be considered to be operated on a nondiscriminatory basis if the school can show that: (1) it currently has significant minority enrollment,? or (2) that it has undertaken actions or programs reasonably designed to attract minority students on a continuing basis. However, an adjudicated school ordinarily will not be considered to be operated on a racially nondiscriminatory basis unless the school has enrolled some minority students. Likewise, the proposed procedure provides that, notwithstanding the fact that a school is found to be a reviewable school, the school will be considered to have a racially nondiscriminatory policy as to students if the school can show that it has undertaken actions or programs reasonably designed to attract minority students on a continuing basis. In order to qualify for Federal income tax exemption, the actions or programs which a school undertakes to attract minority students must convey clearly to the affected minority community that, notwithstanding the circumstances of the school's formation or expansion and the absence of a significant number of minority students, the school, in fact, operates on a nondiscriminatory basis and minorities are welcome at the school. The proposed procedure recognizes that an adequate level of actions and programs may vary from school to school and depends on the circumstances of the school, including the level of minority school enrollment. The following factors are cited as examples of actions and programs that may contribute to attracting minority students on a continuing basis: 7 (1) Active and vigorous minority recruitment programs, such as extensive public advertisements in media designed to reach the minority community, specifically inviting minority applicants; communication to minority groups and minority leaders in the community, inviting minority applicants; personal contacts of prospective minority students; and participation in local, regional, or national programs designed to develop new sources of minority recruitment for the school. (2) Publicized offers of tuition waivers, scholarships, or other financial assistance, with emphasis on their availability for minority students; or actual grants of such financial assistance to minority students. (3) Employment of, or substantial efforts to recruit, minority teachers or other professional staff. (4) Participation with integrated schools in sports, music, and other events or activities. (5) Special minority-oriented curriculum or orientation programs. (6) Minority members of the board or other governing body of the school. A determination of whether a school has significant minority enrollment will depend on all relevant facts and circumstances. However, the "safe harbor" standards available for avoiding "reviewable" status also will apply to current enrollment of previously adjudicated schools. Thus, an adjudicated school will be considered operated on a nondiscriminatory basis if its minority student enrollment is 20 percent or more of the percentage of minority school age population in the community. Under the proposed Revenue, Procedure, the failure of a school's actions or programs, undertaken to attract minority students, to obtain some minority enrollment within a reasonable period of time will be a factor in determining whether such activities are adeguate or are undertaken in good faith. 5. Other provisions The proposed Revenue Procedure prescribes administrative actions and procedures for handling status reviews. The Internal Revenue Service will propose revocation of exemption for schools adjudicated to be discriminatory and for reviewable schools which do not meet the procedure's guidelines. However, in appropriate cases, the IRS will consider deferring the issuance of a final revocation notice to a school which does not meet the proposed guidelines. A school must request deferral of the revocation and must set forth actions already taken, and to be undertaken, in good faith which demonstrate a racially nondiscriminatory policy. Favorable rulings or determinations will be issued to schools adjudicated to be discriminatory only if they currently have significant minority enrollment or have undertaken actions or programs reasonably designed to attract minority students. Reviewable schools which have commenced operation will receive favorable rulings or determinations only if they undertake actions or programs reasonably designed to attract minority students. If a school has no record of actual operations, a favorable ruling or determination will be issued only if the school's proposed operations can be described in sufficient detail to permit a determination that the school will not be classified as a reviewable school or, that if reviewable, it would meet the guidelines for actions designed to attract minority students. 6. National Office review To assure correct and consistent application of the proposed Revenue Procedure, the IRS National Office will review all applications for exemption and all examinations of private elementary and secondary schools. 7. Effective date In the case of schools adjudicated to be discriminatory, the proposed Revenue Procedure is intended to be effective as of the date of final publication. In the case of reviewable schools, it is intended to be effective for purposes of examinations on and after January 1, 1980. In the case of reviewable schools whose applications for exemption are pending on the date of final publication and which do not meet the proposed guidelines, the procedure will be effective as of final publication; however, the IRS, if requested by such a school, will defer any action on its application for exemption until January 1, 1980, in order to give the school an opportunity to demonstrate its compliance with the guidelines. V. DESCRIPTION OF BILLS A. S. 103 (Senators Hatch, Byrd of Virginia, Garn, Goldwater, Hayakawa, Helms, Laxalt, McClure, Stevens, Thurmond, Tower, Armstrong, Humphrey, Lugar, Schweiker, and Warner) This bill would prohibit the Internal Revenue Service from implementing its proposed Revenue Procedure for determining whether certain private schools claiming tax-exempt status operate in a racially discriminatory manner. The prohibition would apply to the final issuance of the original proposed guidelines published in the Federal Register of August 22, 1978, and to the issuance of any other proposed or final regulation, revenue procedure, revenue ruling, or other guidelines setting forth rules which are substantially similar to the rules in the February 22, 1978, procedure. The effect of the bill would be to leave the examination of private schools for discriminatory operations to be conducted on a case-by-case basis in the usual IRS audit process or in the course of making determinations on applications for recognition of exempt status. The prohibition would be effective for the period beginning on the date of enactment and ending on December 31, 1980. B. S. 449 (Senators Hatch, Garn, Stevens, and Young) This bill would amend section 501 (relating to exemption from tax on corporations, certain trusts, etc.) by adding to the statute a new rule of statutory construction to govern interpretation of subsection (c) (3) (relating to organizations organized and operated exclusively for religious, charitable, etc., purposes). The bill would provide that neither the grant of a tax exemption under section 501 (c) (3) nor the allowance of a charitable contribution deduction to a section 501 (c) (3) organization may be construed as the provision of Federal assistance. This rule of construction would govern regardless of any other statutory provision or any judicial decision. The amendment made by the bill would apply to all taxable years. DESCRIPTION OF S. 990 (SENATOR DECONCINI) The bill would prohibit the Internal Revenue Service from implementing its proposed Revenue Procedure for determining whether certain private schools claiming tax-exempt status operate in a racially nondiscriminatory manner, until the Congress provides legislative guidelines for such determinations. This prohibition would apply to the final issuance of the original proposed guidelines published in the Federal Register of August 22, 1978, and to the issuance of any other proposed, or final, regulation, revenue procedure, revenue ruling, or other guidelines which set forth rules substantially similar to the rules in the February 22, 1978, procedure. DESCRIPTION OF S. 995 (SENATORS HELMS, FORD, SCHWEIKER, STEVENS, AND ZORINSKY) The bill requires the Secretary of the Treasury to seek a declaratory judgment as to whether a private school racially discriminates as to students, prior to taking any action which affects the tax-exempt status of, or deductibility of contributions to, such school. The Secretary may make no finding that a private school has a racially discriminatory policy as to students, unless it is shown, by a clear and convincing preponderance of the evidence, that the school has had a practice of deliberate and intentional racial discrimination. Furthermore, the Secretary may not take any action with respect to the tax-exempt status of a school until the school has exhausted all appeals from the final order of the district court. The action must be brought in the Federal district court for the district in which the school is located. If the school is the prevailing party in a civil action brought by the Secretary under the bill, it may be awarded a judgment of costs and attorney's fees. In general, the effect of the bill would be to provide that only schools which are adjudicated to be discriminatory by the final action of a Federal court may have their tax-exempt status revoked or denied. If the school has not adopted and published a policy of nondiscrimination as to students on the basis of race, the Secretary of the Treasury is not required to seek declaratory action, prior to the revocation of a school's tax-exempt status. The bill provides that the admissions' decisions of religious schools would not be considered racially discriminatory if they limit admissions, or give preferences or priorities, to students who are members of a particular religious organization. A district court which denies a school's application for exemption, or which revokes an exemption, would be required to retain jurisdiction of the case. Upon a subsequent determination that the school has not had a racially discriminatory policy as to students for a period of not less than a full school year since such denial or revocation became final and does not have a racially discriminatory policy as to students, the court would be required to issue an order to that effect and vitiate its prior decision. Such an order may be appealed by the Secretary. The provisions of the bill would be effective upon enactment. 1. Discrimination VI. ISSUES A. Standards for Exemption A school must have a racially nondiscriminatory policy as to students Generally, there is little doubt that a school which has been adjudi- Those who oppose limiting the procedure to adjudicated schools note |