13 tions or other transfers to or for the use of organization and operated exclusively for charitable purposes, or to exclusively charitable purposes, do not apply to contr transfers to any organization whose purposes are not ch the generally accepted legal sense ***" Under the IRS ruling policy that was in effect until Ju tax exemption was available to a racially discriminate school unless there was governmental involvement with that constituted State action. That policy was challenged Connally, the litigation described below. C. Green v. Connally Positions taken by parties in case The Green case was a class action suit brought in the U.S Court for the District of Columbia by parents of black ch tending public schools in Mississippi to enjoin Treasury D officials from according tax-exempt status and deductibilit tributions to private schools in Mississippi that discriminate black students. The plaintiffs argued that granting tax b such schools violated the provisions of the Internal Rever In the alternative, the plaintiffs argued that if the grantin exempt status to those schools were authorized by the Code that extent sections 170 and 501 were unconstitutional.2 On July 10, 1970, during the litigation of the case in the Court, the IRS announced that it could no longer legally jus ognizing tax-exempt status for private schools that practi discrimination, nor could it treat gifts to such schools as cl deductions for income tax purposes. Initially, the Governm taken the position that the plaintiffs lacked standing to sue, the grant of tax exemptions to private schools did not amour constitutional government action. Dan Coit and other individuals intervened in the case as rep tives of the class of parents and children who supported or a private, nonprofit schools in Mississippi that enrolled only n of the white race and that were established as an alternative fo students who did not wish to attend desegregated public schoo intervenors' principal contention was that denial of tax exe would violate their First Amendment right to associate in schools of their choice. Decision of U.S. District Court The three-judge District Court, in Green, held that racially dis natory private schools are not entitled to the Federal tax exer provided for educational institutions and that persons making 2 'During this litigation, the District Court, on January 13, 1970, issued liminary injunction against the IRS to restrain it from approving appli for tax-exempt status by Mississippi private schools. Furthermore, on J 1970, the Court entered a supplemental order requiring the IRS to suspe vance assurances of deductibility of contributions to segregated private in Mississippi. See Green v. Kennedy, 309 F. Supp. 1127 (D.D.C. 1970), dimissed sub nom. Cannon v. Green, 398 U.S. 956 (1970), and Green v. Ke 309 F. Supp. 1150 (D.D.C. 1970). 9 See IRS News Release, July 10, 1970. ་ ཨ་སམ་ taining to educational charities." However, the C the ultimate criterion for determining whether eligible under the charitable organization provisio on Federal policy rather than on the common la The Court stated that it is a general and well that the Congressional intent in providing tax emptions is not construed to be applicable to acti illegal or contrary to public policy. It noted that of cases where business expense or other deduc the grounds that the allowance of the deductipublic policy. The Court cited the Civil Right expression of the Federal public policy against for racial segregation of public or private scho the Internal Revenue Code provisions on charit: deductions must be construed to avoid frustratio Because the Court concluded that the Interna limited by the public policy doctrine, does not tions for racially discriminatory private schools contributions to such schools, it was able to av by the plantiffs of whether the allowance of exe tions would be unconstitutional. The Court star contrary construction of the Code would raise s questions.* Responding to the arguments advanced by Court also held that the First Amendment right not extend to government support for policies ar discrimination among students, and that the go stitutional interest of avoiding racial discrimin institutions embraces the interest of avoiding enomic benefit of tax exemption. While noting t upon to determine whether tax exemption wou religious school that discriminated racially, the that the law may prohibit an individual from t even though his religion commands or prescribes "Clearly the Federal Government could not under the financial aid to schools practicing racial discriminatio and deductions certainly constitute a Federal Governm While that support is indirect, and is in the nature of a than an unconditional grant, it would be difficult indee support can be provided consistently with the Constit the interpretation approved by this Court is undersco obviates the need to determine such serious constitutiona at 1164-65) 15 Relief granted by District Court The Court placed the IRS under a permanent injunction tax exemption to private schools in Mississippi that pract discrimination with respect to students, and ordered the IRS ment its decision by requiring schools seeking tax-exempt adopt and publish a nondiscriminatory policy and to provid statistical and other information to enable the IRS to determ schools are racially discriminatory. While the injunction gr Green applied only to Mississippi private schools, the Court sta "the underlying principle is broader, and is applicable to sch side Mississippi with the same or similar badge of doubt. "badge of doubt" resulted from the "history of state-establishe gation in Mississippi," coupled with the founding of new schools in Mississippi at times reasonably proximate to publi desegregation litigation.) The court stated that its decree was to schools in Mississippi "because this is an action in behalf children and parents in Mississippi, and confinement of this as our relief to schools in Mississippi applying for tax benefits d remedy proportionate to the injury threatened to plaintiffs an class." The Court also stated that the "Service would be wit authority in including similar requirements" as to notification discriminatory policies) "for all schools of the nation.." The Court specifically enjoined the IRS from approving any cation for tax-exempt status under section 501(c)(3) of the Co any private school located in the State of Mississippi unless su vate school made the following showings in support of its appli for exemption: (1) That the school has publicized the fact that it has a ra nondiscriminatory policy as to students, meaning that it a the students of any race to all the rights, privileges, program activities generally accorded or made available to students a school, and further meaning, specifically but not exclusiv policy of making no discrimination on the basis of race in adr tration of educational policies, applications for admissio scholarship and loan programs, and athletic and extra-curri programs. (2) That the school has publicized this policy in a manner is intended and reasonably effective to bring it to the attentic persons of student age (and their families) who are of min groups. including all nonwhites. The Court further enjoined the IRS from approving any app tion for tax-exempt status for any private school located in the S of Mississippi unless such school supplied the IRS with specified formation, which the Court said was material if the IRS was t in an effective position to determine whether the school had actu established a policy of nondiscrimination. The required informa included: (1) racial composition of student body, applicants for ad sion, and faculty and administrative staff; and (2) amount of scholarship and loan funds, if any, awar to students enrolled or seeking admission, and racial composit of students who have received such awards. ཨཔ ༥ས་ held not to qualify under § 501(c)(3) in Those who argue that the Green affirmanc weight contend that decisions subsequent to 1971 h the holding in Green was correct as a matter of Fe law. They also contend that Congress recogniz value of Green when it added section 501 (i) to th Code in P.L. 94-568.7 D. IRS Policies Following the Gree Elaboration on nondiscrimination requiremen Subsequent to the Green decision, the IRS fu its policy of denying tax exemption to racially dis Revenue Ruling 71-447, 1971-2 C.B. 230, provi school which does not have a racially nondiscrim students is not "charitable" within the common la in sections 170 and 501 (c) (3), and in other releva and, accordingly, does not qualify as an organi Federal income tax. The term "racially nondiscrim students" was defined to mean that the school ad any race to all the rights, privileges, programs, a ally accorded or made available to students at the school does not discriminate on the basis of race i of its educational policies, admissions policies, s programs, and athletic and other school-administe In support of the ruling's conclusion, the IR the common law, the term "charity" encompass major categories identified separately under se the Code as religious, educational, and charitab 5 416 U.S. 725, 740 n. 11 (1974). That case, which prece tion involving Bob Jones University, he'd that the Anti-In the university from maintaining an action to enjoin the tax exemption. 6 See, for example, Norwood v. Harrison, 413 U.S. 45 economic benefits cannot be extended by a State to schools. Norwood cited the Green case with approval. 7 See discussion in Part III, above. 17 concluded that a school which asserts the rights to the ben vided for in section 501(c)(3) as being organized and ope clusively for educational purposes must be a common lav in order to be exempt under that section. Publicity of nondiscrimination policy Revenue Procedure 72-54, 1972-2 C.B. 834, set forth guide determining whether certain private schools that have rulin nizing their tax-exempt status, or that are applying for tax ex have adequately publicized their racially nondiscriminatory as to students. This procedure provided that a showing that does in fact have a meaningful number of students from racial ties enrolled is evidence of a nondiscriminatory admissions however, such a showing would not in itself be conclusive school has a racially nondiscriminatory policy as to students. that did not establish that it operated under a bona fide racia discriminatory policy as to students was required, in order to for exemption, to take affirmative steps to demonstrate that i so operate in the future. The school was required to show that a nondiscriminatory policy as to students had been adopted; t policy had been made known to all racial segments of the com served by the school; and that the policy was being administ good faith. Revenue Procedure 72-54 provided several examples of m by which publication of a school's nondiscriminatory policy co made. The procedure did not require the use of any particular n so long as the method chosen effectively made the policy know racial segments of the community served by the school. Exam methods that the IRS would consider as meeting the publicat quirement included the publication by a school of notice of its r nondiscriminatory policy in a newspaper of general circulation ing all racial segments of the locality from which the school's s body is drawn; the use of broadcast media by a school to public racially nondiscriminatory policy; the publication of a school' discriminatory policy through its school brochures and catal and communication by the school of its nondiscriminatory pol leaders of racial minorities in such a way that they, in turn, make the policy known to other members of their race. E. 1975 IRS Ruling and Procedure Revised IRS guidelines In 1975, the IRS published Revenue Procedure 75-50, 1975-2 587, which set forth guidelines and recordkeeping requirement determining whether private schools have racially nondiscrimina policies. This revenue procedure superseded Rev. Proc. 72-54, 87 In general, the 1975 guidelines provide that to obtain recogniti tax-exempt status under section 501 (c) (3): (1) A school must include a statement in its charter, bylaw other governing instrument, or in a resolution of its gover body, that it has a racially nondiscriminatory policy as to stud and, therefore, does not discriminate against applicants (2) The school must include a statement of its racially discriminatory policy as to students in all its brochures |