IRS Technical Information Release Re: Tax-Exemption for Discriminatory Schools

     [||71057e38-e928-4b01-828c-2f1c7d054237||] Department of the Treasury 
: : 3: Internal @evenue Service 

: Informatio ess i Washington, DC 20224 Co EE ad al RR, 
Tel”, (202) 964-4021. 

ob 

For Release; Immediate : hn ct ay £2 1973 

TIRA1378 pl : 
Organizations, including churches; that conduct schools® . 

with a policy of refusing to accept children from certain 
racial and ethnic groups will not be recognized as tax-exempt, 
the Internal Revenue Service today announced in a ruling, : : 

  

  The ruling deals with both separately incorporated schools 
and schools that are operated as an integral activity of a church. 

Any organization which is unsure about its status under the 
ruling is invited to contact the IRS district office in its 
locale to obtain .clarification., IRS district offices have been 
instructed to advise and consult with such organizations on 
methods of complying with the ruling, : 

Revenue Ruling 75-231, wHich appears below, will be published 
in Internal Revenue Bulletin No. 1975-25 dated June 23, 1975,   
PART 1 

SECTION 501,--EXEMPTION FROM TAX ON 
CORPORATIONS, CERTAIN TRUSTS, ETC. 

26 CFR 1.501(c)(3)-1: Organizations organized and operated for 
religious, charitable, scientific, testing for public safety, 
literary, or educational purposes, or for the prevention of 

+ cruelty to children or animals. 
(Also Section 170; 1.170-1.) 

Rev, Rul, 75-231 

Advice has been requested whether the organizations ‘described iii dh 
below, which otherwise qualify for exemption from Federal income ‘+ 
tax under section 501(c)(3) of the Internal Revenue Code of 1954, 
are operated exclusively for charitable purposes, 

Situation 1, 
  

X was organized as a separate corporate entity under the 
auspices of an organization qualifying as a church for the express 
purpose of operating a school for the children of the local com- 
munity in which the church regularly conducts sectarian religious 
services. The governing body of the church is a council who se 
members are selected from the church's congregation. The council 
selected the original members of X's board of directors and main- 
tains full control over all aspects of its operating program. 

  
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3 X naintaifff) and aces a school progranfat corresponds ¢; nd 
with the publi® school program for the same grades. ' Although ° LATE] 
its program includes a 10-minute religious service at the start 

of each school day and the devotion of other amounts of time 

to religious themes and subjects, the school complies with State.: 

law requirements for public education. The school has a policy” 

of refusing to accept any children from certain racial and ethnic . 
groups, 

  

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Situation 2. 
  

An organization-qualifying as a church, having a full com- ‘ 

plement of active religious functions, directly supervises and 
8; controls, as part of its overall operations, Y school, X is not : 

Fy ; separately incorporated. Y's operations do not differ in any ¥) 
| ~ material respect from those carried on by X in Situation 1, 

"+. including, as a matter of school policy, the exclusion of stu-.. Paki 
dents from certain racial and ethnic groups. = +d rp op. vid 

a 

  

  

Situation 3.   

  

         

    
    
    
   

   

Z, an organization qualifying ‘as a church, operates a 
school identical to Y in Situation 2. Z also organized and con- 

trols as a separate ‘corporate entity a ‘school identical to X in 

Situation 1. Z asserts that the policy observed by the two 

schools of excluding children from certain racial and ethnic 
groups is required by the tenets of the religion it embraces. 

  

  

    

        
       

     
          

     

   

  

Section 170 of the Code provides, in part, that there shall 
be allowed as a deduction any charitable contribution, as defined 

‘in section 170(c), payment of which is made within the taxable 
11 year. Section 170(c) provides, in pertinent part, .that a chari-= 

; table contribution means a contribution or gift to or for the 

use of a corporation, trust, or community chest, fund, or foun- 

dation organized and operated exclusively for religious, chari- 
a table, scientific, literary, or educational purposes, or for the 
rh prevention of cruelty to children or animals. 

    

          

      

        
    
   

         
     
       

      

  

Section 501(c) (3) of the Code provides, among other things, 
for the exemption from Federal income tax of organizations 7 re % 

"organized and operated exclusively for religious, charitable iia Pak 
. . .or educational purposes. Section 1.501(c)(3)~1 of the! 
Income Tax Regulations specifies the requirements which an 

organization must meet to be 'organized and operated exclusively" 
for one or more exempt purposes, 

    

    

Section 1.501(c)(3)-1(d)(2) of the regulations provides 

that the term ''charitable' is used in section 501(c)(3) of the 

Code in its generally accepted legal sense and is, therefore, ' 
not to be construed as limited by the separate enumeration in =~ 
section 501(c)(3) of other tax exempt purposes which may fall 
within the broad outlines of 'charity' as developed by judicial 
decisions. Such section further provides that such term includes 
advancement of education. . sii 

  
   

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’ forth'in Situation 1, prior to the effective date of the dis=:} 

i -3- 

{Section 1.:80 0:8 ui of the rai gs provides 
that a primary or secondary school that has a regularly enrolled 
body of students in attendance at a place where the educational 
activities are regularly carried on may qualify for exemption as 

an educational organization of the character contemplated by 

section 501(c)(3) of the Code JE At otherwise meets the require- 

ments ‘of that section. A HN, ; 

‘Rev. Rul. 71-447, 1971-2 C.B. 230, in interpreting section’ . 
501(c) (3) of the Code, concludes that an organization is not 

operated exclusively for charitable purposes if its activities ''’ 
are carried on in a manner that can be reasonably classified as 

contrary to well-established Federal public policy. Rev.'Rul, 
71-447, relying principally on Brown v. Board of Education, 2 
347 U.S. 483 (1954), many later judicial decisions to the same 
effect, and certain provisions of the Civil Rights Act of 1964, 

  

finds' that there is a well-established Federal public policy Ror : 
against racial discrimination in education, whether public or 

private. Rev. Rul. 71-447 expressly holds, therefore, that 
any school not having a racially nondiscriminatory policy as to 

students necessarily fails to bes«charitable within the common 
law sense contemplated by sections 170 and 50L(e) (3) and other 
relevant Federal statutes, : : SARE 

The educational programs conducted by X and Y consist of 

secular subjects of the same scope and type commonly dealt with 

in the public schools or in private schools that are not : 
religiously oriented. There is no basis for treating separate- 

ly incorporated schools that, although church-related, teach 
secular subjects and generally comply with State law requirements 
for public education for the grades for which instruction is pro- 
vided, any differently than private schools that are not church- 
affiliated. Accordingly, in Situation 1, because X fails to 

maintain a racially or ethnically nondiscriminatory policy as to 
students, X is not operated exclusively for charitable purposes 

and does not, therefore, qualify as a charity for Federal income 
tax deduction and exemption purposes under sections 170 and 
501(c) (3) of the Code. The disqualification of X will not affect 
the exempt status of the organization qualifying as a church 4 
solely as a result of.the organization and control of X, as set ; 

  

    

  

qualification. A 

Situation 2 differs from Situation 1 only in that Y is not 

separately incorporated, and is directly supervised and controlled 

within the same legal organization as the church. A racially or 
ethnically discriminatory policy as to students is as contrary 
to Federal public policy under these circumstances as it is when . 
the educational institution is separately incorporated. An 
analysis of the historical development of this fundamental ex=- 

pression of national policy reaffirms the conclusion that the 
form of the educational'organization is not relevant for these 

fy wl th. 

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purposes. See Norwood .v. Harrison, 413 U.8, 455 (1973), in which the Supreme Court held that a@ state may not provide free textbooks to a private school if their i 113 "signifi- cant tendency to facil and support private dig- er crimination," 

de no exception for the BEI 
Ha schools that were not Separate legal organizations but were : end 
te directly operated by churches that were receiving free textbooks, ah 

perating Y is frustrating 
ly or ethnically dis- 

Under these Circumstances, 
clusively for charitable : 
on 501(c)(3) of the Code and Accordingly, the organization does Federal income tax deduction and ; | ions 170 and 301(c) (3). 

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not qualify as a charity ‘for 
exemption purposes under sect 

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Situation 3 differs from S   ituations 1 and 2 only in that Z   

  

    

  

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a given course of conduct may 

a religious duty to act in a 
situation. The First Amend- 
Congress shall make no law 
eligion, does bar governmental 
eliefs and opinions, but it 

  

    

145, 166-167 (1878); Mitchell day poration, 210 F, 2d 879 (7th Cir sano 1954), cert, denied, 3470.8. 1013 (1954); U.S. v. Craft, 423 Foi; and Linscott v, Millers Falls Co. , 

  

  

    

  

  

    

  

                

        

     
        

       

  

The important distincti 
one hand, and the legal cons 

on between religious belief, on the : eéquences that may validly be attached Pp to action induced’ by religious belief, on the other, is well bo illustrated by one recent line of cases interpreting the Federal tr drug laws. The courts have repeatedly refused to engraft a bo religious exception on any criminal statute outlawing the trans- portation of heroin, marijuana, and peyote into the United Re 
ie. States, notwithstanding an apparent judicial recognition that a oh J 

  

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given used he sincerely believe t use of such drugs has 

a prope place in certain religious ceremonies which are pre= 

scribed in both the Koran and the Bible. See U.S. v, Spears,. 
443 F, 2d 895 (5th Cir. 1971), and other cases therein cited. 

i tH 

  

Accordingly, in Situation 3 neither the separately incor- 

porated school nor Z itself is operated exclusively for chari- 
table purposes and neither qualifies as a charity for Federal 
income tax deduction and exemption purposes under sections 170 

and 501(c)(3) of the Code. 

  

The conclusions reached in the Revenue Ruling would be the 
same if a convention or association of churches were substituted 
for the organizations qualifying as churches referred to in 

  

  

  

\ [ Situationsl, 2, and 3. 

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