become rather commonplace in the future. This prospect is quite discomforting to say the least.

Firmly entrenched in this Nation is the notion of separation of church and state. The first amendment to the Constitution is symbolic of our commitment as a people to this practice. Further evidence of this commitment is the fact that the civil rights statutes themselves specifically exempt from coverage churches and church-related activities.

When first amendment and 14th amendment rights conflict, especially in the area of tax exemption, the law and the courts have come down on the side of those seeking protection under the first amendment on the grounds that State involvement stemming from tax exemption amounted to no more than expression of a governmental policy of benevolent neutrality towards religion.

At stake here, Mr. Chairman, is a very important principle. If we allow the IRS to impose numerical goals and affirmative action programs on private schools as a condition of maintaining their tax-exempt status a precedent will have been set-a dangerous precedent at that. Once the lines drawn today are breached, where will the new lines be drawn?

It is not hard to conjure up the spectre of the IRS deciding to meddle in the affairs not just of schools, but of virtually every kind of tax-exempt organization in the years to come in an attempt to exact compliance with freshly formulated notions of social or racial democracy. Private charities, scholarly institutions, hospitals, museums, and certain clubs all could be affected. And as I have suggested in this presentation—not even churches would be beyond the agency's reach.

I mentioned earlier in my remarks that Congress would be remiss if it did not take appropriate action in this instance. It is imperative that we as legislators regain the respect of those who sent us here. Congress is ultimately responsible for the laws that it passes, and we cannot pass the buck. The Federal bureaucracy is a juggernaut out of control. It is time for us to tame it once and for all.

Senator BYRD. Thank you, Senator Jepsen.

Senator Packwood?

Senator PACKWOOD. I have no questions. It was a good statement. Senator BYRD. Senator Talmadge?

Senator TALMADGE. I compliment you on your statement, Senator Jepsen.

Senator JEPSEN. Thank you, Senator. It is always a privilege to appear before the distinguished chairman of the subcommittee. Senator BYRD. We are delighted to have you here today, Senator Jepsen. Thank you for your testimony.

The next witness is Congressman Robert K. Dornan of the State of California. Congressman, we are glad to have you before the committee today. You are most welcome, and you may proceed as you wish.

STATEMENT OF HON. ROBERT K. DORNAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA Representative DORNAN. Thank you, Mr. Chairman. It is an honor to be here today and good morning to the other distin

guished Senators on the panel; I would like to say I appreciate very much that the distinguished Director of the IRS, Mr. Jerome Kurtz, is here also this morning and I hope he will take careful note of my remarks.

My staff has worked on this for many, many months and I deliver my testimony this morning with all the power of conviction that I have ever felt on any issue in my 46 years.

I would like to take this opportunity to thank you and the other distinguished members of the Subcommittee on Taxation for inviting me, from the other body, to testify on the IRS's proposed rulings relating to private schools. Because of the breadth and the complexity of the issues involved, as well as the constraints on time for testimony, what I shall do, Mr. Chairman, is just read a summary of my statement. But I will provide to all the members of the subcommittee, as well as any other interested parties, the full text of my testimony.

Senator BYRD. Yes, Congressman. The text of your testimony will be published in full.

Representative DORNAN. Thank you.

Mr. Chairman, the core of this controversy between the IRS and the Members of Congress opposed to the proposed rulings centers around a twofold assumption on the part of the IRS: one, that tax exemption is a form of Federal assistance, that is, subsidies, and hence can be used as a sanction against these charitable institutions which do not conform to "public policy". Two, that public policy is to be interpreted by the IRS rather than by Congress, notwithstanding our republican form of government. Mr. Chairman, I challenge both those assumptions.

Implicit in the first assumption, that tax exemption is a form of Federal assistance or subsidy, is that nontaxation of voluntary associations under 501(c)(3) of the IRS code is somehow an abnormal condition, that the Government has the right and the duty to tax everything that lives and moves and has being. Anything that escapes taxation, according to this logic, is therefore conceived to be enjoying some kind of special privilege or immunity at the expense of the rest of society.

I submit, Mr. Chairman, that such an assumption is totalitarian in nature and at variance with our entire Anglo-Saxon tradition which holds to the proposition that the state is made for man, not man for the state.

The justification for exempting charitable organizations is twofold. First, of practical consideration, taking into account the nature and the purpose of tax exemption as well as original legislative intent and second, the philosophical consideration which recognizes the vital role of voluntary organizations in a democratic society.

The practical justification for exempting charitable organizations from Federal taxation is a recognition of the fact that they are nonprofit, nonwealth producing entities. As Professors Bittker and Rahdert of Yale University point out:

The exemption of nonprofit organizations from federal income taxation is neither a special privilege nor a hidden subsidy. Rather, it reflects the application of established principles of income taxation to organizations which, unlike the typical business corporation, do not seek profit.

Professors Bittker and Rahdert go on to point out that when Congress wrote the first modern income tax statutes, the Revenue Act of 1894 and the Revenue Act of 1913, only "net income" was to be taxed, thus excluding all nonprofit organizations which have no "net income". And the Supreme Court in the case of Commissioner v. Teiler emphatically stated:

We start with the proposition that the federal income tax is a tax on net income, not a sanction against wrongdoing. That principle has been firmly embedded in the tax statute from the beginning.

To put the matter somewhat differently, Mr. Chairman, the purpose of charitable organizations is not to generate wealth; it is, rather, to pursue common needs and shared interests which more often than not redound to the benefit of the community. To tax nonprofit organizations would be pointless since they are not producers of monetary wealth. Moreover, and most importantly, the tax-exempt status of nonprofit organizations is not an injustice towards the rest of society in the form of an added tax burden. On the contrary, each of the members of such associations already pays his or her share of taxes. It would, in fact, be "double taxation" if members of nonprofit organizations were to be taxed again for the time, effort and money contributed to activities from which they derive no monetary gain.

Such "double taxation" would, indeed, work to discourage the founding of nonprofit organizations as the Supreme Court case of Walz v. The Tax Commission of the City of New York in 1970 has clearly shown.

Mr. Chairman, at this point, it is of utmost importance to stress the operational distinctions between a tax exemption and a subsidy.

One, in a tax exemption, no money changes hands between Government and the organization.

Two, a tax exemption, in and of itself, does not provide one cent to an organization. Without contributions from its supporters, it has nothing to spend.

Government cannot create or sustain by tax exemption any organization which does not attract contributions on its own merits. Three, the amount of a subsidy is determined by a legislature or an administrator; there is no "amount" involved in a tax exemption because it is open-ended. The organization's income is dependent solely on the generosity of its several contributors.

Four, consequently there is no periodic legislative or administrative struggle to obtain, renew, maintain or increase the amount, as would be the case with a subsidy.

Five, a subsidy is not voluntary in the same sense that tax contributions are. When the legislature taxes the citizenry and appropriates a portion of the revenues as a subsidy to an organization, the individual citizen has nothing determinative to say as to the amount of the subsidy or the selection of the recipient.

Six, the tax exemption does not convert the organization into an agency of "state action," whereas a subsidy in certain circumstances may do just that.

Parenthetically, I might add that the assumption that tax exemption, Federal assistance, and Federal subsidies are synonymous is troublesome for another reason. Recently, tax-exempt status has

been granted for organizations sympathetic toward such practices as witchcraft, homosexuality and abortion. I have that list later if you want to refer to it. Are we, in effect, subsidizing such groups, while questioning the legitimate and integral function of churchrelated schools, and do we really believe that there will be minority requirements based on race for organizations oriented toward gay rights, witchcraft and abortion?

We come now, Mr. Chairman, to the philosophical and, ultimately, more fundamental justification for the tax exemption of charitable institutions: the role of voluntary associations in a democratic society.

The rich associational life of the United States, Mr. Chairman, provides a vehicle through which individuals may voluntarily participate to attain objectives which neither government nor business is attaining nor perhaps can attain. Voluntary organizations give to democracy its vigor and dynamism. They provide the basis for resisting an oppressive government and correcting its excesses. As Justice Brennan stated in his concurring opinion in the Walz case I cited previously:

Government has two basic secular purposes for granting real property tax exemptions to religious organizations. First, these organizations are exempted because they, among the range of other private, nonprofit organizations, contribute to the well-being of the community in a variety of nonreligious ways, and thereby bear burdens that would otherwise either have to be met by general taxation or left undone, to the detriment of the community.

Secondly government grants exemptions to religious organizations because they uniquely contribute to the pluralism of American society by their religious activities. Government may properly include religious institutions among the variety of private, nonprofit groups that receive tax exemptions, for each group contributes to the diversity of association, viewpoint and enterprise essential to a vigorous, pluralistic society.

Finally, Mr. Chairman, I indicated earlier that the core of the controversy between the IRS and the Members of Congress involves not only the assumption that tax exemption, Federal assistance, and Federal subsidies are one and the same thing, but that tax exemption would be subject to revocation by the IRS if the practices of organizations falling under 501(c)(3) were not in accord with "public policy" as interpreted by the IRS.

The most devastating critique of such an untenable assumption is to be found in the recent Federal district court case, December 27, 1978, just last year, of Bob Jones University v. United States of America. I respectfully urge all members of this subcommittee to carefully read and reflect upon this singular opinion issued by Judge Robert F. Chapman. I have time to cite only a few pertinent passages.

With regard to the intent of congressional legislation vis-a-vis section 501(c)(3), Judge Chapman notes the following:

The Defendant [in this case, the United States government], acknowledges that the limitation which it has attached to 501(c)(3), that an organization qualifying under one or more of the listed exempt purposes may be denied exemption if its practices violate public policy, has no support in the language of the section. The construction which the IRS has placed on 501(c)(3) troubles this court.

Judge Chapman continues his incisive analysis, Mr. Chairman, by focusing on the concept of "public policy". I quote Judge Chap

man:

Federal public policy is constantly changing. When can something be said to become federal policy? Who decides? With a change of federal public policy, the law would change without congressional action, a dilemma of constitutional proportions. Citizens could no longer rely on the law of 501(c)(3) as it is written, but would then rely on the IRS to tell them what it had decided to be for that particular day. Our laws would change at the whim of some nonelected IRS personnel, producing bureaucratic tyranny.

Finally, the Judge argues conclusively and to the point when he

says:

In enforcing a construction of the statute which is unwarranted by its legislative history or express terms, the IRS has overstepped its authority and usurped the power of Congress.

My testimony, Mr. Chairman, has been in light of the bill that I have introduced on the House side, H.R. 1002, which amends the Internal Revenue Code of 1954 to provide that the tax exemption of charitable organizations under 501(c)(3) and the allowance of a deduction for contributions to such organizations shall not be construed as the provision of Federal assistance. This is to make original legislative intent in this matter unequivocally clear.

The issue at hand is clear, Mr. Chairman: In a republican form of government, is Congress or the unelected IRS going to make our Federal tax laws? I hope my testimony has been helpful in answering that question unequivocally and I would like to close with an epilog here from a book that we procured from the Library of Congress just yesterday, "The Law of Tax Exempt Organizations," which I believe, in one specific paragraph, Mr. Chairman and distinguished members of this committee, gives us an indication of the pressure on our IRS, as to why they would venture forth into this very dangerous area.

It simply says on page 22, again of this book, "The Law of Tax Exempt Organizations," by Hopkins:

The pressure on tax exemptions is severe, though the charitable contribution deduction is being subjected to an even greater barrage. The reasons for this stem largely from the need of our government at all levels for additional revenues. Tax exemption shrinks the tax base, forcing the remaining taxpayers to bear an increasing burden as the demand for tax revenue rises.

This is most vividly demonstrated in metropolitan centers where acres of valuable land owned by government, churches and the like escape property taxation, forcing taxation at higher rates on adjoining parcels.

Yesterday, Mr. Chairman, or the day before yesterday, on the House side we voted for the 100th time. This will be on April 25. Last year, on that same date, April 25, we had voted 252 times, going for an alltime record in the other body in October of 962 record votes and quorum calls. There has been a distinct change in this year.

Some columnists and editorialists have called it a do-nothing Congress in both bodies. I reject that, and I resent it, because what has happened is a much more reflective look at the 96th Congress, at exactly what the U.S. citizenry wants us to do, how much they want us to get into their lives, deeply into regulating their moves and facets of American life, and I think what we have now in the 96th Congress is more reflective of Congress spirit; the spirit of '76 has spread from my State, California, all the way across the Poto

mac.

What we are doing now, and I hope Mr. Kurtz is aware of this, is taking a good, long, hard look at why he has been under such