Thus, the core question remained unresolved: Did Congress intend by enactment of section 501(c)(3) to authorize the Internal Revenue Service to withhold tax-exempt status from otherwise qualified organizations based on the organizations' adherence to practices deemed by the Service to conflict with public policy. As set forth in detail in the analysis of legal authorities submitted today, an examination of congressional intent has led the Department of Justice to conclude that it did not. The search for legislative intent begins, of course, with the words of the statute to be construed. Congress, by separately enumerating eight distinct purposes or functions entitling nonprofit corporations to tax-exempt treatment, and by joining them in the disjunctive with the word "or," manifested a clear intent to accord tax-exempt status to any entity organized and operated for any one of the enumerated purposes or functions. This commonsense interpretation of the language of section 501(c)(3) is reinforced by the settled canon of statutory construction requiring that related provisions be interpreted in para materia. Sections 503, 504, and 513 of the code, sister provisions of Section 501(c)(3), reiterate the separate and disjunctive purposes and functions described in section 501(c)(3), thus reflecting the congressional intent to recognize each of the enumerated categories as a discrete and independent "basis for exemption under section 501(a)." Indeed, the regulations promulgated by the Service under section 501(c)(3) expressly provide that each of the purposes specified in that section is an exempt purpose in itself. And an organization may be exempt if it is organized and operated exclusively for any one or more of such purposes. Where statutory language is so clear and unambiguous, courts traditionally decline to examine legislative history, citing the Hochfelder case. We did not end our inquiry with the plain meaning of the code provision, however. Rather, we undertook a comprehensive review of the legislative history to ascertain whether it revealed support for the proposition that Congress intended to deny tax-exempt status to otherwise qualified organizations deemed by the Internal Revenue Service to violate public policy. We found none. The provisions now contained in section 501(c)(3) originated as part of the Tariff Act of 1894, which exempted from taxation organizations conducted solely for charitable, religious or educational purposes. There is nothing in the legislative history of this early revenue act, nor in the legislative history of the many subsequent congressional reenactments of this same basic provision, indicating that Congress intended that bona fide educational or religious organizations must also meet all characteristics of a common-law charity. To the contrary, the interpretive regulations issued by the Internal Revenue Service in connection with these revenue acts, and followed by the Service for over 50 years, uniformly interpreted the word "charitable" in its popular and ordinary sense as meaning relief of the poor, rather than in its broader common-law sense. Not until 1959 did the Internal Revenue Service broaden its regulatory definition of charitable beyond merely relief of the poor to include purposes such as advancement of religion, advancement of education or science, and lessening the burdens of government. Even then, however, that same regulation, defines educational without any reference to the concept of charity, thus reflecting the Service's pre-1970 view that although charitableness is not confined to relief of the poor, an educational organization need not also be charitable in order to qualify for tax-exempt treatment under section 501(c)(3). In sum, Mr. Chairman, we were unable on the most painstaking examination of the statute and its history to find support for the position, advanced by the IRS for the first time in 1970, that private schools pursuing racially discriminatory policies could be denied a tax exemption. Indeed, the IRS long maintained itself that such a denial would be unauthorized agency action. It was in fact arguing that very position in Green at the time of its sudden reversal in 1970 on explicit directions from the White House. Nor could we find evidence of congressional action subsequent to 1970 that suggests ratification by both House and Senate of the Service's practice in this area over the last 11 years. To the contrary, Congress recently expressed grave reservations concerning the authority of the IRS to deny tax-exempt status to organizations deemed to be in violation of public policy. Sponsors in both the House and the Senate of the Ashbrook amendment to the Treasury, Postal Service, and General Government Appropriations Act of 1980 maintained that the Service lacks authority to deny taxexempt status to private educational institutions because of racially discriminatory policies. In barring the prospective use of funds for such purposes in the Ashbrook amendment, Congress made it abundantly clear that it was leaving undisturbed the status quo with respect to denials of tax exemptions between 1970 and 1978 so as to provide a full opportunity for the legislature to consider the correctness of the Service's interpretation of section 501(c)(3). By no conceivable stretch of the imagination can this legislative activity in connection with a rider to an appropriations bill be regarded as approval or ratification of the very construction of section 501(c)(3) that was at that time being so roundly criticized. The legal conclusion seems to us, Mr. Chairman, to be inescapable. Congress intended, as deduced from the statute's language and legislative history, the Service's interpretive regulations and subsequent congressional activity, that section 501(c)(3) exempt from income taxation educational organizations that are not also charitable as surely as it exempts charitable organizations that are not also educational. The contrary construction accorded the statute by the district court in Green and the Fourth Circuit Court of Appeals in Bob Jones and Goldsboro does a disservice to the most basic canons of statutory construction, and we cannot in good conscience support that position. In reaching this conclusion, we looked, as well, at title VI of the Civil Rights Act of 1964 to determine whether the grant of a tax exemption to a private school that racially discriminates would violate that Federal statute. As you know, Mr. Chairman, title VI prohibits racial discrimination under any program or activity receiving Federal financial assistance. And the claim has been made by some that a tax exemption can be regarded as such assistance. Quite frankly, this contention, in our view, is wholly without merit. Title VI defines Federal financial assistance in terms of specific generic types of aid: Grants, loans, and contracts other than contracts of insurance or guaranty. None of these categories, understood in their ordinary sense, includes tax exemptions. This is underscored by the legislative history of the 1964 act, which includes considerable discussion of the types of Federal funding that would bring a program or activity within title VI coverage and nowhere mentions tax exemptions as triggering such a result. There is one district court case, McGlotten v. Connally in 1972, that equates tax exemptions with Federal financial assistance. In reaching that result, the district court conceded that its conclusion found no support in either the language, agency interpretations, or the legislative history of title VI. Nonetheless, it held that the plain purpose of the statute to promote nondiscrimination was sufficient to override the plain language and one-sided legislative history. The logic of such reasoning has far-reaching ramifications. In essence, the district court in McGlotten viewed a tax exemption as a Government subsidy, inexplicably equating it with a distribution of Federal funds. If this view were to prevail, essentially all property and earnings of private parties would effectively belong to the Government, and a failure of Congress to tax would constitute Federal financial assistance. The Supreme Court explicitly rejected that concept in Walz v. Tax Commission, a 1970 case, holding that a State tax exemption reflects only Government restraint from_demanding private financial support for the Government, not a flow of assistance or revenues from the Government to the exempt organizations. In our view, Walz is a complete answer to the title VI assertion made in the McGlotten decision. Having reached the conclusion that an argument to support the interpretation that had been given to section 501(c)(3) since 1970 should not be advanced in the Supreme Court, we felt compelled to recommend to the Treasury Department that it no longer pursue that course. There was clear recognition at both the Department of Justice and the Department of Treasury that such a reversal of position would likely be misunderstood and mischaracterized by many as encouragement, or at the very least tolerance, on the part of the Government of what are sometimes referred to as "segregation academies." When confronted with the identical politically explosive issue in 1970, the Nixon administration succumbed to the pressure of public opinion and allowed the IRS to proceed down a path that was politically palatable but legally unjustified. This administration, Mr. Chairman, has, as you well know, declined to operate on such a basis. The President has time and again demonstrated his commitment to principle over political expediency. As a consequence, decisions have been made, and policies have been initiated, that evoke strong public criticism but are able to withstand the assaults because they are grounded on high principle. This is but another example of the administration's commitment to that approach. Here, the principle involved is among the most fundamental of democratic government. The first sentence of the Constitution declares: "All legislative powers herein granted shall be vested in a Congress of the United States which shall consist of a Senate and House of Representatives." This provision, and similar grants of power to the executive and judicial branches in articles II and III of the Constitution, reflect a scheme of checks and balances integral to freedom and ordered liberty. Under article II of the Constitution, once the meaning of a law is discerned, the executive is charged with its faithful execution. The Internal Revenue Service's practice since 1970 of denying tax exemptions to private schools that discriminate runs directly counter to that constitutional scheme. It opens the door for administrative agencies to legislate by administrative fiat, and, without guidance from Congress, to make fundamental policy decisions that impact directly on every citizen in this country. Such transgressions by the executive on congressional prerogatives are most inviting where the end being sought, that is, the removal of racial discrimination in our educational institutions, is a common objective to which all branches of government subscribe. But it is precisely in such circumstances that we must be sure that principle wins out over emotion, no matter how difficult the decision may be. Mr. Chairman, the power to grant or deny exemptions from taxation is legislative in nature. Congress has not yet authorized the Internal Revenue Service to withhold exemptions from private schools on the ground that they practice racial discrimination. The President has forwarded to the Congress legislation that would grant the IRS such authority. He has asked that you give this matter the very highest priority and enact the legislation as rapidly as possible. This administration is concerned with, and sensitive to, minority interests and civil rights concerns. In enforcing the many Federal statutes that afford protections in this as well as other areas, we must, of course, uncompromisingly discharge our responsibility to uphold the Constitution and laws of the land. That responsibility cannot be carried out faithfully, and with full integrity, if we allow administrative agencies, no matter how well intentioned, to act on their own in seeking to achieve even the most laudable ends. That was the fundamental issue in the Bob Jones and Goldsboro cases. And it was for the reasons that I have stated that the Department of Justice concluded as a matter of law, notwithstanding our repugnance for the racially discriminatory practices of the two schools, that the IRS practice since 1970 could no longer be supported. That's the end of my statement, Mr. Chairman. [The prepared statement follows:] STATEMENT OF EDWARD C. SCHMULTS Mr. Chairman and Members of the Committee I am pleased to appear before this Comittee today to explain the Department of Justice's role in the decision by the Administration to change its position in the Bob Jones University and Goldsboro Christian Schools cases, and to review with you the legal basis for that decision. With me on the panel is William Bradford Reynolds, the Assistant Attorney General for Civil Rights. There is, I believe, no issue that deserves more serious attention, or requires more thoughtful reflection, than the one now being addressed by this Committee. The announcement on January 8, 1982, regarding the eleven-year practice of the Internal Revenue Service under Section 501(c)(3) of the Internal Revenue Code has understandably evoked nationwide controversy. It has erroneously been perceived by many as a dramatic retreat from the commitment of this Administration to pursue an active and vigorous enforcement policy in the area of civil rights. And, some have characterized the decision as an open endorsement of racial discrimination. Mr. Chairman and members of this Committee, the charge that racial considerations entered the Administration's decision concerning the tax-exempt status of private schools is absolutely false. The President's record, both in word and deed, speaks unmistakably and unequivocally to his abhorrence of racial discrimination. In submitting to the President of the Senate and the Speaker of the House of Representatives the tax-exemption legislation that this Committee will now consider, the President declared: |