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determining what constitutes a "substantial percentage" from one public school district, IRS will consider 20 percent (rather than 5 percent) a substantial percentage of the student body. While the revised procedure still contains a percentage test-which by its nature is somewhat arbitrary—the parameters of that test have been broadened and should serve in the interest of the church-sponsored school. I briefly want to mention that the Lutheran Council supports the national office appeals process contained in the revised procedure. Such an appeals mechanism will promote uniformity in the interpretation of the procedure.

V. CONCLUSION

On the specific question of comparison between the original IRS Procedure Affecting Private, Tax-Exempt Schools and the revised version which was released on Friday, February 9, the Lutheran Council is generally pleased with the revisions. Much of the presumed burden of guilt placed on the private school as a result of the original procedure has been removed by the revised guidelines.

However, there still exists a broader—a more far-reaching-question which resurfaced with the revenue procedure. A significant public policy change which could have a widespread and an adverse impact on many church-sponsored schools innocent of racial discrimination was being made through a closed, internal procedure. That deeply concerns the church. In publishing the original version of the revenue procedure, which appeared in the Federal Register on August 22, 1978, it was noted by the IRS that the procedure did not meet the Treasury Department's criteria for "significant" regulations. Whether or not departmental standards deem the revenue procedure to be "significant" does not overshadow the overwhelming public outcry by virtually all churches against the proposed revenue procedure. Certainly the religious community's outspoken, concerned, and legitimate response to the revenue procedure indicates the enormous impact which the procedure has on the present and future operations of church-sponsored schools, and the need for a public discussion of the proposed revenue procedure.

We commend this Subcommittee for holding public hearings on the revenue procedure and for recognizing the significance of the issues raised by the IRS guidelines. As I have noted in previous statements presented to both the IRS and the House Ways and Means Subcommittee on Oversight, the Lutheran Council in the USA hopes to continue working closely with the legislative and executive branches of the government on regulatory and legislative policy affecting the church. It is important that open dialogue continues at all levels of government in order to assure that federal policy which has an effect on the church is initiated and implemented in a just, equitable, Constitutional, and democratic fashion. Thank

you.

STATEMENT OF NATHAN Z. DERSHOWITZ

In 1971, the Supreme Court affirmed a decision of a federal court in the District of Columbia holding that the deductibility for federal income tax purposes of contributions to, and the exemption from Federal income taxes of the income of any private school under Sections 170 and 501(c)(3) of the Internal Revenue Code would not be permitted if such private school has a racially discriminatory student admissions policy. The District Court decided that the Internal Revenue Code had to be construed in such a way as to deny tax deductions and exemptions to activities that were illegal or contrary to public policy and that there was a significant federal public policy against the practice of racial discrimination by private as well as public schools.

In response to the Green decision' the Internal Revenue Service in 19712 and again in 1975 established procedures to assure that private schools eligible for tax exemption maintained racially nondiscriminatory policies.

In 1978, the Service concluded, however, that its procedural requirements were inadequate to insure that tax exempt schools operated on a nondiscriminatory basis and in August 1978 the Service proposed new guidelines for determining whether certain private schools practiced racial discrimination.

Last December, the American Jewish Congress, testifying on its own behalf and on behalf of the American Jewish Committee, the National Jewish Community Relations Advisory Council, the American Association for Jewish Education, the Council of Jewish Federations and the Synagogue Council of America criticized

Coit v. Green, 404 U.S. 997 (1971) affirming Green v. Connally, 330 F. Supp. 1150 (D.D.C. 1970).

2 1971-2 C.B. 238 1975-2 C. B. 587

these August 1978 proposals. Although we noted our approval of efforts to eliminate racial discrimination by private schools we pointed out that the proposed new approach filed to recognize the unique and special considerations that affect Jewish religious schools. We argued that the proposed procedure created a presumption that schools formed or expanded during public school desegregation with "insignificant" minority enrollment were guilty of racial discrimination. This presumption, we urged, would improperly sweep within its ambit Jewish religious schools whose policies and practices are wholly nondiscriminatory-the reasons for this are two fold: On the one hand there are few minority students who are Jews and are thus eligible for admission to such schools and on the other the Jewish religious school movement for reasons having nothing to do with racial discrimination enjoyed a growth spurt during the period which, in many areas, coincided with desegregation. We urged that the IRS exempt from its procedures "a school that selects students on the basis of membership in a religious denomination if the "denomination or unit is open to all on a racially non-discriminatory basis." We also urged that if the IRS chose to continue to use the presumption based on absence of significant minority enrollment that it calculate what is "significant" in terms of the pool of available applicants from the religious denomination from which the school draws its student body, rather than from the school age population as a whole.

Despite the concern expressed by the American Jewish Congress and other Jewish religious groups over the potentially burdensome effects of the IRS procedures on Jewish religious schools, the IRS on February 9 proposed procedures retaining for the most part the objectionable features of the August version.

The newly proposed procedures continue to employ the presumption that lack of significant minority enrollment is evidence of a racially discriminatory admissions policy. Once this showing is made the school must demonstrate the contrary by specified types of affirmative action. Included in these specified activities are vigorous minority recruitment, employment of minority teachers and minority scholarship programs.

The IRS attempted to meet the concerns of the Jewish community by a provision which states that: "consideration will be given to special circumstances which limit the school's ability to attract minority students, such as an emphasis on special programs or special curricula which by their nature are of interest only to identifiable groups which are not composed of a significant number of minority students (emphasis supplied).

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However, although the provision may in practice serve to exclude Jewish religious schools from the application of the procedures the provision does not really meet the full force of the objections voiced by the Jewish community.

It was and is our contention that regardless of whether or not significant numbers of non-Jews are "attracted" to Jewish religious schools, these schools in order fulfill their historic religious and cultural mission as well as their obligation to the community from which they received financial support, are entitled to restrict their enrollment to persons of the Jewish faith either born into the faith or converted by the appropriate procedures. It is our further contention that there is no sufficiently compelling state interest at stake here to require the infringement of the "free exercise" rights of religious Jews to establish and enroll their children in exclusively Jewish schools.

Although the American Jewish Congress and the organizations it represents continue to object to the revised proposed revenue procedures dealing with tax exempt schools we nevertheless believe that it would be unwise for the Senate to adopt either S. 103 or S. 449 at this time.

In the first instance we are hopeful that the Internal Revenue Service after hearing our additional comments submitted on Friday, April 20, 1979, will revise the proposed procedures to accommodate our concerns.

Even if IRS fails to revise the suggested procedures, we believe that the proposed Senate bill are too extreme a response to these procedures. They employ the proverbial elephant gun to attack a gnat.

S. 449 introduced by Senator Hatch amends the Internal Revenue Code to provide that the exemption from taxes or the allowance of a deduction for contributions to non-profit funds or foundations for religious, charitable, scientific, literary or similar purposes shall not be construed as the provision of Federal assistance. Although Senator Hatch's bill does not indicate either in its text or in any accompanying explanatory data to what particular statutory or constitutional enactments the construction it negatives would have applicability, it would appear at least that passage of S. 449 would affect the application of both Title VI and Title IX of the Civil Rights Act of 1964. It can also be assumed that the bill seeks to influence as well the interpretation of the Equal Protection Clause of the U.S. Constitution.

Privately funded non-profit religious or charitable organizations would not be covered by these titles if the sole basis for such application is the fact that the organizations are exempt from federal income tax or contributions to them are deductible for federal income tax purposes. Section 601 of the Civil Rights Act of 1964, 42 U.S.C. § 2000(d) provides that "No person in the United States shall, on the ground of race, color or national origin be excluded from participation in, be denied the benefits of, or be subject to discrimination under any program or activity receiving Federal financial assistance" (emphasis supplied).

Similarly, Section 901 of Title IX, 42 U.S.C. 1681, the prohibition on sex discrimination provides: "No person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance" (emphasis supplied).

By providing that the exemption from taxation of 501(c)(3) organizations and the allowance of a deduction for contribution to such organizations shall not be construed as Federal assistance, S. 449 would effectively prevent application of the Civil Rights Act of 1964 to these organizations in most instances.

The undersigned organizations believe that the exemptions S. 449 provides are too sweeping and not necessary at this time with respect to racial discrimination. The important contributions that non-profit religious, charitable and educational institutions make to American society cannot be underestimated. As Judge Henry Friendly of the Court of Appeals of the Second Circuit noted in his distinguished essay "The Dartmouth College Case and The Public-Private Penumbra": "De Tocqueville's rhetorical question "what political power could ever carry on the vast multitude of lesser undertakings that the American citizens perform every day, with the assistance of the principle of association"" is more pertinent today than when it was asked in 1835."

Nevertheless, as significant as is the role played by the charitable non-profit sector in enriching and diversifying American life, we can conceive of no circumstances in which we believe that it would be justified for such non-profit religious, educational or charitable institutions to engage in intentional racial discrimination. Although we reject the proposed IRS guidelines we do so not because they would interdict intentional racial discrimination by private religious schools but only because they would sweep within their unduly broad reach religious schools which do not engage in intentional racial discrimination but which have a limited number of minority students for reasons having nothing to do with racial discrimination. We therefore would oppose any bill such as S. 449 which seeks to nullify statutory or constitutional prohibitions against intentional racial discrimination by tax exempt non-profit organizations. There is no question that S. 449, if enacted, could in fact inhibit the application of Title VI of the Civil Rights Act of 1964 to these organizations if the organization's exemption from tax or the allowance of deductibility is the sole basis for the application of the statute to them. On the other hand, we believe, that S. 449 would be legally ineffective in nullifying the application of constitutional prohibitions to this type of organization. Nevertheless, we also oppose S.449's efforts to limit the application of the Equal Protection Clause to tax exempt organizations that engage in racial discrimination. In our view the Supreme Court does and should have the final say as to what type of federal financial assistance so involves the state in the activities of the private institution and so benefits that institution as to constitute the institution an arm of the state and its activities state action for constitutional purposes. For this reason also we oppose passage of S. 449. With respect to the application of S. 449 to Title IX, we have not studied this question and believe that experience with Title IX is as yet too limited at this time to warrant tinkering with the current legislative scheme. As a general rule, however, we oppose any efforts of which S. 449 seems to be one to weaken government prohibitions against sex discrimination.

Opposition to S. 103

S. 103 provides that the Internal Revenue Service may not implement certain proposed rules relating to the determination of whether to deny tax exemption to private schools which operate on a racially discriminatory basis and it is obligated to promulgate appropriate and workable guidelines. The rulemaking procedure undertaken by the IRS is proper, although the substance of its initial proposal was deficient. Obviously, however, the IRS has paid substantial attention to public comment, and we believe it will do so with respect to the new February 9, 1979 proposed guidelines.

We are therefore persuaded that Congressional action should await final IRS action in this area and should be undertaken only if the IRS fails to properly carry

out its obligations and responsibilities. Barring IRS from adopting or implementing any new guidelines in this area, as is proposed by S. 103, we believe is unwise. Another deficiency of S. 103 is that it will be perceived in minority communities as a signal to private schools that they may continue, and are in fact encouraged, to discriminate without fear of losing their tax exemption. Certainly, Congressional action encouraging this view adopted to overrule past threatened overreaching by IRS would be inappropriate at a time when the IRS is seeking to work out an appropriate balance.

Our opposition to this bill at this time however, should not be interpreted as total opposition to Congressional legislation on this general subject. Indeed, because of the delicate weighing of various constitutional limitations on government that is necessary in this area, it would be most appropriate for Congress to deal with the general problem. Certainly, Congressional action is more appropriate than action by an administrative agency, whose expertise lies in the collection of taxes and not in the weighing and balancing of conflicting Constitutional rights. We do not believe that we in any way denigrate the Internal Revenue Service when we state that it has no particular expertise in the area of racial discrimination, in freedom of speech or freedom of religion. Reasonable people may disagree about the extent to which one or the other of these interests should give way in favor of others. In a democracy such disputes should be handled by the legislature. However, legislation in the form of a "negative bill" precluding IRS from acting in an area where it is obligated to act is not constructive legislation directed towards dealing with this difficult area.

APPENDIX

Federal Policies

and Private Schools

THOMAS VITULLO-MARTIN

Federal aid to private elementary and secondary schools preceded aid to public schools. The first example of direct federal aid to a school appears to have occurred in 1810, when Thomas Jefferson arranged for the Departments of Interior and War to provide the rent for a Catholic schoolhouse in Detroit. For almost two hundred years, the federal government has aided private schools, and, as its role in American political life has grown, the characteristics of the policies that aid private schools have changed. Federal aid policies follow four patterns, loosely related to stages of growth in the importance of federal policies. No sharp divisions in the chronological successions stand out, however, and some first-stage policies can be found in current legislation.

First, the federal government made direct grants or endowment contributions to specific schools, public or private, to obtain their general education services. These grants ensured that schools would be available for children under federal jurisdiction and evidently involved virtually no federal direction of the content of the education. Then, the government began to underwrite or offer other inducements to schools, public or private, that supplied federally desired programs. Next, the federal government expanded this concept to include all programs that schools normally offer-in other words, it proposed a type of general education aid that would include private schools. (Most general aid approaches have been subsequently blocked by the current interpretation of the First Amendment.) Finally, the federal government has turned to a formula whereby it provides services to private school students without providing resources that can be used by the school. It funds public school systems to serve private school students. This awkward arrangement, which substantially affects the relations between public and private schools, was adopted to satisfy constitutional interpretations that require, in effect, that the state and private schools keep their distance from each other.

The discussion of types of aid turns naturally to a discussion of regulation, for as the federal government has gradually become more specific in identifying precisely the kinds of changes it wishes to make in local public and private

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