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[Bob Jones & Goldsboro] (12)
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[Bob Jones & Goldsboro] (12)
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Records of the White House Office of Policy Development (Reagan Administration)
William P. Barr's Office Files
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Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Barr, William: Files
Folder Title: [Bob Jones & Goldsboro] (12)
Box: 2
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
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Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
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Continued from previousfolder
1975), aff'd, 427 U.S. 160 (1976), petitioner once again revised
its admissions policy (Pet. App. A4, A430A44; J.A. A250-A253).
After May 29, 1975, petitioner generally permitted unmarried
blacks as well as married blacks to enroll as students. It
continued to deny admission, however, to any applicant known to
be a partner in an interracial marriage (Pet. App. A4, A43-
A44). / It also established disciplinary rules requiring the
expulsion of any student (1) who was a partner in an interracial
marriage, (2) who was affiliated with a group or organization
advocating interracial marriage, (3) who engaged in interracial
dating, or (4) who encouraged others to violate petitioner's
rules and prohibitions against interracial dating (Pet. App. A4,
A44); J.A. A53-A54, A77-A80, A197-A98, A208-A209, A277). Those
rules adopted a broad definition of "dating," encompassing a wide
range of associations (J.A. A155-A177, A197-A199). Petitioner
required each student to attend a "rules meeting" at which the
several disciplinary rules were reviewed, and further required
each student to sign a statement promising to abide by these
racial restrictions (Pet. App. A42-A43-; J.A. A132-A133).
Until 1970, the Internal Revenue Service recognized
petitioner as a tax-exempt organization described in Section
501 (c) (3) of the Internal Revenue Code of 1954 (26 U.S.C.). See
Bob Jones University v. Simon, 416 U.S. 725, 735 (1974). On
November 30, 1970, the Internal Revenue Service sent letters to
approximately 5,000 organizations operating private schools,
including petitioner, announcing that it would no longer
recognize as legally entitled to tax exemption, or to receive.
deductible charitable contributions, any private school that
/ Applicants to petitioner specified their race and marital
status on their applications for admissions (J.A. A122-A133). If
an application form indicated that an applicant was black, but
did not reveal the race of the applicant's spouse, petitioner
requested that
maintained a racially discriminatory admissions policy (J.A.
A232-A234). See Green V. Connally, 330 F. Supp. 1150, 1173
(D.D.C.), aff'd, 404 U.S. 997 (1971). The letter requested proof
of a nondiscriminatory admissions policy and advised that tax-
exempt ruling letters would be reviewed in light of the
information provided. At the end of 1970, petitioner responded
that it did not admit black students and, in September 1971,
further stated that it had no intention of altering that
policy. The Internal Revenue Service therefore commenced
administrative proceedings leading to the revocation of
petitioner's tax exemption. and of its advance assurance of
deductibility. After petitioner's attempt to enjoin those
proceedings had failed in this Court (see Bob Jones University V.
Simon, 416 U.S. 735 (1974), / January 1976, the Internal Revenue
Service issued a final notice of revocation to petitioner,
effective as of December 1, 1970 (Pet. App. A40, A87-A88, A89).
2. Seeking to reinstate its exemption, petitioner brought
this action in the United States District Court for the District
of South Carolina for refund of $21 in federal unemployment taxes
for the year 1975 (Pet. App. A3, A40). / The government
counterclaimed for approximately $490,000 in federal unemployment
taxes for the years 1971 through 1975 (ibid.) Following a
trial, the district court held that petitioner qualfied for tax
/ While the administrative proceedings preliminary to the
revocation of its exemption were pending, petitioner sought
injunctive relief to prevent the Internal Revenue Service from
taking final action on the revocation. Bob Jones University v.
Simon, supra, 416 U.S. 725. This Court unanimously held that the
action was barred by the Anti-Injunction Act (26 U.S.C. (& Supp.
III) 7421 (a)) and by the Declaratory Judgment Act (28 U.S.C. (&
Supp. III) 2201), but suggested (416 U.S. at 746) the refund suit
procedure ultimately employed by petitioners here.
/ Petitioner's qualification for an exemption from federal
unemployment taxes (FUTA) under 26 U.S.C. 3306(c) (8) turns on its
entitlement to status as a tax-exempt organization under Section
501 (c) (3). See Bob Jones University V. Simon, supra, 416 U.S. at
727-728.
exemption under Section 501 (c) (3) of the Code as an institution
organized and operated exclusively for religious and educational
purposes, and that petitioner was not required to demonstrate a
nondiscriminatory racial policy in order to so qualify (Pet. App.
A45-A71). In a separate suit against the Secretary of the
Treasury and the Commissioner of Internal Revenue instituted by
petitioner, the district court thereafter ordered those officials
to restore petitioner's tax exempt status and to publish advance
assurances of deductibility of contributions to petitioner (Pet.
App. A72-A86).
The court of appeals reversed (Pet. App. A1-A17), with one
judge dissenting (Pet. App. A18-A37). _/ It rejected the
district court's hypothesis that petitioner was entitled to tax
exempt status because it is a "religious" institution and
qualifies under the separately enumerated "religious" category of
Section 501 (c) (3). The court rejected "[t]his simplistic reàding
of the statute" as the one that "tears section 501(c)(3) from its
roots" (Pet. App. A7). Citing with approval the three-judge
district court's decision in Green V. Connally, 330 F. Supp. 1150
(D.D.C.), aff'd per curiam, 404 U.S. 997 (1971), the court
concluded that Section 501(c)(3) must be viewed against its
background in the law of charitable trusts. Thus, the court of
appeals agreed with the Green decision (330 F. Supp. at 1156-
1160) that to be eligible for tax exempt status, "an institution
must be 'charitable' in the broad common law sense, and therefore
must not violate public policy" (footnote omitted) (Pet. App. A7-
A8; footnote omitted). It observed that "[t]his view finds
.
additional support in the statutory framework itself: Section
170 of the Code, the companion provision to Section 501(c)(3),
places the separately enumerated purposes in that section under
/ The court of appeals stayed the district court's injunctive
order pending appeal and consolidated both suits into a single
appeal (Pet. App. A97-A99).
- 11 -
the broad heading of 'charitable'" (Pet. App. A7-A8, n.6). Here,
it stated, petitioner's racial policies violated clearly defined
public policy, rooted in the Constitution and the decisions of
this Court condemning racial discrimination. Since there is a
government policy against subsidizing racial discrimination in
education, public or private, the court of appeals held that "the
Service acted within its statutory authority in revoking
[petitioner's] tax exempt status * * *" (Pet. App. A10).
In so holding, the court rejected petitioner's argument that
the application of the Service's nondiscrimination policy to
petitioner violates the Free Exercise and Establishment Clauses
of the First Amendment. Assuming that petitioner's racial
discrimination is motivated by sincere religious beliefs, the
court noted that the Internal Revenue Service's policy would not
prohibit petitioner from adhering to its teachings or force any
individual student to violate his beliefs (Pet. App. A13-A14).
The court further concluded that "the uniform application of the
[Service's] rule to all religiously operated schools avoids the
necessity for a potentially entangling inquiry into whether a
racially restrictive practice is the result of sincere religious
belief" (Pet. App. A16; emphasis in original).
SUMMARY OF ARGUMENT
1. The court of appeals correctly held that the
Commissioner of Internal Revenue acted within his statutory
authority in determining, that because of their undisputed
racially restrictive admissions policies and other discriminatory
policies, petitioners failed to qualify as tax-exempt
organizations under Section 501 (c) (3) of the Internal Revenue
Code of 1954 or as eligible donees of charitable contributions
deductible under Section 170(a) and (c) (2) of the Code. Since
1970, the Service has uniformly ruled that a private school will
not qualify for those federal tax benefits unless it establishes
that its admissions and educational policies are operated on a
racially nondiscriminatory basis. That ruling and the decision
below upholding it, are amply supported by the Constitution, by
decisions of this Court, and by Acts of Congress evidencing a
strong national commitment to the eradication of racial
discrimination generally, and, in particular, racial
discrimination by educational institutions, public and private.
See, e.g., Amendments XIII, XIV, XV; Runyon V. McCrary, 427 U.S.
160 (1976); Section 1 of the Civil Rights Act of 1866, 42 U.S.C.
1981; Section 601 of the Civil Rights Act of 1964, 42 U.S.C.
2000d. That commitment springs from the principle that
[d]istinctions between citizens solely because of their
ancestry' [are] 'odious to a free people whose institutions are
founded upon the doctrine of equality. Loving V. Virginia, 388
U.S. 1, 11 (1967) (quoting Hirabayashi V. United States, 320 U.S.
B1, 100 (1943)). It reflects also the centrality of education to
a democratic society and the peculiarly injurious effects of the
stigma engendered by discrimination in the classroom. Brown v.
Board of Education, 347 U.S. 483, 493-495 (1954); Bolling v.
Sharpe, 347 U.S. 497, 500 (1954). Indeed, this Court's opinion
in Runyon V. McCrary, 427 U.S. 160 (1976) suggests that while
petitioners may have a right to teach doctrines of racial
separation, they maintain racially discriminatory admissions
policies and other similar practices if they are commercially
operated and otherwise open to the general public. Such conduct
violates 42 U.S.C. 1981, which provides that all persons shall
have the same right to make and enforce contracts as is enjoyed
by white citizens.
Given the highly articulated national policy against
racially segregated education, the Commissioner of Internal
Revenue was amply justified in concluding that petitioners were
not "charitable" organizations within the meaning of Section
501 (c) (3) or eligible for "charitable contributions" deductible
under Section 170(c) of the Code. The origin, structure, and
legislative history of those provisions demonstrate that Congress
intended to grant the benefits of tax exemption and to permit
deductibility of contributions only to those organizations whose
operations are "charitable," as that is used at common law.
Trinidad V. Sagrada Orden, 263 U.S. 578, 581 (1924); Helvering V.
Bliss, 293 U.S. 144, 147 (1934). H.R. Rep. No. 1860, 75th Cong.,
3d Sess. 19 (1938). As the sponsor of a predecessor to the
current exemption provision explained, the exemption was designed
to aid institutions devoted exclusively to the relief of
suffering and to all things which commend themselves to every
charitable and just impulse. 44 Cong. Rec. 4150 (1909).
Accordingly, both the Internal Revenue Service and the courts
have viewed the tax statutes against their background in the law
of charitable trusts, and have properly ascribed primacy to the
term "charitable" in the tax provisions. See Treasury
Regulations on Income Tax (1954 Code), Sec. 1.501(c)(3)-1(d)(2).
The Service has accordingly ruled that, since private
schools which practice racial discrimination are not classified
as charities under the law of charitable trusts and violate
sharply defined public policies, they provide no public benefit
warranting the granting of a tax exemption and eligibility for
deductible "charitable contributions" under Section 170. Rev.
Rul. 71-447, 1971-2 Cum. Bull. 230. That position was first
upheld in the seminal opinion of the three-judge district court
in Green V. Connally, 330 F. Supp. 1150 (D.D.C. 1971), aff'd per
curiam sub nom. Coit V. Green, 404 U.S. 997 (1971), upon whose
analysis we rely. There, the court found that there is a
compelling as well as a reasonable government interest in the
interdiction of racial discrimination which stands on highest
constitutional ground. It accordingly held that exemptions under
the Internal Revenue Code might properly be denied to any
institution serving educational purposes that discriminates
against students or applicants on the basis of race.
Apart from the decision below, the Green ruling has been
followed in Prince Edward School Foundation v. United States, 478
F. Supp. 107 (D.D.C. 1979), aff'd, No. 79-1622 (D.C. Cir. June
30; 1980), cert. denied, 450 U.S. 944 (1981). These decisions
are in accord with rulings of this Court sustaining the
disallowance of tax deductions that would frustrate sharply
defined state or national policy. Tank Truck Rentals V.
Commissioner, 356 U.S. 30, 33-34 (1958); Textile Mills Corp. V.
Commissioner, 314 U.S. 326 (1941). Indeed, since tax exemption
and eligibility for deductible contributions constitute an
indirect government subsidy in the form of matching grants, the
Commissioner could well conclude that conferring tax exempt
status upon racially discriminatory private schools would pose
constitutional problems that could be avoided by requiring
as a prequisite to tax exemption. "Racial
discrimination in state-operated schools is barred by the
Constitution and "[i]t is also axiomatic that a state may not
induce, encourage or promote private persons to accomplish what
it is constitutionally forbidden to accomplish" Norwood V.
Harrison, 413 U.S. 455, 465 (1973), quoting Lee V. Macon County
Board of Education, 267 F. Supp. 458, 475-476 (M.D. Ala. 1967).
Recent congressional actions confirm that the
nondiscrimination principle comports with Congress' understanding
of the Code's requirements. "In view of national policy," in
1976 Congress added to the Code the provision now contained in
Section 501 (i), which explicitly denies exempt status to a social
club if its charter or any of its written policy statements
provides for discrimination against any person on the basis of
race, color, or religion. Act of Oct. 20, 1976, Pub. L. No. 94-
658, Section 2(a), 90 Stat. 2697. The accompanying Senate
Report, S. Rep. No. 94-318, 94th Cong., 2d Sess. 7-8 & n.5
(1976)) cites with approval the holding in Green V. Connally,
affirmed by this court, and expresses Congress' intent to apply
to social clubs the same rule of nondiscrimination applied to
private schools here. Although subsequent congressional action
has temporarily stayed the employment of proposed new procedures
to enforce the policy of the Internal Revenue Service, Congress
has expressly sanctioned the continuation of the substantive and
procedural policies enforced in these cases. See Sections 103
and 615, Treasury, Postal Service, and General Government
Appropriations Act, 1980, Pub. L. No. 96-74, 93 Stat. 559. See
also Rev. Rul. 71-447, supra; Rev. Proc. 75-50, 1975-2 Cum. Bull.
587.
2. Both Goldsboro Christian Schools and Bob Jones
University seek to excuse their failure to satisfy the
nondiscrimination principle on the ground that their
discriminatory practices are the outgrowth of sincere religious
faith. But as the court of appeals correctly concluded, the
unquestioned First Amendment right to free religious belief and
exercise does not carry with it a guarantee of any person's or
corporation's entitlement to tax-exempt status. The Internal
Revenue Service's ruling does not purport to interfere with
petitioner's right to espouse and teach religious doctrine, or
with the right of any student to adhere to such doctrine. By
requiring them to demonstrate racially nondiscriminatory policies
as a condition to receiving federal tax exemption and eligibility
for charitable contributions, the Internal Revenue Service did
not encroach on any activity to which this Court has accorded
affirmative constitutional protections. See Norwood V. Harrison,
413 U.S. 455, 464 n.7, 468-470; Runyan V. McCrary, 427 U.S. 160,
175-179 (1976). Hence, the Service's ruling does not violate the
Free Exercise Clause of the First Amendment.
Nor does the nondiscrimination principle of the Internal
Revenue Service transgress values under the Establishment
Clause. As the court below properly observed (No. 81-3 Pet. App.
A15-A16), "the uniform application of the rule to all religiously
operated schools [as well as nonreligious schools] avoids the
necessity for a potentially entangling inquiry into whether a
racially restrictive practice is the result of sincere religious
belief (emphasis supplied). Hence, the Service's policy does
not prefer one religion over another or provoke entanglement in
matters of church doctrine that would implicate the Establishment
Clause.
ARGUMENT
NONPROFIT PRIVATE SCHOOLS THAT, ON THE BASIS
OF RELIGIOUS DOCTRINE, PRACTICE RACIAL
DISCRIMINATION, DO NOT QUALIFY AS TAX-
EXEMPT ORGANIZATIONS UNDER THE INTERNAL
REVENUE CODE
A. The Commissioner of Internal
Revenue acted within his
statutory authority in ruling
that racially discriminatory
private schools are not tax-
exempt under Section 501 (c) (3)
and are therefore not eligible
for charitable contributions
deductible under Section 170
1. These consolidated cases present an important question
with respect to the Internal Revenue Service's statutory
authority to administer the law governing the tax-exempt status
of private schools. As this Court observed in an earlier
procedural chapter of this litigation involving petitioner Bob
Jones University, an organization's receipt of tax-exempt status
under Section 501 (c) (3) of the Internal Revenue Code and its
consequent inclusion in the Internal Revenue Service's Cumulative
List of Organizations described in Section 170(c) "assures
potential donors in advance that contributions to the
organization will qualify as charitable deductions under
170(c) (2)' Bob Jones University V. Simon, 416 U.S. 725, 729
(1974). Because the Service generally permits a donor to rely on
the Cumulative List, "appearance on the Cumulative List is a
prerequisite to successful fund raising or most charitable
organizations" (id. at 729-730).
Tax-exempt status under Section 501 (c) (3) and eligibility
of
this
?
I
for tax deductible charitable contributions constitutes a
substantial financial benefit
and form of government support
To
begin with, such status confers exemption from income taxes on
net income, the federal social security taxes (26 U.S.C.
3121 (b) (8) (B)), and the federal unemployment taxes (26 U.S.C.
3306(c)(8)). But more importantly, an organization's tax-exempt
status permits donors to reduce their tax liability by means of
charitable contributions to the organization. Thus, the net cost
of every dollar given to a Section 501 (c) (3) organization by a
donor in the 50% marginal tax bracket is only 50 cents. In real
economic terms, the ability of such a donor to make a $1
contribution at a net cost of 50 cents therefore represents a
form of indirect government support or "contribution" of 50 cents
to the donee organization.
Thus, the tax laws make the government a partner in the
multiple forms of private philanthropy that abound in the
Nation. And such charitable pluralism is widely regarded as a
healthy phenomenon providing important benefits to society as a
whole. / Private philanthropy can accomplish tasks that are
unsuited for the government to perform. But not all forms of
private philanthropy are eligible for tax benefits. As we shall
show in greater detail, the basis for conferring tax exemptions
and benefits upon such private philanthropy was Congress' belief
that "the Government is compensated for the loss of revenue by
its relief from financial burden which would otherwise have to be
met by appropriations from other public funds, and by the
benefits resulting from the promotion of the general welfare"
H.R. Rept. No. 1820, 75th Cong., 3d Sess., p. 19 (1939).
Tax exemption under Section 501 (c) (3) and eligibility for
deductible contributions under Section 170 therefore rest on the
sound congressional policy that a qualifying organization must
promote the general welfare. This limitation, as we shall show,
is consistent with the law of charitable trusts, that a
"charitable" trust is one formed to serve the general welfare and
/ See Saks, The Role of Philanthropy: An Institutional View,
46 Va. L. Rev. 516, 524 (1960) ; Stone, Federal Tax Support of
Charities and Other Exempt Organizations: The Need for a
National Policy, 1968 S. Calif. Tax Inst. 2-7; 4 Report of the
Royal Commissioners on Taxation [Canada], p. 132 (1967).
100 years ago in Ould V. Washington Hospital for Foundlings,
95 U.S. 303, 311 (1877), "A charitable use, where neither law nor
public policy forbids, may be applied to almost any thing that
tends to promote the well-doing and well-being of social man."
2. Here, petitioner Goldsboro Christian Schools concedes
(Pet. 6) that it "has maintained a racially discriminatory
admissions policy since its founding." It simply refuses to
admit black students. Although petitioner Bob Jones University
maintained a similar discriminatory admissions policy prior to
1971, it now denies admission to any applicant known to be a
partner in an interracial marriage, and enforces strict
disciplinary rules against interracial dating (see pp.
supra). Thus, Bob Jones University imposes rules upon its
student body based upon racial classifications.
Given petitioners' racially restrictive policies, it is
plain that their activities do not promote the general welfare
and the community at large. They are accordingly not
"charitable" organizations within the meaning of the federal tax
laws. Indeed, if Goldsboro's discriminatory practices had been
committed by a nonsectarian institution with no claim that its
racial policies were based on religious doctrine, it is settled
that its exclusion of blacks would violate the equal right to
contract provisions of Section 1 of the Civil Rights Act of 1866,
14 Stat. 27, 42 U.S.C. 1981, and subject it to a cause of action
under that federal statute. Runyon V. McCrary, 427 U.S. 160
(1976). Putting aside petitioner Bob Jones University's similar
claim based on religious doctrine, its policy of denying
admission to partners in an interracial marriage and of expelling
students who date or many outside their race likewise rests upon
an invidious distinction drawn according to race that would
violate 42 U.S.C. 1981, and render it liable to a similar suit.
Tillman V. Wheaton Haven Recreational Association, 410 U.S. 431
(1973) (white club member has cause of action under 42 U.S.C.
1981 and 1982 for expulsion for bringing black guests); Faraca v.
Clements, 506 F.2d 956 (5th Cir. 1975), cert. denied, 422 U.S.
1006 (1976) (white man denied employment because wife was black
has cause of action under 42 U.S.C. 1981); Fiedler V. Marumsco
Christian School, 631 F.2d 1144 (4th Cir. 1980) (42 U.S.C. 1981
prohibits commercially operated private sectarian school from
expelling a white student because of her association with a black
student). Cf. McLaurin V. Oklahoma State Regents, 339 U.S. 637,
641-642 (1950) (rules and regulations applied by a state-
supported university that "impair[ed] and inhibit[ed] la black
student's] ability to *** engage in discussions and exchange
views with other students *** and "depriv[ed] [him] of the
opportunity to secure acceptance by his fellow students on his
own merits" held to violate right to equal protection). See also
Loving v. Virginia, 388 U.S. 1 (1967) (law prohibiting
interracial marriage held unconstitutional) McLaughlin V.
Florida, 379 U.S. 184 (1964) (law prohibiting interracial
cohabitation held unconstitutional).
/
3. In light of the federal statutory prohibitions and
public policy against racial discrimination by private schools,
the court of appeals correctly held that the Commissioner of
Internal Revenue acted within his statutory authority in
determining that petitioners did not qualify as tax-exempt
organizations under Section 501 (c) As we shall show,
qualification for tax-exempt status under Section 501 (c) (3)
requires an organization to show that it is "charitable" as that
term is understood at common law, i.e. that it benefits the
community as a whole. But educational institutions such as
petitioners that engage in racially discriminatory practices are
not "charitable" in the common law sense. Accordingly, the
exemption provisions under Section 501 (c) (3) and the deduction
for charitable contributions under Section 170 do not countenance
the indirect government support in the form of federal tax
/ Petitioner Bob Jones University's 1975 revision of its
admissions and disciplinary rules rendered it no more eligible
for the benefits of federal tax exemption. It did not then adopt
"a completely open admissions policy * * *," as it asserts
(Br. 3, n.2). On the contrary, it continued to deny admission to
anyone who was a partner in an interracial marriage, who engaged
in interracial dating, or who advocated, or belonged to a group
that advocated, interracial dating or marriage (J.A. A53-A54,
A208-A209). Accordingly, the court of appeals correctly pointed
out (81-3 Pet. App. A9-A-10), petitioner's policy of denying
admission to partners in an interracial marriage and of expelling
students who date or marry outside of their race rests, as did
its prior policies, upon an invidious distinction drawn according
to race. See Loving V. Virginia, supra, 379 U.S. 184. For
present purposes, petitioner Bob Jones University's racial
restrictions are therefore comparable to petitioner Goldsboro's
absolute ban on the admission of blacks. Thus, the fact of
petitioners' racially discriminatory policies is beyond
dispute. Cf. Prince Edward School Foundation v. United States,
478 F. Supp. 107 (D.D.C. 1979), aff'd by unpublished order,
No. 79-1622 (D.C. Cir. June 30, 1980), cert. denied, 450 U.S. 944
(1981) (Rehnquist, J., dissenting) (nonsectarian private school
denied tax-exempt status for failure to show that it maintained a
racially nondiscriminatory admissions policy; school officials'
belief in value of segregated education, claimed to be protected
by First Amendment, did not excuse failure to make requisite
showing of nondiscriminatory policy).
- 17 -
clusively for religious, charitable,
scientific, testing for public safety,
literary or educational purposes, or
for the prevention of cruelty to children
or animals, no part of the net earnings
of which inures to the benefit of any
private shareholder or individual * * *
Section 170(c) (2) of the Code provides a deduction for income tax
purposes for a "charitable contribution" to a "corporation,
trust, or community chest, fund, or foundation *** organized
and operated exclusively for religious, charitable, scientific,
literary, or educational purposes * * *." See also Section 2055
(estate tax charitable deduction), 2522 (gift tax charitable
deduction). Those provisions are construed in pari materia. Bob
Jones University V. Simon, supra, 416 U.S. at 727-728 & n.1;
Simon v. Eastern Ky. Welfare Rights Org., 426 U.S. 26, 29, n.1;
(1976).
Since 1970, the Internal Revenue Service has consistently
ruled that a private school, "whether church related or not,"
does not qualify as a tax-exempt organization under Section
501(c)(3), or as an eligible donee of charitable contributions
deductible under Section 170(c) (2), unless it establishes that
its admissions and educational policies are operated on a
racially nondiscriminatory basis (81-3 J.A. A235-A239). / As
the Commissioner explained in Rev. Rul. 71-447, 1971-2 Cum. Bull.
230, "the statutory requirement of being 'organized and operated
exclusively for religious, charitable *** or educational
purposes' was intended to express the basic common law concept"
of charity. The primacy of the charitable requirement is further
shown "by [Congress'] description in section 170(c) of the Code
of a deductible gift to 'a corporation trust, fund, or foundation
*** organized and operated exclusively for * * * educational
/ See Rev. Rul. 71-447, 1971-2 Cum. Bull. 230; Rev. Proc.
72-54, 1972-2 Cum. Bull. 834; Rev. Rul. 75-231, 1975-1 Cum. Bull.
158; Rev. Proc. 75-50. 1975-2 Cum. Bull. 587.
230). Since "all charitable trusts, educational or otherwise,
are subject to the requirement that the purpose of the trust may
not be illegal or contrary to public policy ***" and there is
"a national policy to discourage racial discrimination in
education, whether public or private * * #," the Ruling holds
that "a school not having a racially nondiscriminatory policy as
to students is not 'charitable' within the common law concepts
reflected in section 170 and 501 (c) (3) of the Code *** and
accordingly does not qualify as an organization exempt from
Federal income tax" (id. at 230-231).
/
2. The history of the tax exemption provisions lend strong
support to the Commissioner's ruling position. They show that in
enacting the exemption for charitable organizations, Congress
intended to benefit only those organizations whose operations are
beneficial to society as a whole, i.e., "charitable," as that
term was understood at common law. Section 501 (c) (3) has its
roots in Section 32, Act of August 27, 1894, 28 Stat. 556, and
was carried forward, unchanged in substance, into the Corporation
Excise Tax Act of Aug. 5, 1909, 36 Stat. 113, Section 38. / In
its initial version, the statute exempted from tax "corporations,
companies, or associations organized and conducted solely for
charitable, religious, or educational purposes ***." That
enumeration was in accord with Lord MacNaughten's authoritative
collation of common law charities in Commissioners for Special
/ See Restatement, Trusts (Second), Section 377, comment
(1959): "A trust for a purpose the accomplishment of which is
contrary to public policy, although not forbidden by law, is
invalid."
/ Earlier income taxes were originally imposed only upon
individuals, Section 49, Act of Aug. 5, 1861, 12 Stat. 292, 309,
and subsequently only upon individuals and certain specified
corporations, Sections 116, 120-122, Act of June 30, 1864,
1,3, Stat. 218, 281, 283-285. Cf. Paul, Taxation in the United
States 9-15 (1954). See Collector V. Hubbard, 12 Wall. 1 (1870).
income Tax V. remsel [1891] A.C. 531, 583 (quoted in
Evans V. Newton, 382 U.S. 296, 307-308 (1966) (White, J.,
concurring)
"Charity" in its legal sense comprises
four principal divisions: trusts for the
relief of poverty; trusts for the ad-
vancement of education; trusts for the
advancement of religion; and trusts for
other purposes beneficial to the
community, not falling under any of
the preceding heads."
See also Jackson V. Phillips, 14 Allen (96 Mass.) 539, 556
(1867) IV Scott, The Law of Trusts (1967 ed.), Section
368. / Thus, the term "charitable" is used "in its generally
accepted legal sense" (Treasury Regulations, Section 1.501 (c) (3)-
1 (d) (2), and not in the popular sense such as benevolence to the
[
poor. Accord, Eastern Kentucky Welfare Rights Org. V. Simon, 506
F.2d 1278, 1286-1290 (D.C. Cir. 1974), vacated and remanded on
other grounds, 426 (1976), see Reiling, Federal Taxation: What
is a Charitable Organization, 44 A.B.A.J. 525, 527 (1958).
The legislative history of the tax exemption provisions
likewise demonstrates that Congress intended to limit their
/ The terms of the exemption have been continued without basic
change in all subsequent income tax acts. The first modern
income tax statute, Act of Oct. 3, 1913, c. 16, 8 Stat. 114,
Section (G) (a), contained an exemption in favor of "any
corporation or association organized and operated exclusively for
religious, charitable, scientific, or educational purposes
***." The Revenue Acts of 1916 and 1918 carried forward that
exemption in identical terms. Section 11 (a), Act of Sept. 8,
1916, 39 Stat. 756, Section 231 (6), Revenue Act of 1918, 40 Stat.
1057. By Section 231 of the Revenue Act of 1921, 42 Stat. 227,
Congress added to the statute the word "literary" and the phrase
"or for the prevention of cruelty to children or animals." The
phrase "testing for public safety" was inserted in 1954. And the
Revenue Act of 1934, ch. 277, 48 Stat. 680, added the
qualification that "no substantial part of the activities of
which is carrying on propaganda, or otherwise attempting, to
influence legislation."
The income deduction for charitable contributions originated
in Section 1201 (2), Act of Oct. 3, 1917, 40 Stat. 300. See
Helvering V. Bliss, 293 U.S. 144, 147 (1943). It has been
continued in each subsequent revenue enactment. See Reiling,
supra, Federal Taxation: What is a Charitable Organization?, 44
A.B.A.J. 525.
those organizations that further the traditional
charitable objects of society as a whole and thereby diminish the
burdens of government. As the sponsor of the 1909 tax exemption
statute observed, the provision was designed to relieve from the
corporate tax those institutions "devoted exclusively to the
relief of suffering, to the alleviation of our people, and to all
things which commend themselves to every charitable and just
impulse" (emphasis supplied). 44 Cong. Rec. 4150 (1909).
Similarly, when Congress amended the provision for charitable
deductions to confine its application to gifts made to domestic
institutions (by Section 23(0), Revenue Act of 1938, ch. 289, 52
Stat. 447), the accompanying House Committee Report (H.R. Rep.
No. 1860) 75th Cong., 3d Sess. 19 (1938), explained:
The exemption from taxation of money or
property devoted to charitable and other
purposes is based upon the theory that
the government is compensated for the
loss of revenue by its relief from
financial burden which would otherwise
have to be met by appropriations from
public funds, and by the benefits re-
sulting from the promotion of the general
welfare. The United States derives no
such benefits from gifts to foreign
institutions, and the proposed limitation
is consistent with the above theory.
3. The decisions of this Court confirm the primacy of the
"charitable" requirement under Section 501 (c) (3). In Helvering
V. Bliss, 293 U.S. 144 (1934), the Court emphasized the
"charitable" requirement by observing that "Congress, in order to
encourage gifts to religious, educational and other charitable
objects, granted "Congress, in order to encourage gifts to
religious, educational and other charitable objects, granted the
privilege of deducting such gifts from gross income
***
(emphasis supplied). Thus, the fact that the statute speaks of
"corporations *** organized and operated exclusively for
religious, charitable, scientific, testing for public safety,
literary or educational purposes" does not, as petitioners would
have it, mean that each one of those terms describes a mutually
exclusive tax-exempt category. Accordingly, an organization is
eligible for tax-exempt status under Section 501 (c) (3) only if
its operations are "charitable," i.e., of benefit to society as a
whole. See Trinidad V. Sagrada Orden, 263 U.S. 578, 581 (1924)
( * * [e] vidently the exemption [was] made in recognition of
the benefit which the public derives from corporate activities
of the class named, and [was] intended to aid them when not
conducted for private gain." Accord, St. Louis Union Trust
Company V. United States, 374 F.2d 427, 432 (8th Cir. 1967).
Otherwise, a school organized to train political assassins or to
teach genocide, an organization preaching a religion devoted to
the illegal shipment of arms or based upon other sacraments that
constitute crimes, or a scientific organization devoted to the
development and distribution of illegal drugs, all would be
exempt from tax and eligible for deductible charitable
contributions as respectively "educational," "religious,"
"scientific" organizations. Congress surely never intended the
government to provide indirect financial support for criminal
activities or for organization whose aims are contrary to public
policy. /
The courts of appeals have likewise viewed the tax exemption
provisions as consistent with the common law of charitable
trusts. See United States V. Proprietors of Social Law Library,
102 F.2d 481, 483 (1st Cir. 1939) ("[t]he term 'charitable' is a
generic term and includes literary, religious, scientific and
educational institutions") Pennsylvania Co. for Insurance on
Lives V. Helvering, 66 F.2d 284, 285 (D.C. Cir. 1933) ("we must
/ As the three judge district court in Green v. Connally,
supra, 33 F. Supp. at 1160, put it: "This public policy doctrine
operates as a necessary exception to or qualifier of the precept
that in general trusts for education are considered to be for the
benefit of the community. Otherwise, for example, Fagin's school
for pickpockets would qualify for a charitable trust.
look to established [trust] law to determine the meaning of the
word charitable. "). Accord: International Reform Federation V.
District Unemployment Board, 131 F.2d 337 (D.C. Cir. 1942). _/
Finally, as the court below in Bob Jones University pointed
out (No. 81-3 - Pet. App. A7-A8, n.6), the structure of the
statutory framework itself supports the correctness of the
Commissioner's ruling position that an organization seeking tax-
exempt status under Section 501 (c) (3) must show that it is
"charitable," whatever the particular nature of its activities
(educational, religious, scientific, etc.) might be. Thus,
Section 170(a) and (c) the companion provision that confers an
income tax deduction to donors to Section 501 (c) (3)
organizations, characterizes the deduction as for a "charitable
contribution." Indeed, the language of Section 170(c)(2)(B),
which defines in part the type of organization eligible for gifts
of deductible "charitable contributions," tracks almost verbatim
the text of Section 501 (c) (3). In these circumstances, it is
plain that the "charitable" requirement is the primary threshold
test for qualification for tax exemption under Section 501 (c) (3)
and eligibility for deductible contributions under Section
170.
/
/ In International Reform Federation, the District of Columbia
Circuit stated: (131 F.2d at 339):
"That Congress had in mind these
broader definitions is confirmed by the
words used in the Act, for by its terms
it embraces, religious, charitable,
scientific, literary, or educational
corporations, thus including within
the exemption clause every nonprofit
organization designed and operating for
the benefit and enlightenment of the
community, the State, or the Nation--in
short, to apply the exemption to those
organizations commonly designated
charitable in the law of trusts."
/ See also Sections 545(b)(2), 556(b)(2), 873(b)(2),
882c) (1) (B), all of which use the term "charitable
contribution. Section 642(c) confers a deduction to an estate or
trust for "Amounts Paid or Permanently Set Aside for a Charitable
Purpose" Cf. Sections 501 (h) and 4911, which impose a tax on the
lobbying expenditures of certain "public charities," which place
under that heading educational institutions, hospitals, and
medical research organizations, among other organizations
described in Section 501 (c) (3).
- 24 -
C. A private school that practices
racial discrimination does not
qualify for tax exempt status
under Section 501 (c) (3) and eli-
gibility for deductible charitable
contributions under Section 170
because it is not organized and
operated for "charitable" purposes
as that term is understood at
common law
1. As we have shown (supra, pp.
), Congress intended
that an organization seeking tax-exempt status under Section
501 (c) (3) and eligibility for deductible charitable contributions
must be "charitable" in the broad common law sense of that term,
i.e., it must benefit society as a whole. It is plain, however,
that a private school that maintains a racially discriminatory
admissions policy or other racially restrictive practices, is not
beneficial to the community at large and is therefore not
"charitable" as that term is understood at common law.
This proposition follows from the fundamental principle of
the law of trusts that all charitable trusts, eduational or
otherwise, are subject to the requirement that the purpose of the
trust may not be illegal or contrary to public policy. Ould V.
Washington Hospital for Foundlings, supra, 95 U.S. 303;
Restatement, Trusts (Second), Section 377, Comment C (1959).
Accordingly, the development of a clearly articulated public
policy against racial discrimination in education has led to a
corresponding change in the common law of educational trusts.
After reviewing the common law decisions dealing with trusts
established for the purpose of providing for racially
discriminatory private education, the three-judge district court
in Green V. Connally, 330 F. Supp. 1150 (D.D.C. 1971), concluded
that "The cases indicate a trend that racially discriminatory
institutions may not validly be established or maintained even
under the common law pertaining to educational charities
(footnote omitted)" (id. at 1160). Thus, the district court in
Green pointed out that the courts have nullified racially
- 25 -
discriminatory bequests to educational institutions (Howard
Savings Institution of Newark, New Jersey V. Peep, 34 N.J. 494,
170 A.2d 39 (1961)), have freed university trustees from racial
restrictions in their charter (Coffee V. William Marsh Rice
University, 408 S.W.2d 269 (Tex. Civ. App. 1966)), and have
generally thwarted enforcement of racially discriminatory
bequests in private education. See, e.g., Evans V. Abney, 396
U.S. 435 (1970); Commonwealth of Pennsylvania v. Brown, 392 F.2d
120 (3d Cir.), cert. denied, 391 U.S. 921 (1968); Sweet Briar
Institute v. Button, 280 F. Supp. 312 (W.D. Va. 1967).
In these circumstances, it was well within the statutory
authority of the Commissioner of Internal Revenue to conclude
that a private school that practices racial discrimination either
in its admissions policy or in its other governing rules cannot
qualify for tax exempt status under Section 501(c)(3). Tax
exemption under Section 501 (c) (3) requires organization and
operation for "charitable" purposes as that term is understood at
common law. Thus, once the common law courts developed a
virtually unanimous body of decisional law holding that racially
discriminatory bequests and trusts in the context of private
education were not "charitable," the Commissioner of Internal
Revenue had ample legal basis to exercise his authority to
"prescribe all needful rules and regulations" (26 U.S.C. 7805(a))
to issue a comparable ruling for federal tax purposes.
Indeed, the Commissioner's ruling in 1970 that racially
discriminatory private schools were not "charitable" and
therefore not eligible for tax-exempt status and deductible
charitable contributions was presaged by the 1959 revision (24
Fed. Reg. 5217.5219) of the Treasury Regulations under Section
501(c)(3). In promulgating Section 1.501(c)(3)-1(d)(2) of those
Regulations, the Treasury recognized that the term "charitable"
is "'so general * * * as to render an interpretative regulation
appropriate. National Muffler Dealers Assn. V. United States,
440 U.S. 472, 476 (1979), quoting Helvering V. Reynolds Co., 306
U.S. 110, 114 (1939). See Simon v. Eastern Kentucky Welfare
Rights Org., 426 U.S. 26, 29 (1976). Thus, the Regulations
provide in pertinent part:
170(c) (2). / Given the highly articulated body of common law
rejecting racially discriminatory bequests trusts as "charitable"
and the Treasury's implementation of those principles in
construing the federal tax exemption provisions, it cannot be
/ Petitioners point out (81-1 Br. 20-25; 81-3 Br. 14-16) that
in prior Regulations under Section 501 (c) (3) and its
predecessors, and in certain rulings, no longer followed, the
Internal Revenue Service took the position that '[c]orporations
organized and operated exclusively for charitable purposes
comprise, in general, organizations for the relief of the
poor." Treasury Regulations 118, Section 39.101(6)-1(b)) (1939
Code). See I.T. 1800, II-2 Cum. Bull. 152 (1923), declared
obsolete by Rev. Rul. 69-43, 1969-1 Cum. Bull. 310; I.T. 1827,
II-2 Cum. Bull. 154, declared obsolete by Rev. Rul. 69-43,
supra. But cf. Sol. Op. 159, III-I Cum. Bull. 480 (1924),
allowing a charitable contribution deduction for a bequest for
the construction of a community auditorium, on the basis that
Congress might properly be classified as charitable at common
law."
But the authoritative force of the outstanding Regulation is
not undermined by the fact that it represents a change from its
predecessors. The outstanding Regulation "'implement[s] the
congressional mandate in some reasonable manner' * * #." Hence,
its construction of the generalized term "charity" must be
sustained. National Muffler Dealers Assn. v. United States, 440
U.S. 472, 476, 488 (1979) (quoting United States V. Cartwright,
411 U.S. 546, 550 (1973), quoting United States v. Correll, 389
U.S. 299, 307 (1967)). This Court has many times confirmed the
Treasury's right to change its Regulations and rulings and
correct its position in light of its administrative experience.
Morrissey V. Commissioner, 296 U.S. 344, 354-355 (1935);
Helvering V. Wilshire Oil Co., 308 U.S. 90, 99-103 (1939);
Helvering V. Reynolds, 313 US. 428, 431-433 (1941); Commissioner
v. P.G. Lake, Inc., 356 U.S 260, 265-266, n.5 (1958); National
Muffler Dealers Assn. V. United States, 440 U.S. 472, 485-486
(1979); Dixon V. United States, 381 U.S. 68, 73-76 (1965);
Automobile Club of Michigan V. Commissioner, 353 U.S. 180, 184-
186 (1957).
- 28 -
said that no "fair warning'" has been given "of the bounds of
'Federal public policy'" (No. 81-3 34).
_/
2. The Commissioner's ruling finds further support in the
statutory right "Lajll persons within the jurisdiction of the
United States *** [to] have the same right *** to make and
enforce contracts *** as is enjoyed by white citizens ***."
Section 1 of the Civil Rights Act of 1866, 14 Stat. 27, 42 U.S.C.
1981. In Runyon V. McCrary, 427 U.S. 160 (1976), this Court held
that Section 1981 prohibits private, commercially operated, non-
sectarian schools from denying admission to prospective students
because they are blacks. As the Court there concluded (id. at
172-173), "It is apparent that the racial exclusion practiced by
the [schools] amounts to a classic violation of §1981. The
parents *** * sought to enter into contractual relationships.
/ See, e.g., Rev. Rul. 71-447, supra; Rev. Rul. 67-325, 1967-2
Cum. Bull. 113 (organization providing free recreational
facilities restricted to less than the entire community on the
basis of race is not entitled to Section 501 (c) (3) exemption or
to deducitibility of charitable contributions) Rev. Rul. 69-545,
1969-2 Cum. Bull. 117 (organization providing hospital care on a
nonprofit basis for members of its community furthers purpose
considered charitable in the generally accepted legal sense and
therefore is eligible for Section 501 (c) (3) exemption; see Simon
V. Eastern Kentucky Welfare Rights Org., supra, 426 U.S. 26);
Rev. Rul. 76-442, 1976-2 Cum. Bull. 148 (organization providing
free tax and estate planning services to encourage donations to
charitable organizations is not engaged in a charitable activity
in the generally accepted legal sense and therefore is not
entitled to Section 501 (c) (3) exemption). See also Rev. Rul. 78-
68, 1968-1 Cum. Bull. 149 (organization designed to participate
in implementing the Demonstration Cities in Metropolitan
Development Act of 1966, 42 U.S.C. 3301, et seq., was exempt);
Professional Standard Review V. Commissioner, 74 T.C. 240 (1980)
(organization which promoted implementation of Social Security
Amendments of 1972, 86 Stat. 1430, Sections 249F(b), was exempt);
Rev. Rul. 77-69, 1977-1 Cum. Bull. 143 (organization which
assisted in implementing the National Health Planning and
Resources Development Act of 1974, P.L. 93-641, 88 Stat. 2225,
was exempt).
- 29 - -
*** for educational services ***. But neither school offered
services on an equal basis to white and nonwhite students.
*** The * * * conclusion that 1981 was thereby violated
follows inexorably from the language of that statute as construed
in Jones [v. Alfred H. Mayer Co., 392 U.S. 409 (19 )] Tillman
[v. Wheaton-Haven Recreation Assn., 410 U.S. 431 (1973) J, and
Johnson [v. Railway Express Agency, 421 U.S. 454 (19 )]." In so
holding, the Court rejected the schools' contention that Section
1981, as so applied, violates constitutionally protected rights
of free association and privacy, or a parent's right to direct
the education of his children (id. at 175-179).
Putting aside petitioners' claims that their racial policies
were based on religious doctrine, / it seems clear that 42
U.S.C. 1981, as construed by Runyon, makes illegal their racially
discriminatory practices and subjects them to damage suits by
parties injured by such practices. And surely petitioners'
/ We discuss petitioners' First Amendment claims at pages
,
infra.
To be sure, the Court pointed out in Runyon that the case did
not "present the application of $1981 to private sectarian
schools that practice racial exclusion on religious grounds
(emphasis supplied; footnote omitted) (427 U.S. at 167). Thus,
Runyon does not speak to petitioners' First Amendment claims.
But if, as we submit, the decision below properly rejected
petitioners' First amendment claims, those claims would not
constitute an effective defense in a Section 1981 suit, and the
statute would therefore be fully applicable. Thus, the Court's
statement in Runyon serves only to identify the issue there
presented; it does not imply, as petitioners assert
(
)
that Section 1981 is not applicable to a sectarian school. See
Fielder V. Marumsco Christian School, 631 F.2d 1144, 1150-1151
(4th Cir. 1980); Brown V. Dade Christian Schools, Inc., 556 F.2d
310, 326 (5th Cir. 1977) (Roney, J., dissenting), cert. denied,
434 U.S. 1063 (1978).
Moreover, the Court in Runyon did reject a comparable First
Amendment claim based upon freedom of association. As the Court
there stated (427 U.S. at 176):
From this principle it may be assumed
that parents have a First Amendment right
to send their children to educational
institutions that promote the belief that
racial segregation is desirable, and that
the children have an equal right to attend
such institutions. But it does not follow
that the practice of excluding racial
minorities from such institutions is also
protected by the same principle. As the Court
stated in Norwood V. Harrison, 413 U.S. 455,
"the Constitution * * * places no value on
discrimination," id. at 469, and while
[i nvidious private discrimination may be
characterized as a form of exercising freedom
of association protected by the First Amendment
* * * it has never been accorded affirmative
constitutional protections. And even some
private discrimination is subject to special
remedial legislation in certain circumstances
under §2 of the Thirteenth Amendment; Congress
has made such discrimination unlawful in other
significant contexts." Id. st 470. In any
event, as the Court of Appeals noted, "there
is no showing that discontinuance of [the]
discriminatory admission practices would inhibit
in any way the teaching in these schools of any
ideas or dogma." 515 F.2d, at 1087.
- 31 -
violation of 42 U.S.C. 1981 is relevant in any determination
whether they are "charitable" for purposes of tax exemption under
Section 501 (c) (3) and eligibility for deductible charitable
too
contributions under Section 170(c). An educational institution
far
that maintains policies that are prohibited by federal civil
hat
rights statutes cannot be deemed to benefit society as a whole
bout
and is therefore not "charitable" under the Internal Revenue
exmal
loscin
Code.
Thus, Bob Jones University's claim (Br. 20 n. 19; 29) that
nation
it has not been charged with violation of any federal statute
does not mitigate the illegality of their conduct under Section
1981. Rather, it simply reflects the fortuity that none of its
applicants excluded on racial grounds (see J.S. A89-A90), nor any
student expelled for participation in, or advocacy of, an
interracial association (see 81-3 Pet. App. A4), sought to press
their claim in a suit under Section 1981. See Fiedler v.
Marumsco Christian School, 631 F.2d 1144, 1150-1151 (4th Cir.
1980).
3. In our view, the common law decisions rejecting
petitioners' racially restrictive policies as the proper subject
of a charitable educational trust and the illegality of such
policies under Section 1981 offer sufficient justification for
the Commissioner's ruling that such practices are incompatible
with tax exempt status and eligibility for deductible charitable
contributions. But the fact that tax exemption and eligibility
dowe needy
want to
for deductible charitable contributions represent a form of
make this
indirect government subsidy of an educational institution is
argument:
another independently compelling ground in support of the
decision below.
does this mean you. IS supporting religions schools?
will it give Cirl Reghts groups handles to get at all 50,(c)(3)s?
In Brown v. Board of Education, 347 U.S. 483 (1954), and
Bolling V. Sharpe, 347 U.S. 497 (1954), this Court proclaimed
that the maintenance of a racially segregated school system by a
state or federal authority abridges the constitutional right of
50/(c)(3)
fischool discriminates against
- 32 - women/men does that mean
it IS federally supported +
must follow civil ngis laws
when't receives no other fedual aid ?
black school children to the equal protection of the laws. In so
holding, this Court stated that education "is required in the
performance of our most basic responsibilities, even services in
the armed forces. It is the very foundation of good citizenship"
(id. at 493). In Bolling V. Sharpe, supra, 347 U.S. at 500, the
companion case to Brown applying the prohibition against school
segregation to the federal government through the Fifth
Amendment, this Court declared that "[s]egregation in public
education is not reasonably related to any proper governmental
objective."
Although Brown involved segregated public education, its
equal protection rationale prohibits state aid to racially
restricted private education. Thus, the Court has consistently
affirmed decisions enjoining state tuition grants to students
attending racially discriminatory private schools. See cases
cited in Norwood V. Harrison, 413 U.S. 455, 463 n.6 (1973).
There, the Court struck down a state program under which students
borrowed textbooks without regard to whether the students
attended private schools with racially discriminatory
policies. As the Court stated in Norwood, "Racial
discrimination in state-operated schools is barred by the
Constitution and '[i]t is also axiomatic that a state may not
induce, encourage or promote private persons to accomplish what
it is constitutionally forbidden to accomplish' Lee V. Macon
County Board of Education, 267 F. Supp. 458, 475-476 (M.D. Ala.
1967). See also Griffin V. County School Board, 377 U.S. 218
(1964).
Here, it is beyond question that the federal government
could not provide direct financial aid to petitioners. Their
private bias cannot call on material aid from the state. But as
we have pointed out (supra, p.
), federal tax exempt status
and eligibility for deductible charitable contributions represent
indirect material aid in the form of matching
grants. Petitioners dispute the effect of a tax exemption and
claim (No. 81-1 Br. 42) that it "constitutes mere passive state
involvement with religion and not the affirmative involvement
characteristic of outright governmental subsidy" Walz V. Tax
Commission, 397 U.S. 664, 691 (1970) (Brennan, J., concurring).
See also id. at 676. This case, however, does not simply involve
passive tax exemptions of the type involved in Walz in which the
government arguably withdraws from the affairs of the affected
institutions. As the three-judge district court correctly
observed in Green V. Kennedy, 309 F. Supp. 1127, 1134 (D.D.C.
1970), "The support which is significant in the context of this
controversy is not the exemption of the schools from taxes laid
on their income, but rather the deductions from income tax
available to the individual, and corporations, making
contributions supporting the school." See also 81-3 Pet. App.
A10-A11 n.7.
While we do not suggest that such indirect aid is, in all
circumstances, constitutionally equivalent to the direct state
aid that both the Constitution and federal statutes prohibit,
/
the Commissioner of Internal Revenue could well have concluded
that prohibiting tax exemptions and eligibility for deductible
charitable contributions for racially discriminatory private
schools would avoid constitutional problems. In short, while the
Commissioner's ruling position may not be constitutionally
/ See Sections 401(c) and 601 of the Civil Rights Act of 1964,
42 U.S.C. 2000c, 2000d. These statutes respectively call upon
the government to terminate segregation in private schools
"operated *** predominantly from or through the use of
governmental funds or property" and prohibit racial
discrimination in "any program or activity receiving Federal
financial assistance." By their terms, these statutes do not
prohibit the indirect assistance provided by tax-exempt status
and eligibility for deductible charitable contributions.
Otherwise, there would be no need to identify the particular
program or activity receiving federal financial assistance.
compelled, it forecloses the constititional challenge that would
inevitably occur had he not so ruled. _/ Surely the
Commissioner's statutory authority to promulgate "all needful
rules and regulations" (26 U.S.C. 7805(a)) under the internal
revenue laws encompass the power to construe the Internal Revenue
Code in a manner that will insure that the government will not
"induce, encourage or promote private persons to accomplish what
it is constitutionally forbidden to accomplish" (267 F. Supp. at
475-476).
4. Furthermore, as the court below pointed out (No. 81-3
Pet. App. A8), the Commissioner's ruling is buttressed by the
well-settled rule that federal tax benefits are generally not
allowable if they would frustrate public policy. In Textile
Mills Corp. v. Commissioner, 314 U.S. 326 (1941), the Court
upheld a Treasury Regulation pursuant to which the Commissioner
had denied business deductions claimed by a corporation for sums
expended to "promot[e] legislation" (id. at 336-338). Rejecting
the argument that "the administrative agency usurped the
legislative function * * *," the Court pointed out that
c]ontracts to spread such insidious influences through
legislative halls have long been condemned." It concluded (id.
at 338-339), "[t]here is no reason why, in the absence of clear
congressional action to the contrary, the rulemaking authority
cannot employ that general policy in drawing a line between
legitimate business expenses and those arising from that family
of contracts to which the law has given no sanction." See also
Cammarano V. United States, 358 U.S. 498, 511-513 (1959); Slee v.
Commissioner, 42 F.2d 184 (2d Cir. 1930).
/ Indeed, the Commissioner's ruling was issued after adopting
the plaintiffs' position in the midst of the Green litigation.
See p. , n. , supra.
Similarly, in Tank Truck Rentals V. Commissioner, 356 U.S.
30, 33-34 (1958), the Court held that fines paid for violations
of state highway weight limits were not deductible as "ordinary
and necessary" business expenses. "A finding of 'necessity'
cannot be made," the Court ruled, "if allowance of the deduction
would frustrate sharply defined national or state policies
proscribing particular types of conduct, evidenced by some
governmental declaration thereof." Accord: Hoover Express Co.
v. United States, 356 U.S. 38 (1958); McDonald V. Commissioner,
323 U.S. 57 (1944); cf. Commissioner V. Heininger, 320 U.S. 467,
473-475 (1943), Commissioner V. Sullivan, 356 U.S. 27 (1958); see
Mazzei V. Commissioner, 61 T.C. 497 (1974); Turnipseed V.
Commissioner, 27 T.C. 758 (1957).
The rationale of the Tank Truck Rentals decision is equally
applicable here. Just as the Court refused to permit a tax
deduction for a fine because the deduction would lessen the
economic impact of the fine and thereby "frustrate sharply
defined national or state policies proscribing particular types
of conduct," here, too, allowance of tax exemptions and
eligibility for deductible charitable contributions for racially
restrictive private schools such as petitioners would undermine
the national policy against support for racial segregation of
schools, public or private. Since the prupose of the tax
exemption provisions for charitable organizations is to aid those
institutions that are "charitable" as that term is used at common
law and serve society as a whole, the national policy against
segregated education necessarily forecloses petitioners'
eligibility for these benefits.
Contrary to Bob Jones University's assertion (Br. 20), the
Commissioner's position based upon the Green rationale does not
put in jeopardy the Section 501 (c) (3) tax exemption of
organizations that "discriminate on account of age, maintain
discrimination in education supports the Commissioner's ruling
that such discrimination is not "charitable." "
/
5. Contrary to petitioner Bob Jones University's argument
(Pet. 9), the nondiscrimination principle applied to private
schools by the courts and by the Internal Revenue Service does
not conflict with Congress' understanding of the requirements
imposed by the Internal Revenue Code with respect to racial
discrimination. By the Act of Oct. 20, 1976, Pub. L. No. 94-658,
Section 2(a), 90 Stat. 2697, Congress added to the Code, "in view
of national policy," the provision now contained in Section
501 (1), which explicitly denies exempt status to a social club if
its charter or any of its written policy statements provides for
"discrimination against any person on the basis of race, color,
/ Thus for example, in Title VII of the Civil Rights Act of
1964, 42 U.S.C. 2000e et seq., which otherwise prohibits
discrimination in employment on the basis of race and sex,
contains an exception for employment of members of a particular
sex based upon a bona fide occupational qualification. There is,
however, no similar exception with respect to race. Similarly,
there are a number of exceptions applicable to the federal
prohibitions against sex discrimination in education set forth in
Title IX of the Civil Rights Act of 1964. The federal statute
bars sex discrimination in any "education program or activity
receiving Federal financial assistance" (20 U.S.C. 1681 (a)). But
it applies in regard to admissions "only to institutions of
vocational education, professional education, and graduate higher
education, and to public institutions of undergraduate higher
education" (20 U.S.C. 1681 (a) (1)) There are other exceptions
for educational institutions of religious organizations with
contrary religious tenets (20 U.S.C. 1681 (a) (3)), educational
institutions training individuals for the military (20 U.S.C.
1631 (a) (4)), and for "any public institution of undergraduate
higher education which is an institution that traditionally and
continually from its establishment has had a policy of admitting
only students of one sex" (20 U.S.C. 1681 (a) (5) There are,
however, no comparable exceptions in Title VI of the civil rights
laws prohibiting racial discrimination. Hence, 42 U.S.C. 1981
absolutely prohibits the abridgment of the right of contract on
account of race. Indeed, the Court has itself drawn distinctions
between race discrimination and sex discrimination. In Griffin
V. Breckenridge, 403 U.S. 88 (1971), it ruled that Section 2 of
the Civil Rights Act of 1871, 42 U.S.C. 1985(c) provides a cause
of action for damages caused by private conspiracies arising in a
context of racial discrimination. However, the Court has also
held that the same statute may not be invoked to redress
violations of Title VII of the Civil Rights Act of 1964,
42 U.S.C. 2000e et seq., in a case involving a claim of
discriminatory employment practices on account of sex. See Great
American Fed. S&L Assn. v. Novotny, 442 U.S. 366 (1979).
- 38 -
or religion." This provision was added in direct response to a
ruling by a three-judge court in McGlotten V. Connally, 338
F. Supp. 448, 457-459, 462 (D.D.C. 1972), that recognition of
racially segregated social clubs as tax-exempt entities under
Section 501 (c) (7) did not violate the Code, the Constitution, or
Titlve VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d et
seq. The accompanying S. Rep. No. 94-1318, 94th Cong., 2d Sess.
7-8 & n.5 (1976), reflects Congress' intent to apply to social
clubs the same antidiscrimination rule involved here. Indeed,
the Senate Report cites with approval the three-judge district
court's decision in Green v. Connally, supra. / Congress was
therefore well aware of the Service's policy implemented six
years earlier that discrimination on account of race is
inconsistent with an educational institution's tax-exempt status
under Section 501 (c) (3) and also with its status as a donee of
deductible charitable contributions under Section 170(c) (2).
There is accordingly no basis for petitioner Bob Jones
University's claim (Br. 22) that "The Green opinion calls for a
plain usurpation of congressional law making powers by the non-
elected public servants of the Internal Revenue Service".
As the court of appeals correctly pointed out (81-3 Pet.
App. A5-A6, n.3), the subsequent enactment by Congress of the
Ashbrook Amendment (Section 103) and Dornan Amendment (Section
615) to the Treasury, Postal Service, and General Government
Appropriations Act, 1980, Pub. L. No. 96-74, 93 Stat. 559, does
/ Petitioner Bob Jones University (Br. 16 n.15) argues that the
"mere reference [to Green] is not remotely an endorsement of
Green's construction of $501(c)(3). But the Senate Committee
Report's citation of Green was clearly done in order to
assimulate Congress'' adoption of the nondiscrimination principle
to social clubs to the Court's ruling with respect to private
schools. The fact that the affirmance of Green by this Court
"lacks the precedential weight of a case involving a truly
adversary controversy" (Bob Jones University V. Simon, 416 U.S.
at 740 n.11) does not detract from the force of the district
court's opinion in Green.
not allect the resolution of these cases. By its terms, the
Ashbrook Amendment prohibits the Internal Revenue Service from
using any funds appropriated to implement or enforce any rule or
procedure "which would cause the loss of tax-exempt status to
private, religious, or church operated schools under section
501(c)(3) *** unless in effect prior to August 22, 1978." The
Dornan Amendment prohibits the funding of two proposed revenue
procedures announced in 1978 _/ and 1979. Hence, by their terms,
both the Ashbrook and Dornan Amendments are prospective in
operation and have no effect on the substantive or procedural
policies enforced in these cases. See Rev. Rul. 71-447, 1971-2
Cum. Bull. 230; Rev. Rul. 75-231, 1975-1 Cum. Bull. 158; Rev.
Proc. 75-50, 1975-2 Cum. Bull. 587. The object of the
Amendments, as petitioner Goldsboro Christian Schools
acknowledges (81-1 Br. 28, n.13), was to "maintain the status
quo" by temporarily barring the employment of proposed new
procedures to enforce the policy of the Internal Revenue
Service. See 43 Fed. Reg. 37296-37298 (Aug. 22, 1978); 44 Fed.
Reg. 9451-9455 (Feb. 9, 1979).
The accompanying legislative history confirms our reading of
the legislation and Congress' intent to leave fully intact, and,
indeed, to sanction, the existing nondiscrimination policies of
the Service. On presenting his amendment, Representative Dornan
stated (125 Cong. Rec. H5982 (daily ed. July 16, 1979)), "[1]et
/ The Internal Revenue Service proposals of 1978 and 1979 were
designed to supplement its existing procedures for verifying
whether the actual practices of certain schools conform to their
certifications of nondiscrimination. In Section 6155 (93 Stat.
577) of the Treasury, Postal Service, and General Government
Appropriations Act, supra, Congress stipulated that none of the
funds made available by the Act be used to carry out the proposed
revenue procedures of 1978 and 1979. In Section 615 (93 Stat.
562), of the same Act, Congress provided that none of the funds
made available by the Act be used "to formulate or carry out any
*** procedure, guideline *** or measure which would cause the
loss of tax-exempt status to private, religious, or church-
operated schools under Section 501(c)(3) of the Internal Revenue
Code of 1954 unless in effect prior to August 22. 1978 "
me emphasize that my amendment will not affect existing IRS rules
which IRS has used to revoke tax exemptions of white segregated
academies under Revenue Ruling 71-447 and Revenue Procedure
75-50." Similarly, when Senator Helms later introduced the
Ashbrook Amendment in the Senate, he emphasized that it would not
impair the effectiveness of outstanding procedures for enforcing
a requirement of nondiscrimination (125 Cong. Rec. S11979-S11980
(daily ed. Sept. 6, 1979)) "In fact, IRS has denied the tax-
exempt status of over 100 schools which it, or a court, has found
to be discriminatory. My amendment today does not change the
existing law contained in Revenue Procedure 75-50, and thus it
preserves the ability of IRS to act against offending schools on
a case-by-case basis." That is precisely what is involved in the
instant litigation.
D. The Commissioner's denial of petitioners'
tax exemption because of their racially
restrictive policies does not violate
their right to free religious belief
and exercise under the First Amendment
Both Goldsboro Christian Schools (Br. 31-44) and Bob Jones
University (Br. 23-34) seek to excuse their failure to satisfy
the nondiscrimination principle on the ground that their racially
discriminatory practices are the outgrowth of sincere religious
faith. But as the court of appeals correctly held (81-3 Pet.
App. A13-A14; footnote omitted), "the government's rule would not
prohibit [petitioners] from adhering to [other policy].
Abandonment of the policy would not prevent [petitioners] from
teaching the Scriptural doctrine of nonmiscegenation. Nor is any
individual student *** * forced to personally violate his
beliefs; no student is forced to date or marry outside of his
race. We think that these factors tip the balance in favor of
the Service's nondiscrimination doctrine." Moreover, the
Service's policy, applied evenhandedly to sectarian and
nonsectarian schools, avoids government entangelement in matters
does not involve preference of one sect
or doctrine over another. Hence, the court of appeals concluded
that "the nondiscrimination policy also passes muster under the
Establishment Clause" (id. at A14).
1. a. It is, of course, well settled that the Free Exercise
Clause of the First Amendment affords substantial protection for
the diverse religious beliefs and practices in this country.
Thus, this Court has held that the Free Exercise Clause prohibits
governmental regulation of religious beliefs as such (Cantwell V.
Connecticut, 310 U.S. 296, 303 (1940)), governmental interference
with the dissemination of religious ideas (see Fowler V. Rhode
Island, 345 U.S. 67 (1953); Follett V. Town of McCormick, 321
U.S. 573 (1944)), or use of secular governmental programs "to
impede the observance of one or all religions or *** to
discriminate invidiously between religions, *** even though the
burden may be characterized as being only indirect." Braunfèld
V. Brown, 366 U.S. 599, 607 (1961). But as the Court has also
noted, "neutral prohibitory or regulatory laws having secular
aims" may impose certain "incidental burdens' on free exercise
when "the burden on First Amendment values is * * * justifiable
in terms of the Government's valid aims." Gillette V. United
States, 401 U.S. 437, 462 (1971); see, e.g., Wisconsin v. Yoder,
406 U.S. 205 (1972).
Thus, a person is not protected from every burden on the
exercise of his religion resulting from the implementation of a
neutral, secular governmental interest. Braunfeld V. Brown,
supra, 366 U.S. at 603; Johnson v. Robison, 415 U.S. 361, 383-386
(1974); Gillette V. United States, supra, 401 U.S. at 461-462;
see Prince V. Massachusetts, 321 U.S. 158 (1944); Reynolds v.
United States, 98 U.S. 145 (1878); Jacobson V. Massachusetts, 197
U.S. 11 (1905). In determining whether a particular statute is
supported by a governmental interest that outweighs free exercise
OI rights, it is necessary (McDaniel V. Paty, 435 U.S. 618, 635,
n.8 (1978) (Brennan, J., concurring in the judgment)) --
to balance the importance of the secular
values advanced by the statute, the closeness
of the fit between those ends and the means
chosen, and the impact an exemption on
religious grounds would have on the State's
goals, on the one hand, against the sincerity
and centrality of the objection to the State's
goals to the sect's religious practice, and
the extent to which the governmental regulation
interfered with that practice, on the other hand.
See Wisconsin v. Yoder, supra, 406 U.S. at 214 (the interest of
the government is subject to "a balancing process when it
impinges on fundamental rights *** such as those specifically
protected by the Free Exercise of the First Amendment"); Johnson
V. Robison, supra; Gillette v. United States, supra. "To strike
down, without the most critical scrutiny, legislation which
imposes only an indirect burden on the exercise of religion,
i.e., legislation which does not make unlawful the religious
practice itself, would radically restrict the operating latitude
of the legislature." Braunfeld v. Brown, supra, 366 U.S. at
606. Accordingly, this Court has repeatedly observed that a
generally imposed income tax does not have a prohibited coercive
effect on religious practices or beliefs. Follett v. Town of
McCormick, supra, 321 U.S. at 577-578; Murdock v. Pennsylvania,
319 U.S. 105, 112 (1943); see Braunfeld V. Brown, supra, 366 U.S.
at 606; cf. United States v. Lee, 479 F. Supp. 180 (W.D. Pa.
1980), appeal pending, No. 80-767, argued November 2, 1981.
_/
Here, despite petitioners' claims to the contrary (81-1 Br.
36; 81-3 Br. 9), the Service's rulings do not place more than an
indirect and limited burden upon any person's or any
/ Thus, for example, we submit that the First Amendment would
not protect from the tax on unrelated business income (see
Sections 511-513 of the Code) a church which believed that it was
its religious duty to conduct a business in competition with a
particular company. See particularly Sections 512(b) (14) and
7605(c) of the Code.
corporation's right to free religious belief or exercise.
Petitioners do not seek on religious grounds to limit their
student body to members of a particular sect or to those who
espouse particular beliefs. Rather, the focus of the policies at
issue here is on racially discriminatory practices, not on
beliefs. In requiring that petitioners maintain racially non-
discriminatory policies as a prerequisite to tax-exempt status,
the Service does not not purport to interfere with their right to
espouse or teach a doctrine against interracial marriage, or with
any student's right to adhere to such a doctrine. See Brown v.
Dade Christian Schools, Inc., 556 F.2d 310, 321-322 (5th Cir.
1977) (en banc) (Goldberg, J., concurring), cert. denied, 434
U.S. 1063 (1978). _/ Indeed, as this Court has noted (Runyon v.
McCrary, 427 U.S. 160, 176 (1976)), even though the right of
parents to have their children educated in schools fostering a
belief in racial discrimination may well be protected by the
First Amendment, the First Amendment does not protect a school's
practice of racial discrimination:
[I]t may be assumed that parents have a
First Amendment right to send their children
to educational institutions that promote the
belief that racial segregation is desirable,
and that the children have an equal right
to attend such institutions. But it does
not follow that the practice of excluding
racial minorities from such institutions is
also protected by the same principle. As the
Court stated in Norwood v. Harrison, 413 U.S.
455, "the Constitution * * * places no value on
discrimination, id. at 469, and while
Invidious private discrimination may be
characterized as a form of exercising freedom
of association protected by the First Amendment
* * * it has never been accorded affirmative
/ Nor do the Service's actions implicate the interests of a
church in maintaining the intimacy of its activities, as
petitioner Bob Jones University urges (81-3 Br. 23-25).
Petitioners offer to the public on a commercial basis educational
services that compete with programs of instruction in public
schools and in public colleges (Pet. App. A3; J.A. A88-A89).
Hence, "Their actual and potential constituency * * * is more
public than private." Runyon v. McCrary, 427 U.S. 160, 172,
n.10 (1976) (quoting 515 F.2d 1082. 1089).
constitutional protections."
***
Id.
at
470.
(Emphasis in original.)
b. Sherbert V. Verner, 374 U.S. 398 (1963), and Wisconsin V.
Yoder, supra, upon which petitioners (81-1 Br. 33-34, 81-3 Br. 23
et seq.), are therefore distinguishable. In both of these cases,
the infringement on the exercise of the individual's religion was
far more burdensome than here. In Sherbert, a member of the
Seventh-Day Adventist Church was discharged by her employer
because she would not work on Saturday, the Sabbath Day of her
faith. She was unable to obtain other employment in the vicinity
where she lived because of her religious belief that she could
not work on Saturday. South Carolina denied the appellant's
claim for unemployment benefits on the ground that she failed
without reasonable cause to accept available employment. This
Court held that disqualification of a Seventh-Day Adventist from
unemployment compensation solely because of her refusal to accept
employment in which she would have to work on Saturday violated
the Free Exercise Clause. The appellant in Sherbert was faced
with a constitutionally unacceptable choice. She had to give up
either her Sabbath Day or her economic means of survival. A
similar choice was involved in Thomas v. Review Board No. 79-952
(Apr. 6, 1981), in which the petitioner terminated his employment
when he was assigned to armament production. Petitioners face no
similar choice here.
Similarly, in Yoder, this Court upheld the claim of members
of the Old Order Amish sect that enforcement against them of a
state compulsory formal education requirment after the eighth
grade would violate the free exercise of their religion. The
interest of the state in requiring an additional one or two years
of formal high school attendance was deemed insufficient against
the claim that state formal education during the crucial
adolescent years would expose the children to worldly influences,
and thereby threaten the religious survivel of the our
as their children. The choice faced by the
Amish parents in Yoder thus was either to risk losing their
children from their faith or to violate the law. No such choice
need be made here. Although petitioners claim that their
discriminatory practices are the product of religious belief,
they are free to continue to maintain their racial restrictions
and relinquish their claim to tax exemption and deductible
charitable contributions. Unlike Sherbert and Yoder, the
Service's policy does not threaten the integrity of petitioner's
religious beliefs or obsevances. See also McDaniel V. Paty,
supra; Torcaso v. Watkins, 367 U.S. 488 (1961).
2. Finally, the court of appeals correctly held (81-3 Pet.
App. A15-A16) that the Service's policy did not transgress
Establishment Clause values because it avoids excessive
entanglement with religion by appyling its policy to all
religiously operated schools (as well as nonreligious schools).
Thus, contrary to petitioner Bob Jones University's contention
(Br. 32) the Service's policy does not have "the effect of
creating a religious preference" and "official hostility toward
non-preferred religions." In enforcing its ruling, the only
inquiry that the Service uniformly undertakes is the relatively
narrow inquiry whether the school maintains racially neutral
policies. Such an inquiry does not involve the government in
preferring one religion over another, or even concerning itself
with whether racial discrimination is motivated by religious
belief. All private schools must demonstrate compliance with the
nondiscrimination principle. Hence, the Service's policy does
not violate the Establishment Clause. As the court of appeals
pointed out (81-3 Pet. App. A16), "the principle of neutrality
embodied in this Establishment Clause does not prevent government
from enforcing its most fundamental constitutional and societal
values by means of a uniform policy, neutrally applied." See
Gillette V. United States, 401 U.S. 437, 454-458 (1971). "And,
the uniform application of the rule to all religiously operated
schools avoids the necessity for a potentially entangling inquiry
into whether a racially restrictive practice is the result of
sincere religious belief" (81-3 Pet. App. A16; emphasis in
original). Cf. Brown V. Dade Christian Schools, Inc., supra, 556
F.2d at 323-324 (Goldberg, J., concurring); Fiedler V. Marumsco
Christian School, supra, 631 F.2d 1144. Accordingly, the minimum
intrusion occasioned by the Commissioner's nondiscrimination
policy does not violate the Establishment Clause.
CONCLUSION
The judgments of the court of appeals shoud be affirmed.
Respectfully submitted.
LAWRENCE G. WALLACE * /
Acting Solicitor General
JOHN F. MURRAY
Acting Assistant Attorney General
STUART A. SMITH
Assistant to the Solicitor General
ROBERT S. POMERANCE
Attorney
DECEMBER 1981
/ The Solicitor General is disqualified in these cases.
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