as expressed by the chair, and that I want the opportunity, as do other Members of the Senate, to express my viewpoints with respect to the current Internal Revenue rulemaking procedures regarding the tax-exempt status of private schools, and particularly religious schools. Thank you, Mr. Chairman.

Senator BYRD. Thank you, Senator Warner. I am glad you were here today.

[The prepared statement of Senator Warner follows:]

STATEMENT OF SENATOR JOHN W. WARNER

Mr. Chairman, America's private elementary and secondary schools are an invaluable national asset. These institutions currently provide quality educational training to 5 million young Americans. Raising and utilizing some $9 billion in nongovernmental capital, private schools add diversity, depth and latitude to America's educational system.

It has been a long standing national policy-derived from the Constitution of the United States-to exempt private schools from federal taxation and to allow federal tax deductions for contributions to such schools.

Now, the Internal Revenue Service is proposing a revised Revenue Procedure which casts doubt on-perhaps even would reverse-this time honored national policy.

Mr. Chairman, I have no tolerance for those who would practice any form of racial discrimination. Accordingly, I am in full agreement with the Internal Revenue Service's definition of "racially nondiscriminatory policy as to students" set forth in Section 3.01 of its proposed new procedure: the school admits the students of any race . . . and . . . does not discriminate on the basis of race . . . Unfortunately, the new Revenue Procedure proposed on August 22, 1978 and revised on February 9, 1979 does not square with the Section 3.01 standards for nondiscriminatory policy. Therefore, for this and other reasons, I oppose the adoption of the proposed Revenue Procedure.

The crucial point to recognize is that racial nondiscrimination and racial balance are not one and the same.

School administrators, although practicing open admissions policies, cannot always guarantee acceptance of their programs by the various minority communities. The converse is true in schools whose enrollment is predominantly from within a particular minority community; such schools cannot always guarantee that their programs will attract a sufficient number of students from other racial, ethnic or national-origin groups.

The proposed Revenue Procedure, in many cases, would shift the burden of proof from the Internal Revenue Service to individual private schools.

Under the proposed procedure, the ultimate test of compliance is the school's ability to meet an arbitrary racial quota for enrollments: "a school will be considered to have significantly minority student enrollment if its percentage of minority students is 20 percent or more of the percentage of the minority school age population in the community served by the school."

This numerical quota is the "bottom line" for the IRS; and, in my judgment, it is clearly inconsistent with the IRS' own definition of nondiscriminatory school policy as stated in Section 3.01.

Mr. Chairman, the presumption of innocence is an American tradition mandated by the due process clause of our Constitution. I believe that schools should be clothed with that presumption of innocence, and judged by their own positive records in admissions policies-rather than being presumed guilty unless they purge themselves by complying with a rigid, arbitrary, bureaucratically-dictated, racial quota system.

Mr. Chairman, the IRS is charged with collecting the revenues necessary to operate our government. In this instance, the Service is establishing national guidelines on a subject that has nothing to do with raising revenue. I submit that the IRS should concentrate on a subject with which they are more familiar. Clearly, the responsibility for establishing the tax exempt status of private schools lies with the Congress.

In summary, the proper goal of prohibiting any racial discrimination in the admission policies of private elementary and secondary schools does not give the Internal Revenue Service unlimited administrative power. Private educational institutions must be afforded the protection granted by long standing national policy and the constitutionally mandated protection of presumption of innocence.

For these reasons, Mr. Chairman, I vigorously support S. 103 and S. 449-legislation which, if enacted, would forestall this unwarranted bureaucratic intrusion into private elementary and secondary education.

I thank you for your courtesy.

Senator BYRD. The next witnesses will be a panel of four: Mr. Richard Larson, staff council, American Civil Liberties Union; Mr. Robert S. McIntyre, director, Tax Reform Research Group; Mr. Charles A. Bane, co-chairman, Lawyers' Committee for Civil Rights Under Law; and Mr. Eric Schnapper, staff counsel, Legal Defense Fund, NAACP.

Welcome, gentlemen. The committee is glad to have you. There is a time limitation of 20 minutes, and you gentlemen can divide it up as you wish. I understand that you probably want 5 minutes apiece, but work it out any way you wish.

Mr. LARSON. Mr. Chairman, I am Richard Larson; I am with the ACLU. We have not discussed how to proceed. If nobody objects, I will go first, and I will be brief.

Senator BYRD. Unless you want to divide it otherwise, suppose each witness will have 5 minutes.

STATEMENT OF RICHARD LARSON, STAFF COUNSEL,

AMERICAN CIVIL LIBERTIES UNION

Mr. LARSON. Initially, in response to Senator Packwood's remarks, I appreciate the sentiments expressed with regard to the ACLU, but we of the ACLU believe if the Government is going to tilt on this question, it should tilt against Government support of racial discrimination.

The ACLU supports the IRS's proposed revenue procedure on private, tax-exempt schools and accordingly opposes S. 103 and S.

449.

Our perspective is a constitutional perspective. We believe that the IRS procedure not only is consistent with well-established constitutional principles but, in fact, is required by those constitutional principles.

First, constitutional principles make clear that no Government agencies may confer governmental economic benefits upon racially discriminatory entities. These principles require the IRS to deny tax-exempt status to discriminatory private schools.

Second, constitutional principles also make clear that the basic criteria for determining unconstitutional discrimination are racial statistics and chronological events. These principles require the IRS to presume to be discriminatory those private schools with little or no minority enrollment, which were created or expanded at the time of public school desegregation.

The IRS proposed revenue procedure basically comports with these constitutional principles. In a sense, it does not go far enough. It is more lenient than constitutional principles.

As Mr. Kurtz indicated this morning, the IRS has long failed to satisfy these constitutional obligations. Now that the IRS finally, at long last, proposes to comply with the Constitution, the IRS should not be delayed or prevented from doing so by this Congress.

Accordingly, we oppose the bills that have been referred to the subcommittee.

With that, I will pass to my colleagues.
Senator BYRD. Thank you, Mr. Larson.

STATEMENT OF RICHARD KOHN, LAWYERS' COMMITTEE FOR CIVIL RIGHTS UNDER LAW

Mr. KOHN. I would like to extend the apologies to the committee of Mr. Bane, who could not be here today. My name is Richard Kohn, staff attorney for the Lawyers' Committee for Civil Rights Under Law.

The Lawyers' Committee was organized in 1963 at the request of the President of the United States to involve private attorneys throughout the country in the national effort to assure civil rights for all Americans. For a decade, we have been engaged in litigation to require IRS to implement the principles of Brown v. Board of Education that segregation by race in the public schools is antithetical to the fourteenth amendment. The decision in Brown triggered all manner of evasive tactics, ranging from massive resistance to subtle forms of indirect governmental aid to private discrimination. The creation and expansion of private schools for the purpose of undermining efforts to desegregate the public schools was expressly addressed by the Supreme Court in Norwood v. Harrison which struck down a program of State textbook aid to White Citizens Council schools.

Speaking for the full court, Chief Justice Burger said:

Racial discrimination in state-operated schools is barred by the Constitution and it is also axiomatic that a state may not induce, encourage or promote private persons to accomplish what it is constitutionally forbidden to accomplish.

In 1969, we filed a suit against the IRS because it was apparent that, through the practice of granting tax exemptions to private segregated schools, the Federal Government was in the extraordinary position of undermining efforts to desegregate the public schools. As the result of that litigation, it is now the law of the land that private schools which practice racial discrimination are not entitled to tax exempt status.

This was established in Green v. Connally, and affirmed by the Supreme Court in Coit v. Green. Moreover, the fact that a school is church related is not a basis for exception, which was established in Goldsboro Christian Schools v. United States. We believe these underlying principles that you have stated this morning are not in dispute.

What is at issue is the administrative mechanism by which the clear mandate of the Federal courts is to be carried out. The record of the IRS in achieving compliance is dismal. Its initial response was to promulgate Revenue Procedure 75-50, which permits exemption if a school merely adopts a statement of nondiscrimination in its corporate documents and annually publishes a notice of nondiscrimination.

The paper compliance approach, which remains in effect today, permitted wholesale violations of the law. Paradoxically, many schools which have lost State support because they were adjudicated discriminatory to this day retain Federal tax exemptions.

This administration seemed to promise that for the first time the law would be adequately enforced. President Carter during his campaign embraced the principle that exemptions for segregated academies should not continue. Recognizing its long-neglected duties under the law, on August 21, 1978, the IRS published a proposed revenue procedure under which two categories of private

schools would be required affirmatively and objectively to show that they are not discriminatory:

One, those schools adjudicated discriminatory in court or agency proceedings.

Two, those schools which have insignificant minority enrollment and which had been expanded or created in the wake of public school desegregation.

This proposed procedure placed the burden of proof where it belonged-on the schools seeking tax exemption. It also introduced certainty into the law by requiring the schools to show that within a reasonable period of time they had met four out of five objectively measurable factors:

Availability and grant of financial assistance to minority children; active minority recruitment programs; increasing minority enrollment; employment of minority professionals; and other substantial evidence of good faith.

While not perfect, this approach was in accord with Federal court decisions holding that insignificant minority enrollment and creation or expansion of private schools in the wake of public school desegregation raises an inference of racial discrimination. As the three-judge court said in Green v. Connally, these schools wear a "badge of doubt."

The August proposed revenue procedure was substantially redrafted after public hearings brought forth criticism-much of it misdirected from the old foes of racial justice. In order to accommodate the few legitimate concerns that were raised by some commentators, the IRS has, in the new proposal, adopted a wholly different approach which, we believe, holds little promise for effective enforcement. While retaining the categories of "adjudicated" and "reviewable" schools, the IRS has, in effect, abandoned any attempt to make the process objective, predictable and, therefore, effective.

Under the new proposed procedure, not only is the issue of who bears the burden of proof unclear, but each of the presumptive facts which would shift the burden of proof to the school has become a discretionary matter for the Service to determine under "all the circumstances."

While we are not in agreement with the approach reflected in the new procedure and would favor a return to the August prototype, we do believe that the new proposal can be strengthened so as to facilitate its enforcement. Our comments are mainly designed to clarify that schools seeking exemption or continued exemption must assume the burden of proving nondiscrimination if they are adjudicated or reviewable schools.

Senator BYRD. Thank you, Mr. Kohn.

STATEMENT OF ERIC SCHNAPPER, STAFF COUNSEL, LEGAL DEFENSE FUND, NAACP

Mr. SCHNAPPER. My name is Eric Schnapper, NAACP Legal Defense Fund.

I would like to suggest that I think much of the criticism of IRS we have heard today is unwarranted. There has been a lot of discussion, philosophical in nature, about big government, the

extent of regulation and the independence of the church and private schools.

The Internal Revenue Service has a statutory responsibility which you gave it, and that statutory responsibility is not to grant tax exemption to schools which discriminate on the basis of race. That is their job. If you want to avoid the present problems, you know perfectly well how to repeal the law. No one is proposing doing that.

If that is their responsibility, then they have got to make some kind of factual inquiry as to what is going on. They cannot grant a tax exemption based on a letter from the school saying, "We comply with the law." They do not do that in any other area. No one would really expect them to do that here.

What has been happening for the last few years has been the granting of tax exemptions based on a few paper representations, without any serious, factual inquiry, the kind of inquiry that would exist if your tax returns, or mine, were being audited.

The IRS has been giving out tax exemptions on that basis. That has clearly got to stop. It is totally different from the way anybody else is being treated in the country, and it is wrong to have a situation in which schools that the courts of this country have held to be segregated are, nonetheless, being given tax exemptions.

The issue before the committee and before the IRS is how that policy is going to be changed.

I think you are ill advised to think that the absence of objective standards is somehow or other going to be a boon to the schools. Suppose Mr. Kurtz simply told his people, "We have to have a factual inquiry. You have to find out if these schools are segregated. Even Chairman Byrd tells us they should not be. So go out and do what is right."

Is that the system you want? That is not going to give you uniformity. That is not going to protect you from the whims of bureaucrats. That is going to create a situation where there is going to be a danger, even based on the particular church with which a school is affiliated, that some pointy-headed bureaucrat is going to deny the exemption.

Clear, objective standards are essential for the protection of the schools. It is the only alternative to having total agency discretion. It is the border between what is commonly called the rule of law and the rule of persons.

I do not think that is what you want, but that is what you are heading towards if you try to stop this. There has not been a suggestion for different standards, or that IRS should not enforce the law, which would clearly be improper, or they should just do what is right, which I think is going to be against everybody's interests here. The latter would delay what ultimately will have to happen, and will make for more arbitrariness.

We have a number of problems about the new proposal, and to some extent, the older proposal as drafted. We have set them out in our written comments, which I will not fully summarize. To give you some sense of the problems, I would like to point to one particular provision which is in both the old and the new proposed regulations.