Education - Private Segregated Academies-Irs (Folder)

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LAW OFFICES

Ca p l in - &  D e y s d a l e
:OI SEVENTEENTH STREET, N. 'V 

WASHINGTON, D. C. 2003Q

(202) 862-5025

January 30, 1979

Jean Fairfax, Director 
Division of Legal and 

Community Services 
Legal Defense and

Educational Fund, Inc.
10 Columbus Circle
New York, New York 10019
Dear Jean:

I thought that you might be interested in a further 
installment on the controversy about the IRS rules on 
private school discrimination.

With kindest regards.

Sincerely,

Thomas A. Troyer



THE SUN
BALTIMORE, SATURDAY, JANUARY 20,1979

& Discussion

IRS vs. Private Schools
, ByThomas A. Troyer

Recently the Internal Revenue Service proposed rules to 
foreclose tax exemption to private schools which 

practice racial discrimination. The IRS proposal has been 
greeted with strong support from civil rights groupsi biit ve­
hement opposition from many educational and religious or­
ganizations.-What is ail the shooting about?

The controlling principle o f  law is simple and dear. Af­
firming a lower court in 1971> the United States Supreme 
Court held squarely, that the advantages which the tax law 
establishes for educational,vreligious.and other-charitable 
organizations—tax,, exemption and qimlification to receive 
deductible charitable contributidns-^o not extend to pri­
vate schools which discriminate, by race. That principle has 
been repeatedly recognized -by other courts. By now, there 
is simply no room for reasonable - - •- ' * •-
dispute aboutit. ^

Despite, the clanty o f  this law, 
there is broadscale evidence that- 
many schools are not complymg- 
with it. A study pubhshed m 1976, 
entitled “The Schools That Fear *
Built— Segregationist Academies 
In the South,”  prepared by r e - - 
searchers, at, the Universities o f  Al­
abama, Tennessee, and elsewhere, 
found what it termed' “startling 
growth”  of-private “ segregationist  ̂
academies”  in- the- 'L3--'southem:.-- 
staies which it reviewed; The study 
esiunates that between 3,000 an d '- 
4,000 such"^segregationist aeade- - 
mies had developed in the. 13 
southern states by 1976.

Evidence of the growth of racial­
ly discriminatory private schools—̂ -' 
not confined to the South-^ 
abounds. Federal court .decisions, 
work by the Lawyers' Committee 
for Civil Rights Under Law, re­
ports by the U.S. Commission on 
Civil Rights and the Illinois Advi­
sory Committee to that Commis- ' 
sion ail underscore the phenomenon. Yet most of these 
schools continue to profit from precisely those tax benefits 
to which the Supreme Court held them notentitled. ' 

Confronted by this evidence, the IRS proposed rules, to 
enforce the Supreme Court decision. %  and large, the IRS 

’ propc»ai uses concepts which the federal c o u ^  have 
evolved over the years to deal with other aspects o f segrega» 
lion. Here and there the rules need , refinement or restruc­
turing. Overall, though, the IRS proposal simply attempts 
to establish an administrative mechanism to insure that the 
law stated by the Supreme Court iscarriedout.

Why then the firestorm- o f criticism from educational 
and religious organizations?' Some comments are construe- • 
five efforts to help the IRS restate its language to avoid im­
pingement on tax benefits o f  schools operating in good 
faith, without racial discriminationi I expect the- IRS to 
take full account o f them as it frames final rules. Most crit­
ics, though, go further. Firmly and loudly, they tell the IRS 

has no right to act in this area at alL

Internal. R evenue:. Service 
proposals^- to. deny tax.-exempt 
sta tu s'to  private schools that 
practice racial discrimination 
have.aroused: a  storm o f contro­
versy.. Thomas A. Troyer, past 
chairman; o f  the:' Exem pt Or­
ganizations Com m ittee-.of the- 
American. Bar Association Tax 
Section, : defends IR S . plans. 
-William B. Ball,-am- attorney- 
representing the: National
Committee for Amish Religious 
Freedom and various funda­
mentalist Christian- schools, 
presents arguments against 
these plans. - . , •

M uchof the argument flows from atime-honored maxiin.
of lawyers: when the law is against you, argue about defini- 
tionSj The assortment.of disputes and quibbles which crit­
ics have ojntrived about words and phrases in the IRS pro­
posal is a tribute to the inventiveness, if  not the breadth, o f 
the . legal mind. To all o f  them the short answer is that the 
Supreme Court has established a clear and simplffprmciple 
o f  law governing the subject; and it is surely not beyond the - 
power, o f the English language to state rules carrying that 

. law-into effect If the words which the IRS has chosen do 
not accomplisb-the result let us help find ones that do But> 
we do not help with verbal shenanigans whose realnbject is 
to avoid the law. , .  ̂ -
.. Others assert.that the IRS rules constitute .unwarranted 
federal intrusioninto private education .̂ Here ^ i n ,  the an­
swer IS short If schools do- not want federal tax benefits, - 
they need not concern themselves with the IRS rules. If . 
they (to-want-tax benefits, the IRS must see that they com­
ply with controlling tax law.

Finally, sonie argue that,, whatever: law governs-other,. 
schools, religious schools are not subject to it. As one who 
believes deeply m.religious freedom, I find that argument 
profoundly disturbing- ' ; - . .

The basis o f  the Supretne Court decision^that tot ben­
efits created for charities do not extend to organizations op­
erating illegally or contrary to public policy—is of great 
protective value to legitimate religious institutions. It al­
lows much useful separation o f  legitimate institutions, from 
others. If-lawqiets convjnce courts; that,this-principle does 
not govern religious: organizations, what shall we say when 
the Peoples: Temple claims tax exemption and charitable 
contributions— but treats its members to ftuit-flavored 
cyanide? What shall we say to the religious group claiming 
tax benefits, as it pops rattlesnakes into the mail boxes of 
opponents? .Are illegal activities really protected by the 
First Amendment as the-free exercise o f  religion?”-And if 
they are nut. what part o f  the Constitution requires us to 
grant tax benefits to religious institutions which embark on 
activities held squarely, directly, and repeatedly to be con­
trary to the public policy o f  the United States?



ByWUliamB.Ball

It is to be hoped that the national explosion over IRS’s re­
cent proposal relating to tax exemption o f private 

schools will give the country a new grip on some basics con­
cerning government. The iignoring o f these “ basics”  by fed­
eral agents'—-and a corresponding-“ Don’t Make Waves”  
submissiveness by'the public—is becoming«a habit. The re­
volt of the schools against the IRS move will help the coun­
try to kick the habit by swinging those basic back into fo­
cus. For example:.

1. Agency employees are public servants. In the Ameri­
can setup, we prize good public servants. But servants they 
are—ultimately (in spite of all high qualifications) more ak­
in to waiter than to Reichsmarskalls. These individuals are 
paid by us to administer our laws, not to make them; They 

may originate no laws whatsoever, . 
- ' and vtheir,'personal sentiments,

] ideologies m d  tastes- are absolutely 
irrelevainttotheirduties. - 

In the present conrioversy, we 
! have, an , unfortunate example o f  

lay-making by a federal regulatory 
agency  ̂ IRS’s proposal, for exam^ 
pie, would require an Amish school 
to have a racial composition which 
in part reflects that o f  the “ com­
munity.”  “ Community”  Is defined 
to ndean the public- school district 
in which the Amish school is lo ca l-- 
ed, “ together with any other-public. 
school distrfet”  from which it en- • 
rolls “ at least 5 per cent o f  its stu­
dent: body.;’’  But the: Amish draw 

•students exclusively from the 
Amish, faith- community. That is 
their constitutional right, and the 
IRS would- directly violate that 
right. The not the Congress.

. - The government employees, not 
the lawraakere. In great part, the 
proposed regulations can only'-fee ■ .

----------  — - — ^  described as “ home made law.”   ̂ ^
Z  Regulations must'be clear— - 

not vague. The IRS proposal (remember, it controls the fin­
ancial lifeline o f private schools) is shot through with, loose 
language which gives IRS- indefinitely broad powers. Sec­
tion 6:02 states:,-“ Ordinariiy, favorable rulings. . .  wilTnot' 
be issued to e ^ w iy  created school with no record o f opera­
tion . . The schools must grant scholarships to minority # 
students “ on a significant basis,”  and engage in  ‘‘active and ' 
vigorous”  recruitment programs.-- - -

These waffling words provide no clear standard for: the 
school administrator-to follow, and they give accordion-iike 
discretion to individual IRS employees to decide^ by their 
own. preferences, whether a religious school, for example, 
sKal! in fact exist or be forced to extinction.

These wordings tnake>the public administrator the legal­
ly uncontrolled judge o f the evidence and the private 
schoolmaster like a yo-yo on the string o f the administra- 
tor’s discretion. (I should add that the Amish and Funda­
mentalist schools which I represent are as little desirous of 
“ breaks” Trom public servants aŝ  they are fearful o f their 
disfavor.) ■, -

3. Public law should protect pluralism.. The IRS propos­
als elaborately classify most private schools as racist The 
schools are left to scrub away these official and defamatory 
graffiti by costly and burdensome exculpatory programs. 
The schools are guilty unless they prove themselves inno-

IRS apparently “just knows” -that the nation’s private : 
schools are white havens. The many which I represent hap- - 
pen not to be (and I wouldn’t represent them if they were). 
They are, however, schools for minorities—re/igmus mi­
norities. These minorities have a constitutional right to re­
ligious minority group education.. In the 1920s an organized 
group o f knuckle-biting neurotics stampeded Oregon into 
adopting a law to force all children into one (public) school 
system. These zealots were suspicious of people who “ form 
groups.” They hated the private religious school The Su­
preme Court held the Oregon law unconstitutional. We 
should not let that Supreme Court decision be circumvent- ' 
ednow.  ̂ ■ ■

A. No ‘'public interest".justifies government in violating 
fundamental rights: Government may not interfere with 
the fundamental liberties o f citizens in the absence of w hat, 
the Supreme Court has called a “ compelling’ state interest. 
A “ public interest”  won’t suffice.

T^.exem ption,in today’s America is intimately bound 
up with religious liberty. Though not comparable to  a sub­
sidy, iti is ah obvious benefit—vital, is fact—to churches 
and their ministries. This benefit may not be conditioned 
upon the churches giving up their liberties — such as the 
basic liberty to educate. The IRS proposal would impose 
such a condition. The mandate that church-school enroll- 
ments must relate to public school district populations, the 
seeking to impose secular standards • upon their hiring o f 
teachers. the forcin ip f alteratione to religious school curri- 

- eui^ the^tampering wtlft'other internal affairs- of.church 
ministries- by these and other malign, features of the pro­
posed regulations,. IRS, incredibly, has. moved into are^ 
where the Congre^ did not direct it and where the Consti­
tution renders it a tresnasser.



Ca p l i n  &  D r y s d a l e
LOl SEVENTEEN-

WASHINGTON, D-

January 3, 1979

(202) 862-5025

Mr. Bill Lann Lee 
Legal Defense Fund 
NAACP Legal Defense and

Educational Fund, Inc.
10 Columbus Circle
New York, New York 10019

Dear Bill:
Many thanks for your recent letter about the proposed 

IRS Revenue Procedure on private school discrimination. I 
have seen your own excellent testimony on this subject, and 
I appreciate the thoughts expressed in your letter.

At the moment I am committed to do a piece for the 
Baltimore Sun supporting the IRS approach. When Congress 
returns, undoubtedly the activity will intensify. We all 
should keep in touch about it.

With kindest regards.

TAT/pab

cc: Jean Fairfax 
Elaine Jones



le gal I ^ f e n s eF■ ■ i u n d
N AA C P LEG AL D E FE N SE AN D  E D U C A T IO N A L  FUN D . INC. 
10 Colum bus Circle, New York, N.Y. 10019 • (212) 586-8397

December 2 2 , 1978

Thomas A. Troyer, Esq.
Caplin & Drysdale
1101 Seventeenth Street, N.W.
Washington, D.C. 20036

Re: Proposed IRS Revenue Procedure on Private 
School Discrimination

Dear Mr. Troyer:

Jean Fairfax asked me to respond to your letter of De­
cember 6th about the proposed revenue procedure. I believe I 
testified for LDF about the proposed procedure some time after 
you did on December 5th, and our comments are substantially 
similar to yours. We, however, do read the proposed procedure' 
as narrowly drawn to deal principally with two exceptional 
categories of private schools which have been (a) adjudicated 
discriminatory, or (b) formed or substantially expanded during a 
public school desegregation plan, i .e ., the so-called "segrega­
tion academies," rather than all private schools. Although the 
proposed procedure does require all private schools to have an 
objective and verifiable nondiscriminatory policy, the proposed 
procedure is somewhat vague as to standards except for the two 
exceptional categories. That the proposed procedure is a "first 
step" has largely lost sight of in the present public clsmor.

We are presently waiting to find out what changes, if 
any, the IRS will make to the proposed procedure in light of the 
public hearings. We will then probably have, as you predict, a 
Congressional fight on our hands. To the extent possible, our 
Washington office will be preparing for the effort. I am ta'king 
the liberty of sending a copy of your letter and testimony to our 
Washington director, Elaine R. Jones, Esq., NAACP Legal Defense 
Fund, 806 15th Street, N.W., Suite 940, Washington, D.C. , telephone 
No. 202-638-3278. If you have any further thoughts about the 
effort in the legislative arena, please feel free to call Elaine 
Jones or me.

ihihictibk for U.S.



Thomas A. Troyer, Esq. 
December 2 2 , 1978 
Page 2

I hope this finds you wey^;"'^
,/ / 

Sin^ereli

Bill Lann Lee

/

BLL/g>
cc: VMS. Jean Fairfax

Elaine R. Jones, Esq.



STATEMENT OF THOMAS A. TROYER

IRS Hearings on Proposed Revenue Procedure 
on Private School Discrimination

December 5, 1978

Mr. Chairman and Members of the Panel:

My name is Thomas Troyer. I am a partner in the Wash­

ington law firm of Caplin S Drysdale. I am the immediate 

past chairman of the Exempt Organizations Committee of the 

American Bar Association Tax Section. In my private law prac­

tice, I represent a good many charitable organizations, in­

cluding some educational institutions.

Today, however, I underscore that I am testifying only 

on my individual views of the law which is the subject of this 

hearing. I am not testifying on behalf of any client. I 

am not, of course, representing my law firm. I am not speak­

ing on behalf of the American Bar Assocation or the Tax Sec­

tion of the American Bar Association.

Overview

As I have reviewed the controlling law on the subject 
of this hearing and the Internal Revenue Service's proposed 

Revenue Procedure, I have been led to three conclusions.

1. First, the Internal Revenue Service has a clear and 

compelling legal responsibility to adopt an effective adminis­

trative system to foreclose the allowance of charitable tax



benefits to racially discriminatory private schools.

2. Second, given that legal responsibility, the general 

approach —  and I emphasize the word "approach” —  of the 

proposed Revenue Procedure is a good one.

3. Third, the Internal Revenue Service should work 

promptly with representatives of schools which have legitimate 

problems under the proposal to refine the rules and resolve 

the problems —  as far as the governing law permits those 

problems to be resolved —  and then the Service should pro­

ceed to adopt the Revenue Procedure in final form. It 

should not defer its own administration of existing law 

pending Congressional review of the area and possible Con­

gressional action to change the law.

Let me take a moment or two to explain the considerations 

which lead to each of these three conclusions.

IRS Legal Responsibility

First, it seems to me that the Internal Revenue Service 

has a clear and compelling legal responsibility to adopt an 

effective administrative mechanism to prevent the allowance 
of charitable tax advantages to racially discriminatory 

private schools.

Since the Supreme Court affirmed the Green v. Connally 

case in 1971, it has been a clear and firmly established prin­

ciple of federal tax law that the advantages which the In­

ternal Revenue Code establishes for charitable organizations -



generally, qualification to receive deductible charitable 

contributions and tax exemption —  do not extend to racially 

discriminatory private schools. That principle has been 

repeatedly recognized by the lower federal courts since 

1971. The Supreme Court has done nothing since that time to 

cast any doubt on the principle. Consequently, by now there 

simply is no room for reasonable dispute about it. Further, 

while there is no comparably definitive determination on the 

point, what judicial authority there is uniformly supports 

the proposition that this principle of law does not stop at 

the door of the church school.

Nonetheless, despite the clarity of the tax law affirmed 

in the Green case, we have widespread indications that, in 

important areas of the law's application, it simply is not 

controlling people's actions —  that private schools which 

do, in fact, have racially discriminatory policies are, year 

after year after year, receiving the very real and important 

financial tax advantages which the Supreme Court held that 

they are not entitled to. From 20 to 30 individual schools 

have specifically been held by courts to have racially 

discriminatory policies —  but are still, to this day, 

receiving all of the tax advantages provided by the Internal 

Revenue Code for charitable organizations. The Commission 

on Civil Rights has several times drawn attention to particular



schools, and groups of schools, that practice racial dis­

crimination — but continue to be treated as tax qualified 

charitable organizations. The Lawyers Committee for Civil 

Rights Under Law, a highly respected and highly professional 

organization, has compiled information, alleging with con­

siderable particularity, racially discriminatory policies by 

a broad range of schools around the country —  all of which 

continue to derive the tax benefits of qualified charitable 

organizations. Beyond this rather considerable body of 

information on the racial policies of specific schools, the 

various courts which, over the years, have had the job of 

reviewing the racial policies of schools in non-tax settings 

have held that private schools formed or substantially 

expanded close to the time of the desegregation of the 

public schools in their community bear what the courts have 

come to term a "badge of doubt": that is to say, the courts

have held that the racial policies of this entire class of 

schools are at least subject to special, searching scrutiny.

The situation, then, is one in which the major principle 

of law is quite clear, but in which there is evidence from a 

diversity of sources that the law is not being complied with. 

That situation has arisen because the IRS administrative sys­

tem so far has granted charitable classification to schools



which say that they are nondiscriminatory —  without any 

real regard to what the schools In that situation, it

seems to me that the Service ought to take a bit of advice 

from a former federal official who was around Washington in 

the early 1970's: it is time for the Service to watch what

these people do, not what they say.

Approach of Revenue Procedure

If the Service is to carry out that legal responsibility, 

it seems to me that the approach taken by the proposed Revenue 

Procedure is a good one. In so far as possible, it sets out 

objective standards to be used in determining whether the 

racial policies of particular schools are discriminatory or 

not —  limiting the range of discretion open to individual 

Revenue Agents and other administrative IRS personnel. In 

stating these standards, the proposal draws heavily upon the 

experience which the courts have developed over the years, 

in non-tax situations, to detect the presence of discrimina­

tion in school policies. The proposal's application of special 

tests to what it calls "reviewable" schools is in accord with 

the findings of the courts that schools in this class carry 

a badge of doubt. Finally, the proposal grants what seems 

to me a rather generous safe harbor rule for schools which 

actually have significant minority enrollement.

Consequently, it seems to me that, with the proposed



Revenue Procedure, the IRS is on the right track to fulfill­

ing its legal responsibility on this subject.

Revision and Adoption of Revenue Procedure

That does not mean that the IRS has proceeded all of 

the way down the track and into the station yet. As comments 

of other speakers today have indicated, some significant 

room remains for redrafting, refinement, and revision of the 

Revenue Procedure. To the extent that these steps can be 

taken to accommodate the real and legitimate problems of pri­

vate schools actually operating in a good faith nondiscrimina- 

tory fashion, the Service should take them.

Once that is done, however, the IRS should adopt the 

Revenue Procedure formally and proceed to apply it vigorously 

in the Service's administration of existing law. A number of 

the Congressional critics of the IRS proposal this morning 

and others have asked the Service to wait —  wait until 

Congress has an opportunity to review the entire area and 

adopt new legislation to deal with it. There are some people 

involved here who have already been waiting —  and waiting —  

and waiting. They are the minority children who have Consti­

tutional and statutory rights to nondiscriminatory educational 

opportunities. The Supreme Court told us in 1971 that the 

tax advantages established by the Internal Revenue Code for



charitable organizations are not to be allowed to undermine 

the realization of those children's rights.

Since that time, children who were barely beginning ele­

mentary school have proceeded through grade after grade and 

have graduated. Teenagers who were in high school have passed 

entirely out of the educational system, have families of their 

own, and are beginning to wonder what kind of educational oppo- 

tunities will be available for their children.

It seems to me that we have waited long enough. We have 

known what the controlling law here is for a very long time. 

Congress has already had almost a decade to do something about 

that law if it does not like it —  and it will have further 

opportunity to review it within a month. At least by now the 

Internal Revenue Service has sufficient experience with its 

present administrative system to know that, as a means of 

enforcing the law, it simply does not work. In light of that, 

the IRS has an unavoidable legal responsibility to adopt a 

system that does work.



R A T N E R ,  S U G A R M O N  &  L U C A S
ATTORNEYS AT LAW

MEMPHIS, TENNESSEE I

19 June 1975

David S. Tatel, Esq.
HOGAN AND HARTSON
815 Connecticut Avenue, N.W.,
Washington, D.C. 20005

Dear David:

The following is a list of private schools that 
are exempt from federal taxation and represent schools de­
scribed in the proposed decree as outlined in your June 6, 
-1975 memorandum and our meeting;on June- 9, 1975 in 
^Washington., Each exemption application file.should be 
obtained from IRS as soon as possible. Where a school is 
covered under an organizational - exemption IRS should iden­
tify that organization and provide its exemption file. An 
example of the contents of a -private school exemption file 
can be found in Hearings- Before-The Senate Select: Committee 
on Equal Educational Opportunity, August 12, 1970, pp. 2051- 
2206.

Later this week I shall send a simmiary of informa­
tion pertinent to the circumstances surrounding the 
establishment of each school, the "covered jurisdiction's" 
desegregation history, latest enrollment figures and build­
ing plans, and whom to contact to secure retainers from 
named plaintiffs.

Sincerely yours,

Richard B. Fields

RBF:ol
cc: William E. Caldwell, Esq.

Melvyn R. Leventhal, Esq. 
Norman J. Chachkin, Esq.



LOUISIANA

First Baptist Church School 
Shreveport, Louisiana

Briarfield Academy 
Rt. 2
Lake Providence, Louisiana 71254

River Oaks School [Monroe Educational Foundation]
P.O. Box 4804
Monroe, Louisiana 71201

Southfield School 
1100 Southfield Road 
Shreveport, Louisiana 71106

TENNESSEE

Elliston Baptist Academy
4179 Elliston
Memphis, Tennessee 38111

Grace St. Luke’s Episcopal School 
246 S. Belvedere 
Memphis, Tennessee 38104

Harding Academy 
1000 Cherry Road 
Memphis, Tennessee

Briarcrest Baptist School System 
5180 Park Avenue 
Memphis, Tennessee 38117

Southern Baptist Schools of Whitehaven
P.O. Box 16217
Memphis, Tennessee 38109



SOOTH CAROLINA

Clarendon Hall 
P.O. Box 608
Summerton, South Carolina 29148

Bowman Academy, Inc. 
P.O. Box 98 
Bowman, S. C. 29018

(Southern Methodist Church 
of South Carolina)

Holly Hill Academy, Inc.
P. O. Box 757
Holly Hill, South Carolina

Sea Pines Academy 
Hilton Head Island, 
South Carolina 29928

Prince Edward Academy (Prince Edward School Foundation) 
Box 363
Parmville, Virginia 23901