The IRS and Private Schools

Late last year there was a considerable hue and cry raised about some proposed new regulations concerning the tax-exempt status of private schools. Since the category of private schools is a broad one, which includes any non-public primary or secondary school, be it religious or non-religious, be it church controlled or parent controlled or operated by a private corporation, our own Protestant Reformed Christian schools would also have fallen under the proposed new regulations. 

The purpose of the rules was to remove the tax-exempt status from what are called “segregation academies,” schools which were formed—and there are many of them in certain parts of the country—to counteract desegregation in the public schools. The rules were aimed especially at schools which were either opened or significantly expanded during .a period of local school desegregation. Loss of tax-exempt status would mean that contributors could not deduct donations from their tax returns, and it could also mean (although this is a state and a local matter) that school property could be taxed. 

I no longer have the originally proposed rules before me. But they were very stringent, and they were of such a nature that it is safe to say that if the IRS chose to apply them to any of our schools, the inevitable outcome would have been the loss of tax-exempt status. Schools were presumed to discriminate if their minority enrollment did not meet certain levels in relation to the local school-age minority population. And the burden of proof under those earlier proposals would have been on a school to show it had met four of the following five tests: minority scholarships, minority recruitment, minority teachers, increasing minority enrollment, and other evidence of good faith. 

However, those original rules which, if maintained, were to have gone into effect in late 1978, were challenged. According to an Associated Press dispatch in The Grand Rapids Press, the IRS proposals drew over 100,000 letters of protest, a record number of complaints in the history of the IRS. And after hearings were held about the matter, the proposed rules were somewhat modified. 

According to the same AP dispatch mentioned above, as well as according to a Religious News Service dispatch carried in recent issues of The Presbyterian Journal and Christian News, the revised guidelines proposed by the IRS embody the following elements: 

1. They give “greater weight to each school’s particular circumstances than did the earlier proposal in determining whether a school is racially discriminatory.” 

2. The revised procedure “sets forth standards to be applied to two categories of private elementary and secondary schools: those that have been held by a court or government agency to be racially discriminatory, and those whose formation or expansion is related to public school desegregation in the community served by the school, and do not have significant minority students enrollment.” 

3. “Under the new proposal, a school formed or substantially expanded at the time of public school desegregation will be classified as ‘reviewable’ if it has an insignificant minority enrollment and its formation or expansion is related in fact to public school desegregation in the community.” 

4. “A school classified as ‘reviewable’ will be considered racially discriminatory unless it has undertaken actions and programs reasonably designed to attract minority students on a continuing basis.” 

5. The dispatch also states: ‘”The new procedure does not require a minimum number of specified actions to be taken in every case, but provides greater flexibility for a school to show that it is operating on a racially nondiscriminatory basis.” 

The same RNS dispatch referred to above reports a mixed reaction from some interested parties to the proposed revised rules. A Roman Catholic representative is reported to have called the proposed .revised procedure “a substantial improvement” because it “demonstrates a degree of flexibility.” On the other hand, a Baptist spokesman, Dr. James Wood, was dissatisfied because the new proposal fails “to resolve a fundamental First Amendment issue.” The First Amendment is the so-called freedom of religion amendment. Dr. Wood is quoted as saying that the proposed revision “does not resolve the fundamental issue we raised at the December hearings, namely, the jurisdiction of the IRS over student enrollment in schools operated by churches and synagogues for their own members.” The dispatch goes on to report as follows:

“Does the government have the right to tell such schools that it should have any v6ice in the enrollment in schools established to serve their own religious community? Our answer is no,” Dr. Wood said. 

“The point here is not racial discrimination or racism,” he said, “because enrollment in religiously operated schools is generally based on the membership pattern” of the supporting church, synagogue or mosque. 

Also, the Baptist official asserted, the IRS, in an effort to be conciliatory, proposes to give in the revised procedures “preferential treatment to certain types of church schools, such as Catholic and Amish.” 

This amounts to “discrimination by the IRS” in favor of such schools, since they are singled out to the exclusion of others, Dr. Wood said. “The law must be non-discriminatory in all groups, not just Catholic and Amish,” he said. 

The IRS spokesman said public comments on the proposed revision should be submitted to the Internal Revenue Service by April 20.

Exactly what the alleged preferential treatment for certain types of church schools, such as Catholic and Amish, may be was not reported. My guess would be—and it is only a guess—that it has to do with the fact that certain religious groups have traditionally and for many, many years, long before the matter of racial integration became a public issue, operated their own schools for purely religious reasons, while in recent years and in some religious circles there has been a proliferation of private schools, partly because of gross dissatisfaction with the deteriorating public schools and partly, undoubtedly, because of racial integration being pressed in the public school systems. If this guess is correct, then I would also guess that our schools would also fall in the category of those entitled to preferential treatment. For it can without difficulty be demonstrated that Reformed people have for centuries held to the principle and the practice of Christian education for their children. The Church Order of Dordrecht enunciates this, for example. 

For the rest, however, we agree with the spirit of the remarks attributed to Dr. Wood in the above report. 

It seems rather obvious that there is only a difference of degree, not one of principle, between the first regulations and the revised regulations. Further, the difference is not very great. It seems obvious, too, that these regulations, if applied to our schools, could prove to be very detrimental from a financial point of view. We are not saying that the obstacle represented by these regulations, should they be applied, is insurmountable. This we do not believe. If need be, we could always operate without this tax-exempt status and operate as a regular, for-profit corporation; some have suggested that there might even be certain advantages in this. Nevertheless, the potential is present in these proposed regulations to make things difficult for our schools. Whether the revised regulations will be maintained remains to be seen. And whether, if maintained, these regulations will be applied to our Protestant Reformed Christian schools also remain to be seen. 

Meanwhile, it is not too late to let our voice be heard. The deadline for comments on the revised regulations is April 20. Any individual may address objections to the Internal Revenue Service on this subject. But I would particularly urge our school boards to consider communicating their dissent. Perhaps they could even do so unitedly through the Federation of Protestant Reformed School Societies.