3. An abridgement of the rights of religious groups to freely practice their beliefs without interference from the federal government, and,

4. An implicit attack upon organized religion by a secular federal establishment. The practical effect of these regulations is to revoke the tax-exemption of private religious schools. By implementing such a procedure, funding for these schools will effectively "dry-up." The loss America would suffer from the disappearance of private religious education is incalculable.

To expand on these thoughts, I would say that it is a real threat to our constitutional form of government to allow an administrative agency to set social policy-as the IRS is attempting to do with these regulations.

Indeed, in reading these regulations, one can almost hear Mr. Justice Blackmun in his dissent in ALEXANDER V. AMERICANS UNITED, INC., 94 S. Ct. 2065 (1974), in which he warned of the potential for abuse of power vested in the IRS: ". . . there appears to be little to circumscribe the almost unfettered power of the Commissioner. This may be very well so long as one subscribes to the particular brand of social policy the Commissioner happens to be advocating at the time. . . but applications of our tax laws should not operate in so fickle a fashion. Surely, social policy in the first instance is a matter for legislative concern.

I believe that Mr. Justice Blackmun is correct. Legislating social policy is the province of the Congress, not the IRS. The proposed revenue procedure undermines the traditional cultural values we have which support a free and democratic republic by blurring the division of powers between the different branches of government. These regulations serve only to increase federal intervention in education. The Founding Fathers viewed federal power as a necessary evil in the protection of individual liberty. They viewed it suspiciously. This is one of the self-evident assumptions of American federalism, and it is essential to our political heritage. It must never be contorted into what is fast becoming an unlimited grant of power to an unresponsive and unelected bureaucracy. We in the Congress have the power and responsibility to prevent this. We have the power and authority to assure that American democracy is not sacrificed to a regulatory "fiat" in the fact of congressional inaction, and today's hearing chaired by my distinguished colleague, Senator Byrd, is a major step toward the reassertion of congressional authority in educational policy.

À basic constitutional right to the free practice of religion is also endangered by these regulations. By imposing upon church-run schools, the Internal Revenue Service attempts to dictate the internal policy of these schools, and hence, of churches and synagogues on matters pertaining to enrollment, employment, recruitment and other private rights.

Some would claim that the IRS' proposed regulations in question do not amount to "substantial entanglement" with the Constitutional free exercise of religion. They would hold that the IRS proposed tax directives for private schools amount not to substantive, but to procedural action. But as Chief Justice John Marshall once said, "The power to tax involves the power to destroy." We must not let a regulatory agency, even if for the best of reasons, accomplish the worst of effects. We must do the job we were elected to do by using whatever legislative avenues are necessary to preserve and protect the integrity of our nation's private schools and charitable organizations.

Thank you.

OPENING STATEMENT OF SENATOR DOLE

Mr. Chairman, few, if any, IRS regulations have provoked more deep-felt public concern than the proposed IRS revenue procedure for determining whether certain private schools have racially discriminated in their student admissions and are therefore ineligible for tax-exempt status. After the first version of this revenue procedure was announced last August, more than 100,000 critical comments were submitted to the IRS. Moreover, few IRS regulations have raised more fundamental constitutional and policy conflicts that must be resolved. Thus, I commend the chairman for calling these hearings today so that the committee can address the serious issues raised by the proposed revenue procedure and the four bills that have been introduced in response to that IRS proposal.

Mr. Chairman, racial discrimination in any form is abhorrent and contravenes the public policy repeatedly reaffirmed by Congress in numerous civil rights measures. The courts have clearly held that a private school which engages in intentional racial discrimination in its student admissions policies is not entitled to Federal tax-exempt status. Nevertheless, there is considerable doubt whether the IRS proposal examined here today is the best, or even an appropriate response to this problem.

One of the most troublesome questions about the proposed revenue procedure is whether it conflicts in any way with the first amendment guarantees of religious freedom. Pursuant to a policy announced in 1975, the IRS intends to apply the proposed procedure to church-affiliated and religious schools as well as private secular schools. Many opponents contend that the revenue procedure is fatally defective because it entails an excessive government intrusion into the establishment and free exercise of religion. Obviously, many religious schools have few or no minority students precisely because the religious groups sponsoring the schools, for reasons unrelated to racial discrimination, have few minority members. We must be careful to insure that the zeal to eliminate racial discrimination does not result in any infringement on religious freedom.

There are a number of other concerns about the IRS proposal. For example, some have asserted that the twenty percent "safe harbor" test is nothing more than an arbitrary race-conscious quota, similar to that which was condemned by the supreme court in its recent Bakke decision. There has also been some apprehension that this proposal will destroy or injure private education by excessive government regulation. In addition, the proposal raises questions about the proper function of the IRS since it tends to sink the service more deeply into the business of civil rights enforcement. Many believe that the IRS should not divert its manpower and resources away from its central mission which is the collection of taxes.

Finally, many groups strongly believe that the IRS has overstepped its statutory and constitutional authority in formulating the proposed revenue procedure. Obviously, the IRS has developed this far-reaching and controversial revenue procedure without any guidance from Congress. Some argue that sensitive policy judgments of this sort should be left to elected representatives.

Mr. Chairman, I hope these hearings will shed light on these important questions.

STATEMENT SUBMITTED BY SENATOR PAUL LAXALT

Mr. Chairman, I am pleased that this committee is conducting hearings on the IRS' proposed procedures relating to the tax-exempt status of private schools. I firmly believe that this is an issue that must be fully explored and monitored by Congress. This is necessary because the IRS' actions in this area pose a threat not only to the parents, teachers and students affiliated with private schools but to every American concerned with the individual liberties outlined in the First Amendment.

As a member of the Senate, an additional area of concern to me is the usurpation of legislative power that the IRS' incursion represents. The IRS is issuing a policy statement which has the effect of statutory law. The question we all need to ask ourselves is, who do we want making our laws, bureaucrats or elected representatives?

The first educational institutions established in colonial America were under religious sponsorship. The schools continued to grow and flourish even when faced with the full establishment of a taxpayer-supported, free public education_movement in the 19th century. Religious groups such as the Catholics and the Lutherans established large school systems especially in urban areas. In recent years, there has been a great growth in private schools, especially individual Christian and Jewish schools. While some of the large public school systems have had to close and consolidate schools, private educational institutions throughout the country have managed to overcome great difficulties including increasing expenses, recruitment of students, school personnel, and teachers. The growth of private education in the United States has resulted from a number of factors including a dissatisfaction with the quality of education provided in public schools, a concern with the growing secularization of public education, and a view that religious educational institutions are part of an extension of the work of religion and religious people.

This right to the free exercise of religion is one that has historically been guarded by our Constitution and courts. The vast majority of private schools to be affected by IRS' proposed procedures are church related or religious schools. It is too easy to lose sight of the fact that this issue involves the rights of two groups of minorities, one which is ethnic and the other religious in character. Both groups have important constitutional rights which must be respected. Mr. Chairman, in my opinion the present difficulties with the IRS procedures point to the problems which arise when an administrative agency without authorization or guidance from Congress attempts to take it upon itself to resolve such sensitive issues.

This new procedure would require private and religious schools to justify their enrollment, hiring, and curriculum policies to the IRS or forfeit their tax exemption. I am unaware of any Congressional mandate giving IRS authority to regulate these matters in private schools. Furthermore, the IRS procedure leaves the final

determination of whether a private school is following "public policy" up to the IRS Commissioner, giving him the power of an "education czar" over private educational institutions. We must not lose sight of the fact that the IRS function is to collect revenue not regulate education.

I wish to emphasize that I do not support any efforts that promote racial discrimination in employment, education, or any other activity. However, it is my opinion that the ugly spectre of racism has been used as a smokescreen for this usurpation of legislative authority by the IRS.

In conclusion, I want to commend this committee for taking the initiative to explore this important area because it is the responsibility of Congress to closely examine the questions presented by this issue. If a new national policy is to be set on this matter, then it is the lawmaking body, not the bureaucracy, which must act. Senator BYRD. The first witness today will be the distinguished Senator from Iowa, Mr. Jepsen.

Senator Jepsen, the committee is pleased to have you today, and you may proceed as you wish.

STATEMENT OF SENATOR ROGER JEPSEN

Senator JEPSEN. Mr. Chairman, the IRS has proposed a revenue procedure that would deny tax-exempt status to those private schools that cannot prove to the liking of the IRS that they have not discriminated against minorities-whether or not there is any proven intention of discrimination. As the newly elected junior Senator from Iowa, it is my humble opinion that if we allow the Internal Revenue Service to implement their proposed revenue procedure on private tax-exempt schools, we will have failed to perform our duties as popularly elected legislators.

Throughout my campaign for the U.S. Senate, the one pervasive theme impressed upon me by the people of my State was that somehow this Congress just has to get a handle on the insensitive Federal bureaucracy no one elected and which is seemingly, in their eyes anyway, responsible to no one.

Their never ending pleas for help have for the most part been ignored. The Federal bureaucracy over the years has expanded tremendously in size, in power, and in arrogance. Federal bureaucrats have become a mandarin class, and this country has steadily transformed itself into a mandarin state.

This characterization is only an attempt by me to explain to myself how it is that nonelected officers have come by the power to decree that father-son banquets and all male elementary school choirs are no longer acceptable practices. It suggests to me, however, that if we, as duly elected legislators, are ever to regain the confidence of the people who sent us here, we must reaffirm our role as final arbiters of policy making in this country.

With this in mind, I would just like to add that in this particular instance, I believe that there is no room for compromise. The IRS' proposed regulations do not need to be revised, they need to die a sudden death, followed by a speedy but permanent burial.

The primary target of this revenue procedure is no secret. In the wake of public school integration, private, so-called segregation academies prospered in this country. Most of the estimated 3,500 such schools are in the South, but by no means are they limited to that region.

These schools are generally regarded with disfavor in the courts and in public opinion, and to the extent that they foster racial segregation at the expense of educational achievement, it is unlike

ly that very many people would object too strenuously to the IRS' proposed attack. Not unexpectedly, however, the Federal bureaucracy's quixotic efforts to eliminate some form of social injustice has entangled them in more fundamental and significant questions as to the proper role of the Federal governing body in relation to the individuals who are to be governed.

Reasons for objecting to the IRS' new revenue procedure are not to hard to come by. There is some concern that the guidelines may exceed the Services authority to determine the requirements for exempt status. Whether one approaches this threshold question on the basis of statutory construction or constitutional limitations, the answer, at the very least, is still open to debate.

The lack of a clear cut answer by the Supreme Court on this subject and the opinions of the Justice Department in a brief filed on May 10, 1977 on behalf of the IRS in the Wright v. Blumenthal case, which argues persuasively that the legality of such regulations was extremely doubtful should though, be cause enough for the IRS to withdraw their proposed procedure.

But for the sake of argument let's say that they do have the authority to issue these guidelines. What is it about these proposed regulations that strikes such a fear into the hearts of the governed? It seems that in its attempt to eliminate the enemies of integration, the IRS has spread a net so wide and so far that the very notion of a distinction between private and Government as we understand it today is threatened with extinction.

This may sound a bit dramatic but it is not far from the truth. The revenue procedure defines two classes of schools; those adjudicated to be discriminatory, and those that are reviewable. Reviewable schools are those, (a) which were formed or substantially expanded at the time of public schools desegration at their community; (b) which do not have significant minority enrollment; and (c) whose creation or substantial expansion was related in fact to public school desegregation in the community. They are also presumed to be discriminating unless they have undertaken actions or programs to attract minority students on a continuing basis.

These proposals, clearly constitute a back-door attempt to impose affirmative action programs on heretofore private schools, and if the IRS succeeds in establishing this precedent, on other privately operated institutions and organizations. In short, they amount to nothing less than indictment by computer and will undoubtedly discourage the creation of other private entities.

One of the most cherished and respected principles of American jurisprudence is that one is presumed innocent until proven guilty. The IRS guidelines, however, turn this principle on its head, and instead, in their application to reviewable schools, establish an administrative presumption of illegality based upon a statistical deviation from a racial or ethnic norm conjured up by HEW. This fact alone is so repugnant to the basic American notion of fair play that the guidelines should fall to the ground and like Humpty Dumpty, never again to be put back together.

But there is other respected authority available which allows us to reach a similar conclusion-the Supreme Court decision last year in University of California Regents v. Bakke. In its opinion the Court admonished us all not to impose racial goals, quotas, or other

forms of race conscious relief in the absence of specific findings of past discrimination by the courts, Congress, or competent administrative tribunals. The basic thesis of the opinion was that racial or ethnic distinctions of any sort are inherently suspect and lacking a finding of identified discrimination there is no compelling interest that can withstand constitutional objection.

Thus, it seems clear to me that the numerical standards employed in the IRS' guidelines are of dubious validity, especially in light of an absence of any showing of a racially discriminatory purpose. It would behoove the IRS to take notice of the fact that many factors, other than an intent to discriminate, might account for a given school's establishment or expansion at a time of desegregation such as an already existent general dissatisfaction with the quality of public education, the banning of voluntary prayer in public schools, an availability of funds for private school expansion, or a need for such expansion because of community growth.

In addition, the fact that upon its establishment or expansion and afterwards, a private school has an insubstantial minority enrollment can be accounted for on many grounds other than an intent to discriminate.

You know, as long as I can remember, there has been a consensus in this country that there are certain limits beyond which the power and the scope of the Federal Government could not extend. One aspect of this is the belief that the church and the home are areas in which the Federal Government could not intrude. No longer, it appears, because the IRS procedure specifically states that the requirement that a school must have a racially nondiscriminatory policy as to students in order to qualify as an organization exempt from Federal income tax also applies to church-related activities and church-operated schools.

As I alluded to earlier in my remarks, that the IRS even has the authority to implement the procedure is dubious indeed. Its claim rests on the tenuous assumption that the Government assists taxexempt schools with money it does not collect by virtue of exemptions, that is, it bestows some sort of positive benefit. Aside from the fact that taxation in this instance has probably never before been contemplated, the attitude of the IRS reflects an increasing tendency on the part of certain agencies and departments of the Federal Government to regard tax exemption as a privilege-a privilege to be enjoyed on the Government's terms.

This, then to paraphrase a recent Washington Star editorial, is the vehicle by which the Federal Government can expand its already vast powers to compel others to conform to notions of social good proclaimed in Washington, not just as to race but as to other matters as well-the assumption that, whatever private activity the IRS now does not tax, it, in effect, refrains from taxing. It is customary for the bureaucrats to deny the logical extremes to which their original ideas point, but anyone who has followed the growth of the Federal Government over the past two decades recognizes that those extremes somehow manage to appear as next year's policy initiatives.

The IRS' proposed procedure raises the very real possibility that the taxation of churches and church-related activities might