427 U.S. 160 (1976). The delicate balancing and identification of compelling_state interests is more of a legislative rather than an administrative function. The Congress and not the bureaucracy is a more appropriate forum for the careful balancing that must take place.

For example, the looseness of the procedure with respect to the Fourteenth Amendment, discussed above, raises questions about a religious school's ability to admit or deny admittance to any student applying to the school as well as the school's ability to hire and fire teachers. Numerous affirmative requirements identified in the regulation could affect the ability of schools to hire only teachers of a particular religious belief or to admit only those students who either belong to the Church or are willing to subscribe to its religious dogma. Congress, not the Service, should address these issues.

D. The establishment of religion

The policy decision behind the revised revenue procedure stems from the Service's choosing to construe 26 U.S.C. section 501(c)(3) to require educational institutions to adhere to the Service's definition of public policy. The Service contends that the legislative intent behind 501(c)(3) is to afford exemptions only to educational organizations that do not violate any federal public policy. The seriousness of this policy decision arises from the fact that it will ultimately conflict with the establishment clause of the First Amendment when it is applied to religious educational institutions.

It has already been urged that the Service also seek to enforce public policy relating to sex discrimination through section 501(c)(3).16 It is beyond dispute that certain religious denominations do not believe that females should hold certain pastoral or teaching positions. Is the Service to become involved in these disputes? Will the Service lend its support to one side in these debates by revoking the tax exempt status of offending religious organizations? What will be the next policy to be enforced?

The Supreme Court has declared in Roe v. Wade, 410 U.S. 113 (1973), a public policy permitting abortions unregulated by the State during the first trimester of pregnancy. Will the Service next seek to enforce this public policy against religious schools which teach that this is morally wrong?

This is the danger posed by the revised revenue procedure. Religious organizations are to be denied tax exemptions unless the Service determines that their purposes and practices accord with federal policy. Exemptions will only be granted to those religious organizations which totally agree with all federal policies. Unless a church stays in step with federal policy it will lose its tax exemption. Such an application of the law will inevitably lead to the government favoring those religious organizations that parrot federal policy over those which disagree. The favoring of one religion over another was meant to be forbidden by the establishment clause of the Constitution. To strengthen those religious organizations which follow all federal public policies, and to tax those which disagree with "any" public policy, leads to the establishment of approved religion. Taxation is, of course, one form of oppression of religion by government. Committee for Public Education v. Nyquist, 413 U.S. 756, 793 (1973).

E. Excessive entanglement with religion

On March 21, 1979, the Supreme Court in NLRB v. Catholic Bishop of Chicago,--U.S., 47 L.W. 4283, noted that inquiry into the sensitive area of church school-employee relationships raised serious questions of forbidden governmental entanglement under the First Amendment. Because of this danger, the Court ulti

16 By letter to the Service dated March 20, 1978, Mr. Jeffrey M. Miller, Assistant Staff Director For Federal Evaluation of the United States Commission on Civil Rights, made the following demand: "We also believe that IRS should specifically prohibit racial, ethnic and sex discrimination in the treatment and selection of faculty."