Tax Exempt Religious Schools Under Attack: Conflicting Goals of Religious Freedom and Racial Integration
Tax Exempt Religious Schools Under Attack: Conflicting Goals of Religious Freedom and Racial Integration
Thomas Stephen Neuberger 0 1
Thomas C. Crumplar 0 1
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1 Thom as Stephen Neuberger and Thom as C. Crumplar, Tax Exempt Religious Schools Under Attack: Conflicting Goals of Religious Freedom and Racial Integration , 49 Fordham L. Rev. 229 (1980). Available at:
I. THE REVISED PROPOSED REVENUE PROCEDURE ...............................
T1. IRS AUTHORITY ......................................................
A. Section 501(c)(
) and the Common Law of Charitable Organizations .......
B. Tax Exemptions and Public Policy .....................................
1. The Public Policy Limitation ........................................
C. Tax Expenditure as Governmental Action ..............................
III. PROOF OF RACIAL DISCRIMINATION .........................................
A. Discriminatory Motive and the Order of Proof ..........................
B. Problem Areas in the Revised Revenue Procedure .......................
1. The Method and Allocation of Proof .................................
2. Failure to Require Discriminatory Motive or Purpose ..................
3. The Use of Statistics ...............................................
4. The Exclusion of Testimonial Proof ..................................
IV. THE FIRST AMIENDMENT RELIGION CLAUSES .....................................
A. The ,Religious School .................................................
B. The Religion Clauses ..................................................
1. The Establishment Clause ..........................................
a. Primary Effect ..................................................
b. Excessive Entanglement ..........................................
2. The Free Exercise Clause ...........................................
a. Religious Liberty ..............................................
b. The Impact Upon Religious Practice ..............................
c. Counterbalancing Compelling State Interests .......................
C. Potential Consequences in Adopting the Revenue Procedure ...............
D. A Narrowly Drawn State Interest ......................................
Delaware; J.D. 1974, Georgetown University. Mr. Neuberger's practice is centered on first and
fourteenth amendment litigation. He is a partner with the law firm of Bader, Dorsey &
Kreshtool, Wilmington, Del.
** Member of the Delaware and Kentucky Bars. B.A. 1971, University of Michigan; J.D.
1975, University of Virginia. Mr. Crumplar has written and lectured on tax exempt
organizations, and practices in both the tax and general civil litigation areas. He is associated with the law
firm of Bader, Dorsey & Kreshtool, Wilmington, Del.
HE religious school is a venerable American institution that
antedates the public school by many years.' In addition to providing
education, religious schools have preserved the integrity and identity of
religious groups whose members have sought to prevent their
children's minds from being shaped by forces contrary to their faith. 2 In
recent years, with the advent of what many parents view as conscious
hostility toward religion and religious values in the public schools, 3
and with the perceived concomitant growth of secular humanism in
those schools, 4 religious parents, in increasing numbers, have been
removing their children from public schools and placing them in newly
created or expanded religious schools. 5 This movement has been
accompanied by a growing number of lawsuits testing the
government's right to regulate or impose standards on religious schools in the
areas of, for example, curriculum, 6 labor relations, 7 unemployment
insurance 8 and zoning. 9
In the twenty-five years since Brown v. Board of Education,10 the
United States has also begun the long-delayed fulfillment of its
ises to blacks embodied in the thirteenth,"' fourteenth' 2 and fifteenth
amendments 13 of the Constitution. As a result, municipalities have
moved, often involuntarily, to desegregate primary and secondary
schools. 14 Simultaneously, an increasing number of private schools
have been established by parents of white children for the purpose of
providing education in an all-white school environment.' 5 These
socalled "segregation academies" first came under the scrutiny of the
Internal Revenue Service (IRS) in 1967, at which time it was
announced that racially discriminatory private schools, receiving direct
state aid, were not entitled to tax exempt status under the Internal
Revenue Code (the Code). 16 In 1971, in response to a court challenge,
the IRS ruled that this policy applied to private schools whether or not
state supported; 17 to qualify for favorable tax status, private schools
were required to adopt a racially nondiscriminatory admissions
policy.18 In 1975, the IRS made clear that this requirement applied to
church-related and church-operated schools as well as to private
nonsectarian schools. 19
By 1978, the IRS had reached the conclusion that its procedures for
identifying schools with racially discriminatory policies were
inadequate and that, despite having pledged an open admissions policy,
many private schools still practiced racial discrimination. 20
Consequently, the IRS announced a proposed revenue procedure designed to
identify these racially discriminatory schools and to deny such schools
tax exempt status. 21 Because eighty percent of all private schools are
church-related, 22 the regulation encountered substantial opposition in
the religious community, 23 led by religious school administrators who
perceived the procedure as permitting governmental scrutiny of far too
many aspects of a school's operation. 24 The uproar created by the
proposed revenue procedure prompted the IRS to issue a revised
proposed revenue procedure in February, 1979.25 Religious opposition,
however, continued unabated. Spokesmen for religious schools raised
questions concerning governmental neutrality toward religion,
encouragement of state-preferred religious beliefs, possible excessive
governmental entanglement with religion and potential infringement of the
free exercise of religion. 26 The issues raised by most, if not all of the
opposition, did not concern the right of racially discriminatory schools
to retain tax exemptions, but concerned the method by which the IRS
sought to implement its policy and the fear of the future consequences
of that implementation. 27
In response to this opposition, Congress voted in September 1979 to
amend a Treasury Department appropriations bill to deny the IRS
funding for use in implementing the revenue procedure.28
Nevertheless, the issue is not likely to disappear because the appropriations
limitation will remain in effect for only one year, after which the IRS
will have the opportunity to renew attempts to put the revised
procedure into effect. In addition, proponents of government action to
propel private school desegregation have filed a nationwide class
action, now pending, to compel the IRS to issue rules similar to those
found in the revenue procedure. 29 Any reluctance on the part of the
IRS to implement the revenue procedure is likely to revive this
The revised revenue procedure and its implementation are analyzed in
this Article from three perspectives: in Part II, the Article attempts to
ascertain whether the IRS has the statutory authority to promulgate
such a regulation. Part III analyzes the constitutional difficulties
created by the procedure's regulatory provisions relating to proof of
racially discriminatory practices. In Part IV, the Article addresses the
ultimate conflict between the revenue procedure's purpose to
ameliorate racial discrimination, by promoting school desegregation, and the
first amendment's guarantee of religious freedom. The Article argues
that the IRS does not possess the necessary statutory authority but that
29. Wright v. Blumenthal, No. 76-1426 (D.D.C. filed July 30, 1976). Commissioner Kurtz
stated at the Hearings,supranote 5, at 5, that the filing of this action and the reopening of related
litigation, see Green v. Blumenthal, No. 1355-69 (D.D.C. filed May 21, 1969), prompted the IRS
to review its procedures. Indeed, the original proposed revenue procedure arose out of that
review and resulted from a settlement with the plaintiffs in the two suits. Hearings.supra note S,
at 314, 385-86, 859-60. The relief requested in the Wright v. Blumenthal complaint bears a
striking similarity to the revised revenue procedure. See pt. I infra. Brought on behalf of minority
school children attending public schools, the suit seeks to permanently enjoin the IRS from
granting new or continuing existing federal tax exemptions to racially discriminatory private
schools and the organizations which operate them, including churches. The complaint identifies
these schools as having "insubstantial and nonexistent minority enrollments, which are located in
or serve desegregating public school districts, and which either (a) were established or expanded
at or about the time the public school districts in which they are located or which they serve
began desegregating;, (b) have been determined in adversary judicial or administrative
proceedings to be racially segregated; or (c) cannot demonstrate that they do not provide racially
segregated educational opportunities for white children avoiding attendance in desegregating
public school systems." Complaint at 3-4. Of the 16 schools listed in the complaint as illustrative
examples of racially segregated private schools, over one-third are either religiously affiliated or
operated directly by churches, including the Catholic, Episcopalian, Methodist and Southern
Baptist churches. Id. at 12-25. It is problematic whether these religious schools would be
adequately represented in the event the suit is revived, in that the IRS, the defendant in this
action, has in effect adopted the plaintiff's position in its revised proposed revenue procedure.
Hearings, supra note 5, at 5 (statement of Jerome Kurtz).
30. The plaintiffs' representatives denounced the revised revenue procedure as inadequate
and indicated they would press their suit irrespective of any action taken by Congress or the IRS.
Hearings, supra note 5, at 483-84 (statement of E. Richard Larson); id. at 493 (statement of Bill
even if it did, the revenue procedure's regulatory provisions, as
presently formulated, may violate constitutional requirements of due
process. Finally, it is argued that, in the absence of clearly expressed
congressional action to devise alternatives to the revenue procedure,
the procedure violates both the establishment and free exercise clauses
of the first amendment. The Article sets out preliminary suggestions
upon which Congress may act. The analysis begins with an elaboration
of the purposes and provisions of the revised revenue procedure.
THE REVISED PROPOSED REVENUE PROCEDURE
The IRS views the revised proposed revenue procedure not as a new
substantive advance, but as a continuation of the decade-old IRS
policy that private schools practicing racial discrimination should not
enjoy tax exempt status. 3 I The stated purpose of the revenue
procedure is to set "forth guidelines to ideiitify certain private elementary and
secondary schools that are racially discriminatory, even though they
claim to have a racially nondiscriminatory policy as to students. 32
The procedure is directed to two classifications of schools, those
adjudicated to be discriminatory and those found to be reviewable. If a
school is in either category, the IRS will commence proceedings to
revoke any previously granted tax exemption or to deny any pending
application for such an exemption. 33
A school is adjudicated to be discriminatory if found to be racially
discriminatory with respect to the admission of students by a final
decision of a state or federal court, or by final state or federal agency
action after a "hearing and an opportunity to submit evidence." 34
Notwithstanding such an adjudication, the revenue procedure requires
the IRS to consider a school nondiscriminatory if the school can show
either of the following: (
) that the school has a significant minority
enrollment, 35 or (
) that it has endeavored in good faith "to attract
minority students on a continuing basis."' 36 In the latter case, however,
minority students to obtain a
an adjudicated school must enrothllesoImReS. 37
nondiscriminatory rating from
The firestorm of protest encountered by the IRS38 relates to its
handling of "reviewable schools." The revenue procedure defines a
reviewable school as one
(i) formed or substantially expanded at the time of public school desegregation in the
community served by the school; (ii) which does not have significant minority student
enrollment; and, (iii) whose creation or substantial expansion was related in fact to
public school desegregation39in the community. . .. [A]ill three of the foregoing
characteristics [must] exist.
The time period during which a school's formation or expansion would
be examined spans the period beginning one year before the
implementation of public school desegregation in the community, and ending
three years after substantial implementation of a desegregation plan. 40
Whether a school has significant minority student enrollment "depends
on all the relevant facts and circumstances,"14 1 but if the school's
percentage of minority students is less than twenty percent of the
percentage of the minority school age population in "the community
served by the school," the school falls within the second characteristic
of a reviewable school regardless of mitigating circumstances. 4 2
In explaining the meaning of the crucial third characteristic, the IRS
has stated the general rule that "the formation or substantial expansion
of a school at the time of public school desegregation in the community
will be considered to be related in fact to public school
desegregation."'4 3 Thus, the third characteristic is presumed from the existence
of the first one. The IRS will, however, consider objective evidence to
the contrary, "taking into account all the facts and circumstances
relating to the school's formation or expansion."44 Such evidence may
be used to persuade the IRS that the school should not be categorized
36. Id. § 4.01(b). Examples of actions or programs that would satisfy this requirement include
vigorous minority recruitment programs, minority scholarships or financial assistance,
employment of minority teachers and professional staffs, joint programs with integrated schools, special
minority oriented curriculum and minority participation in the governance of the school. In
addition, the revised procedure provides that "[t]he failure of such actions or programs to obtain
some minority student enrollment within a reasonable period of time wvill be a factor in
determining whether such activities are adequate or are undertaken in good faith." Id. § 4.03.
37. Id. § 4.01(b).
38. See notes 22-27 supra and accompanying text.
39. Rev. Proc., supra note 25, § 3.03.
40. Id. § 3.03(a).
41. Id. § 3.03(b).
42. Id.; see note 35 supra.
43. Rev. Proc., supra note 25, § 3.03(c).
In any event, if the IRS classifies a school as reviewable, the school
can still be considered nondiscriminatory if it can show it has
endeavored in good faith "to attract minority students on a continuing
adjudicated to be discriminatorym. a45y be shown by schools previously
basis," in the same manner as
The revenue procedure contains two provisions of special relevance
to the operation of religious, as opposed to secular, private schools.
First, as to the third characteristic used to define reviewable schools, it
may be shown that a school's formation or expansion is not related in
fact to public school desegregation in that the school has been formed
or expanded by a denomination having a "longstanding practice" of
providing religious education. 46 Catholics and Lutherans, for example,
have a longstanding practice of maintaining religious schools and
arguably fall within this category. 47 Second, in determining whether a
school has a significant minority enrollment, the revised procedure
mandates the IRS to consider
special circumstances which limit the school's ability to attract minority students, such
as an emphasis on special programs or special curricula which by their nature are of
interest only to identifiable groups which are not composed of a significant number of
minority students, so mloinngoriatisess.u48ch programs or curricula are not offered for the
purpose of excluding
Hebrew day schools arguably fall within this exception.4 9
The initial question raised by the revenue procedure is whether the
IRS, an agency created to collect tax revenue,50 has the statutory
authority to promulgate rules affecting interscholastic athletic
schedules, curriculum and faculty hiring s simply because a school has or is
seeking tax exempt status under section 501(c)(
) of the Internal
Revenue Code. Three separate arguments have been advanced in
support of this authority: first, section 501(c)(
) grants a tax exemption
only to organizations defined as "charitable" at common law, and a
private school that operates on a racially discriminatory basis is not
such an organization;5 2 second, to grant tax exempt status to
discriminatory schools would contravene congressional intent not to provide
tax deductions and exemptions to organizations engaging in illegal
activities or in activities contrary to public policy;5 3 and finally, the
granting of tax benefits to discriminatory schools fosters the creation
and maintenance of these schools in a manner such that the school's
private conduct can be characterized as governmental action
proscribed by the Constitution's prohibition against discrimination on the
basis of race.54
) and the Common Law of Charitable
According to the IRS's interpretation of congressional intent, the
Code grants tax exemptions only to those organizations classified as
"charitable" under the common law of charitable trusts, regardless of
whether they otherwise meet the requirements of section 501(c)(
Thus, a religious or educational organization would not qualify for
) status unless such organization was also a common
law charity.5 6 Further, the IRS asserts 57 that a common law charity
cannot have "a purpose the accomplishment of which is contrary to
public policy." 58 Therefore, because there is an established federal
policy against racial discrimination reflected in the civil rights laws and
the thirteenth, fourteenth and fifteenth amendments, 5 9 a racially
discriminatory private school would not qualify for tax exempt status.60
The plain meaning and grammatical structure of, both section
) and the IRS's own regulations, however, suggest that its
interpretation is erroneous. The word "charitable" is used in section
) neither as an introduction to the listing of exempt
organizations nor in any fashion typical of a generic term. Instead, it appears as
one of the eight adjectives modifying "purposes."' 6 1 The use of
"charitable" as descriptive of one trpe of tax exempt purpose is even more
pronounced in the IRS's regulations.62 In addition to restating seven of
the eight exempt purposes of section 501(c)(
), 63 the regulation
provides that "[s]ince each of the purposes specified . . . is an exempt
purpose in itself, an organization may be exempt if it is organized and
operated exclusively for any one or more of such purposes. ' 64 The
regulation also clarifies and explains the place of the term "charitable"
in the statutory scheme. Unlike the six other rather narrowly defined
categories, "charitable" is given an expansive definition: "The term
'charitable' is used in section 501(c)(
) in its generally accepted legal
sense and is, therefore, not to be construed as limited by the separate
enumeration in section 501(c)(
) of other tax-exempt purposes which
may fall within the broad outlines of 'charity' as developed by judicial
decisions."'65 Thus, it would seem that "charitable" functions as a
catchall category for organizations that do not otherwise qualify under
the seven specific tax exempt purposes. Indeed, the Supreme Court has
recognized the distinction between charitable purposes and the other
statutory exempt purposes:
The Code ... accords advantageous treatment to several types of nonprofit
corporations .... Nonprofit hospitals have never received these benefits as a favored general
category, but an individual nonprofit hospital has been able to claim them if it could
qualify as a corporation "organized and operated exclusively for . . . charitable .
purposes" within the meaning of [section] 501(c)(
) .... 66
Further, an argument that "charitable" encompasses all the section
) categories is belied by the fact that until 1964, deductible
status of up to thirty percent of adjusted gross income was afforded an
individual contributing to a church or an educational organization that
maintained a regular faculty and student body, whereas a contributor
to a general charitable organization was limited to deductions of up to
61. It is listed between "religious" and "scientific". I.R.C. § 501(c)(
); see note 16 supra.
62. Treas. Reg. § 1.501(c)(
63. The "amateur athletics" exemption, added to § 501(c)(
) by the Tax Reform Act of 1976,
Pub. L. No. 94-455, § 1313(a), 90 Stat. 1730, is not yet considered by the current regulation. Tie
IRS has, however, promulgated a proposed rule to include this exemption. 44 Fed. Reg. 27,446
64. Treas. Reg. § 1.501(c)(
65. Id. § 1.501(c)(
66. Simon v. Eastern Ky. Welfare Rights Org., 426 U.S. 26, 28-29 (1976) (quoting I.R.C.
twenty percent of his adjusted gross income. 7 Thus, charitable
organizations were treated differently than religious and educational
organizations. The Code also afforded a special status prior to 1969 to
certain religious and educational organizations, such as churches and
schools, 68 exempting such organizations from the prohibited
transactions and reporting requirements. In contrast, other charitable
organizations had to show that they received primary support from either the
government or the general public in order to gain exemption from
The argument in favor of treating all the section 501(c)(
alike is supported by an interpretation of the legislative history of the
statute, which suggests that Congress granted tax benefits to certain
private institutions performing worthwhile public services because, by
fostering their growth, the nation would receive benefits in return. 70
The Supreme Court, however, has recognized that unlike other tax
exempt organizations, a religious organization's tax exempt status need
not be justified by the public services it may provide. 71 Instead, the
Court has accepted the historical view that the religion clauses of the
first amendment authorize statutory tax exemptions. 72 Thus, because
religious organizations have not been treated the same as the other
) organizations, it follows that charitable purposes do
not necessarily encompass religious purposes.
A final argument advanced in support of a generic reading of
"charitable" in section 501(c)(
) is that charitable is a flexible term the
meaning of which constantly changes to fit community mores. 73 Such
uncertainty in the meaning of a statute may be precisely the reason
Congress did not grant exemptions by reference to the law of
charitable trusts, but instead specifically exempted certain types of
organizations that it believed should be exempt regardless of whether they
qualified as common law charities. Otherwise, bona fide educational
organizations would have been exposed to whims of public fashion.
For example, Justice Story remarked in 1844 that a school organized to
teach the principles of Judaism would not be considered charitable. 7 4
Similarly, in 1919, anti-German sentiment prompted Nebraska's
legislature to prohibit the teaching of the German language in private
Lutheran schools. 75
The second source of IRS authority to promulgate the revenue
procedure relies upon the principle that illegal activities or activities
contrary to public policy should not enjoy tax deductions or
exemptions. 76 In Green v. Connally,7 7 the court invoked this principle and
ordered the IRS to deny tax exempt status to self-declared segregation
academies in Mississippi and to require as a prerequisite to a school's
tax exempt status that it publicize its nondiscriminatory policy
throughout the community.78 To do otherwise, the court held, would
frustrate established federal policy against discrimination and
specifically recognized the tax exempt status of societies for the prevention of cruelty to animals,
an English case held that a trust for the prevention of vivisection was a valid charitable trust. In
re Foveaux,  2 Ch. 501. Today, however, it appears that but for their specific statutory
listing, such societies would not be considered charitable, because the House of Lords overruled
Foveaux in National Anti-Vivisection Soc'y v. Inland Revenue Comm'rs  A.C. 31 (P.C.).
That case held that the prevention of vivisection impeded medical research and therefore could
not be beneficial to the community.
74. Vidal v. Girard Ex'rs, 43 U.S. (2 How.) 127, 198-200 (1844). But cf. Unity School of
Christianity, 4 B.T.A. 61, 70 (1926) ("Religion is not confined to a sect or a ritual. The symbols of
religion to one are anathema to another. What one may regard as charity another may scorn as
foolish waste. And even education is (today] not free front divergence of view as to Its validity.
Congress left open the door of tax exemption to all corporations meeting the test, the restriction
being not as to the species of religion, charity, science or education under which they might
operate, but as to the use of its profits and the exclusive purpose of its existence.").
75. Meyer v. Nebraska, 262 U.S. 390 (1923).
76. See note 53 supra and accompanying text.
77. 330 F. Supp. 1150, 1161-62 (D.D.C.), aff'd mem. sub nom. Coit v. Green, 404 U.S. 997
(1971). As a defendant in Green v. Connally, the IRS initially contended that tax exempt status
could be accorded to racially segregated private schools but, while the case was on appeal, the
IRS reversed its position. For this reason, the Supreme Court noted that its affirmance of Green
v. Connally lacked "the precedential weight of a case involving a truly adversary controversy."
Bob Jones Univ. v. Simon, 416 U.S. 725, 740 n.11 (1974).
78. 330 F. Supp. at 1173-76.
79. Id. at 1161-64.
The Green court specifically declined to consider the status of
schools that maintain segregation policies pursuant to their religious
beliefs.8 0 Subsequently, however, in Goldsboro Christian Schools, Inc.
v. United States,8 1 the court upheld the IRS's refusal to grant tax
exempt status to a religious school that had a self-declared racially
discriminatory policy, notwpoitlhicsytanodninsgintcheereasrseulmigieodusfacbtetliheafst.8th2e school
based its discriminatory
A recent decision, however, suggests that the public policy doctrine
should be restricted to cases in which a taxpayer acts in a manner
directly contrary to a sharply defined federal policy. In Bob Jones
University v. United States, 83 a college admitted students without
regard to race, unlike the schools in Green and Goldsboro. It did,
however, prohibit interracial dating among its students in an attempt
to minimize the likelihood of interracial marriage, a practice contrary
to its religious beliefs.8 4 The IRS maintained that the college had a
racially discriminatory code of student conduct that contravened
public policy and therefore refused to grant the school tax exempt statusAs
The court disagreed, holding that although a federal public policy
condemned racially discriminatory admissions practices in educational
institutions, no corresponding clearly declared federal policy prohibited
the practice at issue by a religious organization, especially when the
organization granted equal access to all races.8 6 Any broad application
of the public policy doctrine, the court warned, would invest in the
IRS the power to determine what constitutes federal public policy on a
day-to-day basis, giving rise to "bureaucratic tyranny. 8 7 Because the
decision in Bob Jones apparently conflicts with the decisions in Green
and Goldsboro, an examination of the case law from which the public
policy limitation is derived is necessary.
As the Green court noted, most of the precedent dealing with the
public policy limitation consists of cases involving the deductibility of
80. Id. at 1169.
81. 436 F. Supp. 1314 (E.D.N.C. 1977).
82. Id. at 1315-16. The religious school in Goldsboro sought exemption from federal social
security arild unemployment taxes. Id. at 1316.
83. 468 F. Supp. 890 (D.S.C. 1978). Although the revenue procedure expressly exempts
colleges and universities from its application, Rev. Proc., supra note 25, § 2.05, this case was
decided before the revenue procedure was promulgated and its discussion of what public policy
consists of is relevant to consideration of the public policy limitation on tax benefits. See
Hearings, supra note 5, at 5 (statement of Jerome Kurtz).
84. 468 F. Supp. at 894-95.
85. Id. at 896. The student conduct code also included prohibitions against dancing, card
playing, use of tobacco, movie-going and "questionable" music such as jazz and rock-and-roll. Id.
86. Id. at 897.
87. Id. at 905.
fines, bribes and illegal kickbacks paid in a business context. 8 8 These
cases indicate that the public policy limitation is one of narrow
In Commissioner v. Tellier,s9 the Court held that attorneys' fees
incurred in an unsuccessful criminal defense for securities fraud were
deductible as a business expense. The Court said that any public policy
analysis must start
with the proposition that the federal income tax is a tax on net income, not a sanction
against wrongdoing. That principle has been firmly embedded in the tax statute from
the beginning. One familiar facet of the principle is the truism that the statute does not
concern itself with the lawfulness of the income that it taxes. Income from a criminal
ceontnevrepnritsioenails stoauxrecdes.a9t0 a rate no higher and no lower than income from more
Accordingly, in Commissioner v. Sullivan,9 deductions were allowed
for rent and wages paid by the operators of a gambling enterprise,
even though both the business and the specific rent and wage
payments in question were illegal under state law. 92
Courts have applied the public policy limitation only when the
deduction or exemption would severely and immediately frustrate a
sharply defined national or state policy prohibiting particular types of
conduct. Thus, in Tank Truck Rentals, Inc. v. Commissioner,93 relied
on in Green 94 and Goldsboro,9 5 the Supreme Court denied as regular
business deductions fines paid for violation of state maximum truck
weight laws, noting that to allow such deductions would directly
the penalty prescribed by the state legislat"ubrye. r e'9d6ucing the 'sting' of
encourage continued violation of state law
Whether the relationship between the taxpayer's action and the tax
benefit is so close that allowance of the benefit would encourage the
taxpayer to continue its unlawful actions in direct frustration of the
state's policy is a question of fact. Therefore, the results in Green,
Goldsboro and Bob Jones may not, in fact, be inconsistent. In Green,
the court found that the tax benefit would encourage the continued
existence of the racially discriminatory school because "the
granting of the Federal tax exemption would be a 'significant factor' that
would 'aid the school in obtaining finances.' ,97 Similarly, in
Goldsboro, the court stated that conferring tax benefits would
effectively encourage the organizations benefitted. 98 In both cases,
therefore, conferral of tax benefits would clearly have frustrated public
policy against racial discrimination in educational institutions. In Bob
Jones, however, the court found that the school's religious beliefs were
immutable and therefore not subject to influence by the IRS's
allowance of tax benefits. 99 For this reason, in construing Tantk Truck to
require a showing that conferral of the tax benefits "severely and
immediately" frustrated public policy, the court concluded that the tax
benefit could not have the effect of encouraging the plaintiff to
discriminate. 10 0 Therefore, national public policy would not be
The importance of specific facts in determining the applicability of
the public policy limitation illustrates one of the fundamental problems
with using this doctrine as support for the IRS's authority to
promulgate the revenue procedure. It is one thing to use the public policy
limitation to justify a narrow class of judicial decisions but quite
another to use it as a superstructure upon which an entire
administrative procedure is based. Although it is essential to demonstrate that the
taxpayer's action has been influenced by conferral of a tax benefit,
when invoking the public policy limitation in a judicial proceeding,
there is no provision in the revenue procedure which would require
such a threshold finding. Further, such a broad interpretation of the
public policy limitation would force the IRS into the role of arbiter of
the nation's public policy. 10 '
It is noteworthy that the scope of the public policy limitation has
been narrowed by Congress. In 1969, Congress enacted a set of
omitted), appeals dismissedfor want ofjurisdictionsub non. Coit v. Green, 400 U.S. 986 (1971);
Cannon v. Green, 398 U.S. 956 (1970). In Kennedy, an earlier decision in the litigation
culminating in Green v. Connally, the court preliminarily enjoined the IRS from granting tax
deductions for contributions made to self-declared racially discriminatory private schools. Id. at
1140. In Green v. Connally, the same court reiterated its earlier findings and issued a permanent
injunction. 330 F. Supp. at 1155, 1179-80.
98. 436 F. Supp. at 1319.
99. 468 F. Supp. at 903.
100. Id. at 905.
101. In Commissioner v. "Americans United" Inc., 416 U.S. 752 (1974), Justice Blackmun
lamented the fact that the IRS possessed "unfettered power .... This may be very well so long as
one subscribes to the particular brand of social policy the Commissioner happens to be advocating
at the time ... but application of our tax laws should not operate in so fickle a fashion. Surely,
social policy in the first instance is a matter for legislative concern." Id. at 774-75 (Blackmun, J.,
dissenting). Interestingly, in 1968 the National Board of the American Civil Liberties Union split
over whether the public policy limitation should be invoked to deny tax exempt status to
discriminatory private schools. The ACLU recalled the period 20 years earlier when the IRS
revoked the tax exempt status of many organizations for alleged communist leanings. At the time,
the IRS reasoned that to hold such beliefs was to violate national policy. Hearings,supra note S,
at 576 (statement of William Lehrfeld).
statutory rules to govern the deductibility of fines, bribes and illegal
kickbacks made in the business context. 10 2 In describing the
legislation, the Senate Finance Committee stated that the rules applied only
to the circumstances specified in the legislation and that "[p]ublic
policy, in other circumstances, generally is not sufficiently clearly
defined to justify the disallowance of deductions."'11 3 This position was
modified somewhat in 1976, however, when Congress obliquely
suggested that the public policy limitation, in the narrow category of
self-declared discriminatory admissions policies, remained a viable
doctrine.104 If Congress similarly drafted a narrow restriction on the
tax code prohibiting exemptions to religious schools with self-declared
discriminatory admissions policies and to schools previously
adjudicated to be discriminatory, it would be issuing a clear directive on
national public policy in this area. 10 5 Thus, the public policy limitation
would apply to such schools, but its scope would be insufficiently
broad to include reviewable schools as well.
Tax Expenditure as Governmental Action
The third argument advanced in support of the IRS revenue
procedure is a constitutional one-that the government, by granting tax
exempt and tax deductible status to racially discriminatory schools, is
participating in the maintenance of a segregated school system in
violation of the constitutional prohibition against racial
Although the Constitution "erects no shield against merely
private conduct, however discriminatory or wrongful,' 0 7 the
government cannot avoid constitutional proscriptions merely by acting
rectly through private rather than public entities. 10 Thus, if private
conduct can be characterized as governmental action, it is subject to
constitutional strictures. 10 9 On this ground, the courts have
consistently struck down attempts by southern legislatures to encourage the
creation of private segregated schools as a means of avoiding school
integration.1 10 The constitutional problem is not cured simply because
the aid is given indirectly in the form of a tax expenditure," 1 ' such as
tax exemptions, deductions or credits. As the Supreme Court
demonstrated in Walz v. Tax Commnission, 112 however, not all tax
expenditures create an impermissible degree of government involvement.
Thus, the issue is to determine whether the government, in light of the
particular facts and circumstances involved, by granting tax exempt
status, has "so far insinuated itself into a position of interdependence
with [the private entity] that it must be recognized as a joint
participant in the challenged activity." ' 1 3 Although courts have enjoined the
privately owned public park); Public Utilities Comm'n v. Pollak, 343 U.S. 451 (1952) (municipal
authority specifically approved private railroad company's broadcast of radio programs on its
trolleys and buses).
109. Jackson v. Metropolitan Edison Co., 419 U.S. 345, 349-51 (1974); Moose Lodge No. 107
v. Irvis, 407 U.S. 163, 172 (1972); Burton v. Wilmington Parking Auth., 365 U.S. 715, 721-22
(1961); The Civil Rights Cases, 109 U.S. 3, 11 (1883).
110. Norwood v. Harrison, 413 U.S. 455 (1973) (Mississippi's providing of free text books),
Griffin v. County School Bd., 377 U.S. 218 (1964) (Virginia's operation of segregated private
schools in place of public schools); Coffey v. State Educ. Fin. Comm'n, 296 F. Supp. 1389 (S.D.
Miss. 1969) (Mississippi's tuition grant program); Poindexter v. Louisiana Financial Assistance
Comm'n, 275 F. Supp. 833 (E.D. La. 1967) (Louisiana's tuition grant program), aff'd mem., 389
U.S. 571 (1968); Lee v. Macon County Bd. of Educ., 231 F. Supp. 743 (M.D. Ala. 1964)
(Alabama's grant-in-aid payments); cf. Gilmore v. City of Montgomery, 417 U.S. 556 (1974) (city
cannot permit exclusive access to recreational facilities by segregated private schools).
111. See, e.g., Committee for Pub. Educ. v. Nyquist 413 U.S. 756 (1973). For a discussion
of tax expenditures, see Brown, State Action Analysis of Tax Expenditures, 11 Harv. C.R.-C.L.
L. Rev. 97, 97 n.2 (1976).
112. 397 U.S. 664 (1970).
113. Burton v. Wilmington Parking Auth., 365 U.S. 715, 725 (1961); accord, Moose Lodge
No. 107 v. Irvis, 407 U.S. 163, 175 (1972) ("symbiotic relationship"). An alternate approach to
finding governmental action is an application of the "public function" doctrine. See Flagg Bros.,
Inc. v. Brooks, 436 U.S. 149 (1978); Jackson v. Metropolitan Edison Co., 419 U.S. 345 (1974).
The doctrine provides that, despite the absence of actual government encouragement or support,
governmental action is present when a private entity exercises "powers traditionally exclusively
reserved to the [government]." Id. at 352; see, e.g., Terry v. Adams, 345 U.S. 461 (1953) (private
organization conducting political elections); Marsh v. Alabama, 326 U.S. 501 (1946) (corporation
performing all necessary municipal functions). But see, e.g., Flagg Bros., Inc. v. Brooks, 436
U.S. 149 (1978) (proposed private sale of goods by the holder of a security interest pursuant to the
New York Uniform Commercial Code is not a public function); Jackson v. Metropolitan Edison
Co., 419 U.S. 345 (1974) (private utility's supplying a city with electricity is not a public function).
In light of the Supreme Court's narrow construction of the public function doctrine, Flagg Bros.,
Inc. v. Brooks, 436 U.S. at 159-64; see The Supreme Court, 1977 Term, 92 Harv. L. Rev. 57,
120-31 (1978), it is unlikely that the education of children would be held to be a "traditionally
exclusive" sovereign function. Thus, to find governmental action in such education, some
government encouragement and support of the private entity's actions would have to be shown.
grant of tax benefits to fraternal organizations with self-declared
racially discriminatory membership policies,1 1 4 it is unclear that the
same result would obtain with respect to religious schools.
McGlotten v. Connallytl5 is the leading case to consider whether the
grant of tax benefits to a private organization that discriminates on the
basis of race implicates the government in that conduct. In McGlotten,
the court held that the IRS could not constitutionally accord tax
exempt and tax deductible status to fraternal organizations with
racially discriminatory membership rules because the tax benefits
constituted government support and encouragement of the discrimination. 116
The court noted, however, that not all tax exemptions and deductions
created constitutional difficulties, stating that the tax benefit must first
be classified as a subsidy, rather than as a provision serving merely to
define the term "income."' 17 If classified as a subsidy, the court will
look further to determine whether the tax benefit indicates
governmental approval of the discriminatory organization by considering certain
factors: first, the public nature of the activity of the tax favored
organization; second, the degree of control retained by the government
over such organizations; and third, special tax status as an imprimatur
of governmental approval.1 18
114. Falkenstein v. Department of Revenue, 350 F. Supp. 887 (D. Or. 1972), appeal
dismissed for want of jurisdictionsub nom. Oregon State Elks Ass'n v. Falkenstein, 409 U.S.
1099 (1973); McGlotten v. Connally, 338 F. Supp. 448 (D.D.C. 1972); Pitts v. Department of
Revenue, 333 F. Supp. 662 (E.D. Wis. 1971); Brunson v. Rutherford Lodge No. 547, 128 N.J.
Super. 66, 319 A.2d 80 (1974); cf. Jackson v. Statler Foundation, 496 F.2d 623 (2d Cir. 1974),
cert. denied, 420 U.S. 927 (1975) (private charitable foundation).
115. 338 F. Supp. 448 (D.D.C. 1972).
116. Id. at 456.
117. Id. at 458; see Bittker & Kaufman, supra note 88, at 62.
118. 338 F. Supp. at 456. The McGlotten decision produced a ringing critique by Professors
Bittker and Kaufman, who characterize the decision as legally unsound and inherently
contradictory. Bittker & Kaufman, supranote 88, at 54-55. They warn that, if extended, the decision could
result in the constitutionalizing of the Internal Revenue Code, to the extent that no one who
receives any tax benefit would be immune from constitutional strictures. Id. at 86-87.
Specifically, they note that, under the tripartite test announced in McGlotten, no distinction can be
made between deductions allowed by I.R.C. § 170 for charitable contributions and those allowed
by I.R.C. § 167(k) for rehabilitating low income housing. The latter receives a tax benefit
characterized in McGlotten as not constitutionally sensitive. Professors Bittker and Kaufman
note, however, that § 167(k) is more clearly in purpose and in effect an incentive to a taxpayer's
behavior than is a deduction for contributions to fraternal organizations. Id. at 73. Further,
promotion of low income housing is certainly more of a public function than are the activities
carried on by fraternal organizations. Id. Moreover, § 167(k) is encased in a variety of restrictions
far greater than those governing deductions under § 170. Id. at 74. Finally, a builder who needs
mortgage or equity money from private investors is likely to ask the IRS for a ruling of the sort
that the McGlotten court would regard as a governmental "imprimatur," in order to satisfy
investors that the project meets the requirements of § 167(k). Id.
Notwithstanding the numerous problems inherent in using tax benefits as a basis for finding
governmental action, other commentators have urged that the concept should be retained for the
limited class of constitutional cases involving invidious racial distinctions. See, e.g., Brown,
supra note 111; Comment, Tax Incentives as State Action, 122 U. Pa. L. Rev. 414 (1973). This
Under the McGlotten analysis, it is not certain that the tax benefits
accorded religious schools amount to governmental encouragement and
support of those schools. First, unlike the situation in Green v.
Connally in which the court suggested that governmental action might
be present," 9 there has been no showing that government at any level
has actively encouraged the establishment "under private auspices the
kind of racially segregated dual school system that the state formerly
supported. 1 20 Second, it appears that the exemption accorded
religious schools under section 501(c)(
) is a product of income definition
rather than an affirmative government tax subsidy. As Professor
Bittker has indicated, the exemption given to nonprofit organizations
in the Internal Revenue Code could have been as easily made by
"rephrasing the statutory language to provide that 'the income of
organizations conducted for profit and of natural persons shall be
taxed.' ",121 Indeed, the language of section 501(c)(
) causes an
exemption to turn on whether any "part of the net earnings of [the entity]
inures to the benefit of any private shareholder or individual."'1 22 This
language reinforces the view that these Code provisions represent an
attempt to tax individual and profit-oriented organizations rather than
to award subsidies to nonprofit groups.
The deductibility of contributions to a religious organization does,
however, operate as an incentive to taxpayers to channel gifts to
churches and other religious organizations. Assuming that creating this
incentive is sufficient to classify the tax benefit as a subsidy, an
application of the McGlotten analysis produces the following
evaluation. First, whether these contributions serve a public governmental
function depends on whether they relieve the government of the
"burden of meeting public needs" that would otherwise remain the
government's responsibility. 123 The Supreme Court in Walz specifically
use of the concept has apparently been persuasive with the courts as attempts to apply McGiotten
to claims involving sexual discrimination, New York City Jaycees, Inc. v. United States Jaycees,
Inc., 512 F.2d 856 (2d Cir. 1975); Junior Chamber of Commerce v. United States Jaycees, 49S
F.2d 883 (10th Cir.), cert. denied, 419 U.S. 1026 (1974); Stearns v. Veterans of Foreign Wars,
394 F. Supp. 138 (D.D.C. 1975), cert. denied, 429 U.S. 822 (1976), denial of first amendment
rights, Marker v. Schultz, 485 F.2d 1003 (D.C. Cir. 1973), and denial of due process, Greenya v.
George Washington Univ., 512 F.2d 556 (D.C. Cir.), cert. denied, 423 U.S. 995 (1975), have all
119. 330 F. Supp. at 1164-65; see Green v. Kennedy, 309 F. Supp. 1127, 1134 (D.D.C. 1970)
(per curiam) (court preliminarily enjoined the granting of tax deductions in the Green v. Connally
litigation), appeals dismissed for want of jurisdiction sub nor. Coit v. Green, 400 U.S. 986
(1971); Cannon v. Green, 398 U.S. 956 (1970).
120. Green v. Kennedy, 309 F. Supp. 1127, 1137 (D.D.C. 1970) (per curiam), appeals
dismissedfor want ofjurisdictionsub non. Coit v. Green, 400 U.S. 986 (1971); Cannon v. Green,
398 U.S. 956 (1970).
121. Bittker, Churches, Taxes and the Constitution, 78 Yale L.J. 1285, 1288-89 (1969)
122. I.RtC. § 501(c)(
123. 338 F. Supp. at 456.
difference between the size of the actual and expected minority student
body by the standard deviation.11 3
For example, imagine part of a midwestern state where the
parochial schools have historically been Lutheran. Assume further that there
is a growing number of parents desiring to educate their children in
parochial schools of their particular faith. Most of these parents,
members of several local Reformed Presbyterian churches, are
concerned with the quality of education and the philosophy of secular
humanism in the public schools. A pastor at a local Reformed
Presbyterian church leads an effort to establish a religious school. At the
same time, a court determines that a surrounding public school district
has discriminated against a particular racial minority and puts into
effect a plan of racial desegregation. The new church school draws
students from the public school district. The school has established and
publicized a nondiscriminatory policy with respect to race. Its only
criteria for the choice of faculty and students is that they accept the
religious beliefs of the Reformed Presbyterian Church. There are,
however, few members of the racial minority in the geographical area
who are also members of the group of Reformed Presbyterian churches
from which all the school's founders and trustees, and nearly all its
students are drawn. The school initially enrolls 250 students, ten of
whom are black. Thirty percent of the school age population in the
general geographic area from which the school draws its students is
black, but only six percent of the school age population are blacks
holding Reformed Presbyterian beliefs.
An application of the revenue procedure's definition of significant
minority enrollment 74 indicates that the school has not enrolled a
sufficient number of black students because it has enrolled less than
fifteen blacks. 175 Applying the Castaneda formula, 1 6 a use of the
thirty percent figure representing the percentage of black school age
children in the community to compute the standard deviation has the
following result: Out of a total student body of 250, the expected
number of blacks is seventy-five but the observed number is ten. The
standard deviation is approximately seven. 17 7 Thus, the difference
between the expected number of black students and the observed
number is a significant disparity because it is more than nine standard
deviations. If, however, the six percent figure representing the
percentage of black school age Reformed Presbyterians is used, the
standard deviation is approximately four. "78 Because the school admits
174. Rev. Proc., supra note 25, § 3.03(b); see 163 supra.
175. The revenue procedure would require 6% of the student body to be black (20% of 30%).
Six percent of 250 is equal to 15.
176. 430 U.S. at 496 n.17.
177. The product of 250 times .70 times .30 is equal to 52.5. The square root of 52.5 is 7.25.
178. The product of 250 times .94 times .06 is equal to 14.1. The square root of 14.1 is 3.77.
only Reformed Presbyterians irrespective of race, the expected number
of black students is just fifteen and, therefore, the observed number
differs from the expected number by approximately one standard
deviation. Thus, because a disparity of one standard deviation is not
statistically significant, in the latter situation a prima facie case of
racial discrimination is not demonstrated.
The battle is therefore joined over which statistical analysis is the
most appropriate for demonstrating a prima facie case of racial
discrimination. The revenue procedure's definition of significant minority
enrollment apparently reflects a concern that to directly compare the
percentage of minority students in the school to the minority students
in the community would be unfair. 179 This concern arises from the
expectation that many minority students would not wish to attend
certain religious schools or would not be accepted to such schools
because they do not hold the same religious beliefs as are held in those
schools. Nevertheless, the Supreme Court has not embraced this form
of statistical analysis, but has accepted the Castaneda probability
formula as reliable and accurate. 180 Thus, it seems that the same
analysis should be employed by the IRS in determining whether a
school has significant minority enrollment.
Once the Castaneda formula is accepted as the proper statistical
analysis, a further distinction must be made in choosing whether a
general population availability pool of minority students or a
"qualified" availability pool of minority students is the most appropriate and
accurate. If the general population availability pool is chosen, 18 1 the
result will not reflect the fact that not all minority students will wish
to attend religious schools or be accepted to such schools because they
hold differing religious beliefs. In the revenue procedure, the IRS has
recognized the potential unfairness in using comparisons to the general
population. 182 Religious schools, of course, will argue for an
availability pool composed only of those persons qualified by religious belief to
be admitted to religious schools. The Supreme Court has spoken on
this issue, in the analogous situation of employment discrimination. In
Hazelwood School District v. United States,183 the Court found that
because due consideration must be given to the qualifications necessary
for admission to an employer's workforce, comparisons with the
general racial population in the community are improper. Rather, the
comparison must be to that portion of the population "qualified" for
179. Rev. Proc., supra note 25, § 3.03(b). Indeed, religious spokesmen have argued that 20%
of the percentage in the community is still too high. Hearings, supra note 5, at 387 (statement of
W. Wayne Allen); id. at 401 (statement of John Esty, Jr.); id. at 504-05 (statement of Martin B.
Cowan); id. at 571 (statement of Bill Kelly); id. at 1036-37 (statement of Robert Dugan).
180. 430 U.S. at 496 n.17.
181. See notes 176-77 supra and accompanying text.
182. Rev. Proc., supra note 25, § 3.03(b).
183. 433 U.S. 299 (1977).
admission to the entity involved.18 4 The Court stated that "[w)hen
special qualifications are required to fill particular jobs, comparisons to
the general population (rather than to the smaller group of individuals
who possess the necessary qualifications) may have little probative
Thus, a determination of the proper availability pool of minority
group members from which statistical disparity is calculated may
determine the probative value of those statistics. The probative value
of the statistics, of course, is crucial to whether the challenging party
can prove a prima facie case of racial discrimination premised on a
statistically significant disparity. The lower courts have reaffirmed this
emphasis on the special qualifications that define the relevant
availability pool. 18 6 By analogy to the situation of religious school admission
policies, use of the IRS's availability pool demonstrates that, in the
hypothetical above, statistics have little probative value in making out
a prima facie case of racial discrimination. To cure this defect, the IRS
should further revise the revenue procedure to provide for the use of
the Castaneda formula and to reflect the Supreme Court's definition of
the relevant availability pool.
The Exclusion of Testimonial Proof
Finally, even if a prima facie case of racial discrimination is properly
demonstrated through a statistical analysis, the challenged party must
be given the opportunity to rebut by introducing evidence of a
legitimate, nondiscriminatory reason for its conduct.' 87 The Supreme Court,
in Furnco ConstructionCorp. v. Waters,8t8 has stated that a party is to
be given the opportunity to present any other explanation in
rebuttal;189 any relevant evidence is admissible to this end.' 90
The revenue procedure states that the "determination that a school's
formation or substantial expansion is not related in fact to public
school desegregation must be based on objective evidence."' 9 1 The
procedure does not define objective evidence, but it is self-evident that
any definition would naturally exclude subjective evidence from
consideration. Thus, the regulation restricts the admissible evidence that
may be used to rebut a prima facie case. For example, if a pastor
testifies that he believes in racial brotherhood and that his school so
teaches, this would be subjective testimonial evidence. The wording of
the revised revenue procedure indicates that the IRS would exclude
such evidence as not probative. Such evidence would be relevant,
however, to determine the state of mind of the decisionmaker who is
allegedly discriminating.192 Further, the limited evidence admissible
for purposes of rebuttal under the revenue procedure conflicts with the
Furnco rule, which allows "any other explanation" in rebuttal.
THE FIRST AMENDMENT RELIGION CLAUSES
Putting aside considerations of the IRS's authority to promulgate a
revenue procedure of this nature and the validity of the procedure's
regulatory provisions, the ultimate issue for resolution is whether the
revenue procedure intrinsically violates the religious freedom clauses of
the first amendment. 193 The religious community has not opposed the
legitimate governmental policy of eradicating racial discrimination in
private schools through the revocation of such schools' tax exempt
status. Rather, its concern, according to spokesmen for religious
schools, stems from the method by which the government, through the
IRS, has sought to implement its policy, and from the fear that
enforcement of the procedure will lead to greater governmental
in191. Rev. Proc., supra note 25, § 3.03(c) (emphasis added).
192. See Fed. R. Evid. 404(b).
193. The first amendment provides in pertinent part: "Congress shall make no law respecting
an establishment of religion, or prohibiting the free exercise thereof." U.S. Const. amend. I. The
enactment of both first amendment religion clauses was due in part to a significant aspect of
American history. Many of the first American settlers came in search not of economic security or
political autonomy, but rather of the right to worship God without restraint according to their
beliefs and practices. At that time many European nations had adopted a state religion. All
citizens had to support this state religion, even if they personally did not accept the doctrines
taught. Those who held differing beliefs were often persecuted for those beliefs, Many settlers
thus saw America as a hope, not only for a new beginning, but also as a place where they could
escape religious persecution. These new Americans were determined to establish a government
which would prevent the abridgement of their freedoms. Their determination is reflected in the
Bill of Rights and more specifically in the first amendment. See generally Engel v. Vitale, 370
U.S. 421, 425-33 (1962); Everson v. Board of Educ., 330 U.S. 1, 8-13 (1947). Unfortunately,
according to Justice Black, "[tioday most Americans seem to have forgotten the ancient evils
which forced their ancestors to flee to this new country and to form a government stripped of old
powers used to oppress them." Black, The Bill of Rights, 35 N.Y.U. L. Rev. 865, 867 (1960).
volvement in church affairs. 194 The following analysis addresses the
conflict between the procedure's purpose to ameliorate racial
discrimination and the first amendment's guarantee of religious freedom.
The Religious School
Education and schooling have always played a major part in the
fabric of the Judeo-Christian religious tradition. 19s One function of the
Levitical ministry under the law of Moses was instruction in the
law. 196 Consequently, education became basic to the life of the
synagogue and the Levitical ministry. 197 Indeed, Israel was probably
unique in antiquity because of its recognition of universal education in
the ministry of the synagogue. 198 After the first several centuries of the
Christian era, the Roman Empire permitted the establishment of
church buildings, and religious libraries and schools became a part of
churches as they were built. 199 A canon is also attributed to the Sixth
Ecumenical Council of Constantinople in 680-81 A.D., requiring
priests in country towns and villages to maintain schools for all
children.200 Although during the Protestant Reformation some
194. See notes 22-27 supra and accompanying text. The fear of future unforeseen
infringement of constitutional rights finds support in the words of James Madison: "[I]t is proper to take
alarm at the first experiment on our liberties." Everson v. Board of Educ., 330 U.S. 1, 65 (1947)
(Rutledge, J., dissenting) (quoting J. afdison, Memorial and Remonstrance Against Religious
Assessments, in 2 Writings of James Madison 183 (G. Hunt Ed. 1901)). Recently, the Supreme
Court reiterated the vital importance of arresting even the slightest breach of the first
amendment's guarantees: "[M]odern governmental programs have self-perpetuating and self-expanding
propensities.... [We cannot] fail to see that in constitutional adjudication some steps, which when
taken were thought to approach 'the verge,' have become the platform for yet further steps. A
certain momentum develops in constitutional theory and it can be a 'downhill thrust' easily set in
motion but difficult to retard or stop. . . The dangers are increased by the difficulty of
perceiving in advance exactly where the 'verge' of the precipice lies. . . . [I]nvolvement or
entanglement between government and religion serves as a warning signal." Lemon v. Kurtzman,
403 U.S. 602, 624-25 (1971).
195. See, e.g., Proverbs 22:6 (King James): "Train up a child in the way he should go: and
when he is old, he will not depart from it." The Bible is replete with references to the necessity
for religious education separate from the state. See, e.g., Jeremiah 10:2 (King James): "Learn not
the way of the heathen . .. ."
196. Deuteronomy 33:10 (King James).
197. A well-known Hebrew proverb states that a man who does not teach his son the Torah
and a trade, teaches his son to be a thief. Babylonian Talmud, tractate Kiddushin, at 29A.
Another Hebrew proverb states that "the law of the Lord is his delight, the law his meditation
night and day." Psalms 1:2 (New English).
198. Josephus declared that the origin of Hebrew schools was with Moses. F. Josephus,
Antiquities of the Jews, book 4, ch. 8, § 12, in 1 The Works of Flavius Josephus (W. Whiston
trans. London 1845). "Let the children also learn the laws, as the first thing they are taught,
which will be the best thing they can be taught, and will be the cause of their future felicity." Id.
199. 1 J.Bingham, The Antiquities of the Christian Church, book 8,ch. 7, § 12 (London
1856). "[There were such places anciently adjoining to many churches, from the time that
churches began to be erected among Christians." Id. at 313.
200. Id. at 314.
churches apparently forgot this historical fact, others have retained the
notion of the centrality of education to the church to the present
The integral relationship between churches and religious schools has
also been recognized by the Supreme Court. In Lemon v. Kurtzman,2 02
the Court embraced the district court's characterization of Catholic
parochial schools as " 'an integral part of the religious mission of the
Catholic Church.' ",203 Justice Douglas, in his concurring opinion in
that case, stated that "the raison d'etre of parochial schools is the
propagation of a religious faith., 204 And in Meek v. Pittenger2,0 5 the
Court stated that "[t]he very purpose of many [religious] schools is to
provide an integrated secular and religious education; the teaching
process is, to a large extent, devoted to the inculcation of religious
values and belief."' 20 6 If indeed a religious school represents a
fundamental aspect of a church's ministry, such a school is entitled to the
same constitutional protection that is afforded a church. The state can
do no more to prohibit or regulate the operation of religious schools
than it can to prohibit or regulate the operation of a church.2 0 7
Many of the schools subject to the revenue procedure arguably fall
within the Supreme Court's profile of a constitutionally sensitive
religious school. 208 Unfortunately, many of the effects of the revenue
procedure may also fall within the class of governmental acts
proscribed by the religion clauses of the first amendment.
A continuing difficulty in interpreting the religion clauses has been
the struggle "to find a neutral course between the two Religion
Clauses, both of which are cast in absolute terms, and either of which,
if expanded to a logical extreme, would tend to clash with the
other."209 Neutrality is the general theme in the Supreme Court's
decisions. The first amendment "requires the state to be a neutral in its
relations with groups of religious believers and non-believers; it does
not require the state to be their adversary. State power is no more to
be used so as to handicap religions than it is to favor them. 2 1t0 At
times the Court has characterized this relationship as "benevolent
neutrality";2 11 the state may neither sponsor nor interfere with
religion. 2 12 But neither is it true that restraints on first amendment
freedoms are never permitted; government interests of sufficient weight
may indeed justify some restraints. 2 13 The government cannot,
however, impose restraints merely by demonstrating "a rational
relationship to some colorable state interest. ' 2 14 Rather, it must advance a
paramount interest of vital importance. 215
The Supreme Court has noted that the proscription in the
establishment clause is directed at, inter alia, the "active involvement of the
sovereign in religious activity. ' 216 And although the establishment
clause is not one of "the most precisely drawn portions of the
Constitution, ' 217 the Court has developed a three-part analysis to determine
whether particular governmental activity is unconstitutional. To
survive this constitutional scrutiny, the action under review must: (
have a valid secular purpose, (
) have a primary effect that neither
advances nor inhibits religion and (
) be free of the need of
administrative oversight that fosters excessive entanglement between the
government and a religious institution.2 18
It is self-evident that the revised revenue procedure has the valid
secular purpose of ameliorating racial discrimination. A review of the
procedure, however, demonstrates that it may have the effect of both
advancing particular religious beliefs and practices and of introducing
the potential for excessive governmental entanglement.
The establishment clause commands the government not to "pass
laws which aid one religion, aid all religions, or prefer one religion
over another. '2 19 In this respect, it is possible that the revenue
procedure's primary effect is the advancement of particular religious
beliefs over others.2 2z
The revenue procedure favors hierarchical church organizations
over congregational ones.22 1 Section 3.03(b) provides that when a
particular school is part of a system of commonly supervised schools,
insufficient minority enrollment at a single school will be excused if
there is significant minority enrollment in the aggregate school
system. 222 This provision may operate in favor of those hierarchical
denominations that operate a single school system, as opposed to
religious groups consisting of autonomous congregational churches
each with its own school. 22 3
Moreover, the revenue procedure may tend to advance particular
religious beliefs by granting a specific exemption to denominations
with a longstanding tradition of maintaining church schools,22 4
thereby discriminating in their favor. The significance of such
discrimination is particularly apparent when one considers the pluralistic
nature of religion in America. Since the adoption of the first
amendment in 1791, hundreds of different religious groups have appeared,
most of which were founded in the latter part of the twentieth
century. 225 Obviously, most such groups would not qualify for the
When tested in the courts, 226 it is uncertain that the revenue
procedure would pass the Supreme Court's strict excessive
entanglement test.227 In Lemon v. Kurtzman, the Court made it clear that if an
educational institution is permeated with religion and the aid conferred
by the state is subject to extensive government supervision and
control, the program is unconstitutional. 228
The revenue procedure's scope is limited to primary and secondary
schools, 22 9 institutions permeated with religion and therefore the most
susceptible to entanglement. 230 Indeed, the procedure exempts colleges
and universities, 23 1 institutions the least permeated with religion.2 3 2
Moreover, the procedure requires the IRS to supervise a religious
school's operation by becoming intimately familiar with all aspects of
the school's daily operation. The IRS must review the religious
affiliation 233 and geographic background 234 of the student body, determine
the principal community from which the school draws its students, 23 S
and scrutinize the school's catalogues and promotional literature,2 3 6
payment of unemployment taxes with respect to their employees. 26 U.S.C. § 3309(b) (1976). The
Secretary had maintained that § 3309(b) did not apply to employees of primary and secondary
religious schools unless the employees performed " 'strictly church duties' during more than half
of their working time." Grace Brethren Church v. California, No. 79-93, slip op. at 3-4 (C.D.
financial aid programs 237 and faculty and staff 238 for any
discriminatory taint. 239 Also, in determining whether to classify a school as
reviewable, the IRS must examine the doctrine and history of the
school, church and denomination to insure that none of it is
discriminatory. 240 The IRS may eveh scrutinize the political activity of the
school's founders, officers, trustees and donors. 241 And once classified
as reviewable, the school's curricular and extracurricular activities and
programs may be examined to determine whether it has made a good
faith effort to attract minority students. 242
A significant threat of entanglement also arises from the requirement
that the IRS exempt those schools that are part of a nondiscriminatory
religious denomination with a longstanding tradition of maintaining
schools, 243 and schools that have bona fide special programs or curricula
of interest only to identifiable groups not composed of a significant
number of minority students. 244 For example, a school organized by a
Southern Baptist church may attempt to qualify under the
"longstanding" exemption, by asserting that religious schools existed in the
pre-Reformation church. 245 The procedure would empower the IRS to
Id. § 3.03(b).
See note 46 supra and accompanying text.
decide that American Baptist churches cannot trace their lineage
beyond Roger Williams, thereby rejecting the church's belief. Further, a
Hebrew school may have special dietary restrictions that do not appeal
to minority students. Must it defend the theological basis for such
restrictions to demonstrate that the restrictions are not a pretext for
discrimination? Under such circumstances, the revised procedure
requires the IRS to judge the truth and validity of religious beliefs.
James Madison labeled the suggestion that "the Civil Magistrate is a
competent Judge of Religious truth" as an "arrogant pretension
falsified by the contradictory opinions of Rulers in all ages, and
throughout the world. '246 The Supreme Court has said simply that
government may not inquire into the validity of a religious belief or
practice. 247 The Court has also held that "it is no business of courts to say
that what is a religious practice or activity for one group is not religion
under the protection of the First Amendment" for another group. 248
In light of these pronouncements, the asserted right of the IRS to
assess the validity of a particular denomination's religious belief is
constitutionally suspect. Governmental interference of this type fosters
a degree of excessive entanglement between government and religion
proscribed by the establishment clause. 249
In determining whether a law or an official act violates the free
exercise clause, the Supreme Court has stated that" '[i]f the purpose or
effect of a law is to impede the observance of one or all religions...
that law is constitutionally invalid even though the burden may be
characterized as being only indirect.' ",2SO To some extent, of course,
acts based on religious beliefs may be regulated by government.25 s But
only when a compelling interest of the state is at stake
government place such a burden on religious liberty. 25 2
As demonstrated above, religious education is a fundamental part of
religious practice. 253 The IRS has, however, attempted to restrict the
application of the free exercise clause to religious belief rather than
practice. In 1975, the IRS stated that the free exercise clause bars
"governmental interference with mere religious beliefs and opinions,
but it does not affect the legal consequences otherwise attending a
given practice or action that is not inherently religious. ' 254 The
decided cases, however, show that religious freedom would be an empty
phrase if it only extended to one hour Sunday services and private
prayer. For instance, the Supreme Court found that the failure to
extend unemployment compensation benefits to a person who refused
to work on her sabbath was a denial of religious liberty. 2 5 State
educational laws requiring compulsory attendance and minimum
standards for private schools were also found to be denials of religious
liberty. 25 6 Recently, the Court protected legislative activity by
clerics, 25 7 and the California Supreme Court earlier found religious
liberty to encompass the right to use peyote in a religious service. 25 8
The principal authority relied upon by the IRS in dismissing the
religious schools' claims that the revenue procedure burdens free
exercise are the so-called "polygamy cases," Mormon Church v. United
States2 9 and Reynolds v. United States.260 Because these cases were
decided during an era of governmental persecution of the Mormon
252. Wisconsin v. Yoder, 406 U.S. 205, 215 (1972); Sherbert v. Verner, 374 U.S. 398, 406
(1963); see notes 285-94 infra and accompanying text.
253. See notes 195-207 supra and accompanying text.
254. Rev. Rul. 75-231, 1975-1 C.B. 158, at 159.
255. Sherbert v. Verner, 374 U.S. 398 (1963).
256. Wisconsin v. Yoder, 406 U.S. 205 (1972); State v. Whisner, 47 Ohio St. 2d 181, 351
N.E.2d 750 (1976).
257. McDaniel v. Paty, 435 U.S. 618 (1978).
258. People v. Woody, 61 Cal. 2d 716, 394 P.2d 813, 40 Cal. Rptr. 69 (1964); accord, Keegan
v. University of Del., 349 A.2d 14 (Del. 1975) (religious liberty infringed by the denial of the use
of the commons room of a dormitory at a state university for religious services), cert. denied, 424
U.S. 934 (1976); cf. Johnson v. Robison, 415 U.S. 361 (1974) (denial of veteran's benefits to a
person who had been a conscientious objector found to be an incidental burden on the free
exercise of religion but this was justified by the government's substantial interest in national
defense); Gillette v. United States, 401 U.S. 437 (1971) (even if religious belief is infringed by
denial of selective conscientious objector status, this burden on free oxPrse of religion Is justified
by the government's interst in national defense),
259. 136 U.S. 1 (1890).
260. 98 U.S. 145 (1878); accord, Davis v. Beason, 133 U.S. 333 (1890) (denial of the vote to
anyone who belonged to a group that encouraged the practice of polygamy).
Church, however, whether they remain as viable precedent can be
seriously questioned. As Professor Tribe notes, the anti-polygamy
statutes and cases "are best understood as parts of the same stained
fabric. Born in the same era and of the same fears, they should [be]
strictly scrutinized. ''26 1
In Mormon Church, the Supreme Court decided that Congress had
the power to repeal the Mormon Church's charter and to seize its
property. 262 In so holding, the Court dismissed the first amendment
issue on two grounds. First, it noted that it was dealing with a
territory rather than a state, and as such the constitutional restrictions
were not as broad. 263 Second, the Court found that Mormon practices
and beliefs were "contrary to the spirit of Christianity and of the
civilization which Christianity has produced in the Western world"
and therefore were not worthy of constitutional protection. 264 Thus,
the Court did not merely address the issue of protected belief versus
criminally prohibited practice, but also dealt with the right of the
Mormon Church to exist. The Court was as much concerned with the
belief in polygamy as it was with the practice. 265
A few years later the Supreme Court decided Berea College v.
Kentucky, 266 which involved the validity of a Kentucky statute that
prohibited private schools from teaching whites and.blacks in the same
building. Berea College had refused to obey this law, claiming that any
differences in the races were irrelevant to its primary purpose of
promoting" 'the cause of Christ,' ",267 and arguing further that the law
261. L. Tribe, supra note 225, § 14-10, at 854 (footnote omitted). A reading of the two cases,
especially Mormon Church, suggests that they did not simply consider the government's right to
proscribe a criminal activity. The cases also reflect an attempt to abolish the Mormon Church.
Professor Tribe notes that "[flew decisions better illustrate how amorphous goals may serve to
mask religious persecution." Id. For instance, in 1838 the governor of Missouri called out the
state militia, writing: " 'The Mormons must be treated as enemies, and must be exterminated.'"
Id. Following their flight to Utah, the Mormons continued to endure harassment, culminating in
1887 with the Edmunds-Tucker Act that disenfranchised Mormon voters, abolished the Mormon
Church as a corporate entity and provided for the confiscation of all the church's property not
used exclusively for worship. Id.
262. 136 U.S. at 42-68.
263. Id. at 44.
264. Id. at 49.
265. Id. The Court stated. "[N]otwithstanding all the efforts made to suppress this barbarous
practice-the sect or community composing the Church of Jesus Christ of Latter-Day Saints
perseveres . . . in preaching, upholding, promoting and defending it. It is a matter of public
notoriety that its emissaries are engaged in many countries in propagating this nefarious doctrine
.... The existence of such a propaganda is a blot on our civilization.... The question, therefore,
is whether the promotion of such a nefarious system and practice, so repugnant to our laws and to
the principles of our civilization, is to be allowed to continue by the sanction of the government
itself. ... Id. at 48-49.
266. 211 U.S. 45 (1908).
267. R. Kluger, Simple Justice 87 (1976).
violated its students' free exercise rights. 268 Citing the example of
polygamy, the Kentucky Supreme Court dismissed the college's free
exercise objections. 269 The United States Supreme Court affirmed 27 0
over the vigorous dissent of Justice Harlan, who warned that if
Kentucky had the right to regulate the conduct of religious schools the
next step would be regulation of church worship. 27
Since the time of the Mormon cases, the Court has shown a
markedly solicitous attitude to the rights of religious minorities. 272 For
example, the Court has recognized the right of another religious
minority-the Jehovah's Witnesses-to proselytize. 2 73 In light of this
attitude, it seems unrealistic to rely on the Mormon cases for the
proposition that the protection of religious liberty does not encompass
the practices of religious schools. That such schools are protected is
It is not necessary to prove purposeful interference with religious
practice in order to show the religion clauses have been violated. If the
effect of governmental action is directly, indirectly, incidentally or
substantially to impede religious practice, the action violates the
religion clauses. 274 In other words, purportedly neutral government
activity may have the effect of intruding upon the protected free
exercise of religious belief and practice.
Sherbert v. Verner 275 is the watershed free exercise case in the
interpretation of what constitutes a burden upon the practice of
religion. In that case, an employer discharged a member of the
268. Berea College v. Commonwealth, 123 Ky. 209, 94 S.W. 623 (1906), aff'd, 211 U.S. 45
269. Id. at 217, 94 S.W. at 625.
270. 211 U.S. at 58.
271. Id. at 68 (Harlan, J., dissenting). Justice Harlan stated: "If the Commonwealth of
Kentucky can make it a crime to teach white and colored children together at the same time, in a
private institution of learning, it is difficult to perceive why it may not forbid the assembling of
white and colored children in the same Sabbath-school, for the purpose of being instructed In the
Word of God, although such teaching may be done under the authority of the church to which the
school is attached as well as with the consent of the parents of the children. So, if the state court
be right, white and colored children may even be forbidden to sit together in a house of worship
or at a communion table in the same Christian church .... Will it be said that the cases supposed
and the case here in hand are different in that no government, in this country, can lay unholy
hands on the religious faith of the people? The answer to this suggestion is that in the eye of the
law the right to enjoy one's religious belief, unmolested by any human power, is no more sacred
nor more fully or distinctly recognized than is the right to impart and receive instruction not
harmful to the public." Id.
272. See notes 255-58 supra and accompanying text.
273. Murdock v. Pennsylvania, 319 U.S. 105 (1943); Cantwell v. Connecticut, 310 U.S. 296
(1940); Schneider v. New Jersey, 308 U.S. 147 (1939).
274. Wisconsin v. Yoder, 406 U.S. 205, 220 (1972); Sherbert v. Verner, 374 U.S. 398, 403
275. 374 U.S. 398 (1963).
Seventh-Day Adventist Church because of her refusal to work on
Saturday, which she considered her Sabbath. Unable to obtain other
employment because of this refusal to work Saturdays, the plaintiff
filed a claim for benefits under the state's unemployment compensation
statute. The statute provided that a claimant who failed, without good
cause, to accept suitable employment that had been offered, was
ineligible for benefits. On this ground, the state unemployment
commission denied her claim. The Supreme Court, however, held that the
denial of benefits abridged her right to pursue the free exercise of her
religion. 276 Sherbert is significant because it extended free exercise
protection beyond the government's imposition of direct burdens on
the exercise of religion, to the government's withholding of an
economic benefit. The Court expressed its rationale as follows:
Here not only is it apparent that appellants declared ineligibility for benefits derives
solely from the practice of her religion, but the pressure upon her to forego that practice
is unmistakable. The ruling forces her to choose between following the precepts of her
religion and forfeiting benefits, on the one hand, and abandoning one of the precepts of
her religion in order to accept work, on the other hand. Governmental imposition of
such a choice puts the same kind of burden upon the free exercise of religion as would
a fine imposed against appellant for her Saturday worship.... It is too late in the day
to doubt that the liberties of religion and expression may be infringed by the denial of
or placing of conditions upon a benefit or privilege. 2 "7
Enforcement of the revenue procedure may exert like economic
pressures and force comparably distasteful choices, whether these
pressures arise as direct or indirect effects of the procedure. Certainly,
governmental surveillance of the magnitude called for to implement
and enforce the procedure will chill the exercise of religious liberty.
Furthermore, such surveillance may cause school administrators to
steer clear of potential challenges from the IRS by foregoing certain
religious beliefs and practices in favor of IRS-approved practices.2 78
This chilling effect is magnified by the complexity of the regulatory
scheme set out in the revenue procedure. For example, 279 consider the
headmaster of a fifty pupil school operated by a local Orthodox
Presbyterian church in the midst of a major expansion. Assume that
the school is located on the outer edge of public school district A and
draws children of the Orthodox Presbyterian faith from that district
276. Id. at 410.
277. Id. at 404. In Healy v. James, 408 U.S. 169 (1972), the Court noted that first
amendment freedoms "are protected not only against heavyhanded frontal attack, but also from
being stifled by more subtle governmental interference." Id. at 183.
278. In Murdock v. Pennsylvania, 319 U.S. 105 (1943), in which a license fee for the
distribution of religious texts was held unconstitutional, the Court pointed to the danger that
arises whenever taxation and religious activity intersect: "[tlhe power to tax the exercise of a
privilege is the power to control or suppress its enjoyment." Id. at 112. See also First Unitarian
Church v. Los Angeles, 357 U.S. 545 (1958).
279. This hypothetical is adapted from an example provided at the congressional hearings on
the revenue procedure. Hearings, supra note 5, at 294 (statement of William B. Ball).
and from other school districts, B, C, D and E. All five of these
districts are currently in various stages of implementing desegregation
orders. The school has always had a minority enrollment of at least ten
percent and has periodically offered scholarships to economically
disadvantaged students. Concerned that this history of nondiscrimination
may not be enough to escape classification as a reviewable school, the
school's governing body requests the headmaster to conduct an
analysis of the tax consequences of the proposed expansion. Under the
revenue procedure, he would have to: (
) ascertain the exact school age
population in each of the five school districts, 280 (
) ascertain the
number of school age children in each of the named categories of
minorities, 2 8 1 (
) determine the percentage of minority children in the
total school age population in each of the five school districts, 28 2 (
ascertain the number of children in the school who reside in school
districts A, B, C, D and E, and determine, in each case, whether that
number equals a substantial percentage of the student body, 283 and (
check to see whether any of the districts is under a desegregation order
and, if so, ascertain the provisions of that order. 284 Faced with this
task, one could easily imagine the headmaster simply recommending
that the expansion be postponed.
c. Counterbalancing Compelling State Interests
Once it is established that the revenue procedure may impede the
operation of legitimate religious schools 2 85 or cause them to alter their
operations to avoid collisions with the federal bureaucracy, it becomes
necessary to determine whether a compelling state interest exists which
outweighs the burden placed upon religion. 28 6 "It is basic that no
showing merely of a rational relationship to some colorable state
interest would suffice; in this highly sensitive constitutional area,
'[o]nly the gravest abuses, endangering paramount interests, give
occasion for permissible limitation.' "287 Furthermore, "[t]he essence of all
that has been said and written on the subject is that only those
interests of the highest order and those not otherwise served can
overbalance legitimate claims to the free exercise of religion." 288
280. Rev. Proc., supra note 25, § 3.03(b), (c)(
281. Id. § 3.05.
282. Id. § 3.03(b), .04.
283. Id. § 3.04.
284. Id. § 3.03(a), (c)(
285. It is not constitutionally significant whether the impact is characterized as direct or
indirect. Sherbert v. Verner, 374 U.S. 398, 404 (1963); accord, Keegan v. University of Del., 349
A.2d 14, 17, 19 (Del. 1975), cert. denied, 424 U.S. 934 (1976).
286. See Wisconsin v. Yoder, 406 U.S. 205, 215 (1972); Sherbert v. Verner, 374 U.S. 398,
287. Sherbert v. Verner, 374 U.S. 398, 406 (1963) (quoting Thomas v. Collins, 323 U.S. 516,
530 (1945)) (citation omitted).
288. Wisconsin v. Yoder, 406 U.S. 205, 215 (1972). See generally Pfeffer, The Supremacy of
Free Exercise, 61 Geo. L.J. 1115 (1973).
The law will not accept "sweeping" claims but will carefully
examine the interests that the state seeks to promote. 289 In Wisconsin v.
Yoder, 290 the state's interest in its system of compulsory education and
its interest in acting as parens patriae were found to be insufficient to
outweigh the burden. 29 1 In Sherbert, the integrity of a state
unemployment compensation plan was found to be insufficient. 29 2 The Ohio
Supreme Court recognized that the state had an insufficient interest in
insuring uniformity in the curriculum taught in public and private
schools. 293 It also appears that the federal labor policy would not
outweigh a church's interest in managing its own employee
relations. 2 9 4
Clearly, the IRS is advancing an interest of the highest order. The
harmony and integrity of our political system ought to outweigh any
claim to a religious right to engage in racial discrimination. 295 Thus, in
the case of a school properly found to be racially discriminatory, this
compelling state interest would outweigh the burden on the free
exercise of religion. But what if a school does not, in fact, practice
racial discrimination? Although a compelling state interest would
outweigh the burden placed upon segregation academies, there is no
compelling state interest in burdening the free exercise of schools that
do not discriminate. The essential task, therefore, is to properly
identify segregation academies without directly or indirectly placing a
burden on the free exercise of nondiscriminatory schools.
The revenue procedure attempts to accommodate the intersection of
the twin goals of achieving racial integration and guaranteeing
religious freedom. The question presented by the IRS's action is whether
it is the IRS or the Congress that is best equipped to make the precise
distinctions necessary to define clearly the nation's compelling
interests. The Supreme Court has expressly declined to take on this task. 296
The IRS, for its part, has already failed in this task. Thus, Congress
remains as the only appropriate forum to address the delicate process
of identifying compelling state interests and balancing them against the
purposes of the free exercise clause. Such an undertaking is a
legislative and not an administrative function. 297
289. Wisconsin v. Yoder, 406 U.S. 205, 221 (1972).
290. 406 U.S. 205 (1972).
291. Id. at 229-34.
292. 374 U.S. at 410.
293. State v. Whisner, 47 Ohio St. 2d 181, 198-99, 351 N.E.2d 750, 761 (1976).
294. NLRB v. Catholic Bishop, 440 U.S. 490 (1979).
295. In Goldsboro Christian Schools, Inc. v. United States, 436 F. Supp. 1314, 1321
(E.D.N.C. 1977), the court found that the federal public policy in support of racial integration
outweighed any religious right to discriminate in admissions policies.
296. Runyon v. McCrary, 427 U.S. 160, 167 (1976).
297. Professor Tribe asserts that an administrative agency cannot "exercise its authority to
pursue any and all ends within the affirmative reach of federal authority" but must confine itself
to carrying out the tasks Congress intended it to perform. L. Tribe, supra note 225, § 5-17, at 285.
PotentialConsequences in Adopting the Revenue Procedure
Examination of the testimony given at the congressional hearings on
the revised revenue procedure 298 reveals that the religious community
does not dispute the legitimacy of the vital national policies that the
IRS has advanced in the area of race. Rather, the religious community
has adopted Madison's concern that "it is proper to take alarm at the
first experiment on our liberties." 2 99 The formulation of the revised
revenue procedure stems from the IRS's contention that section
) of the Internal Revenue Code should require all educational
institutions to adhere to the IRS's definition of public policy. The IRS
interprets the legislative intent behind section 501(c)(
) to afford
exemptions only to educational organizations that do not violate
federal public policy. 30 0 The IRS has stated that "[i]t is well-settled that a
religious basis for an activity will not serve to preclude governmental
interference with that activity if it is otherwise clearly contrary to
Federal public policy. '30 1 If such a rule of law were established
through the precedent set by the revenue procedure, however, ultimate
conflict with the establishment and free exercise clauses is inevitable.
Indeed, it has already been urged that the IRS enforce public policy
relating to gender-based discrimination through section 501(c)(
). 30 2 It
is, however, a fundamental tenet of some religious denominations that
females should not hold certain pastoral or teaching positions.303 If the
IRS revoked the tax exempt status of offending religious organizations,
it would in effect lend its support to one side of the recent debates over
the rights of women to hold certain positions within the religious
This assertion is especially relevant to the IRS's construction of its tax collecting authority to
include the discretion to establish procedures designed to achieve the legitimate ends of racial
integration. It is clear, however, that "[tihe open-ended discretion to choose ends is the essence of
legislative power; it is this power which Congress possesses but its agents lack." Id. For these
reasons, administrative agencies and appointed officials "are not endowed with the authority to
decide" questions of"great constitutional import and effect "Greene v. McElroy, 360 U.S. 474, 507
298. Hearings, supra note 5; see notes 22-27 supra and accompanying text.
299. J.Madison, Memorial and Remonstrance Against Religious Assessments, in 2 Writings of
J. Madison 183 (G. Hunt ed. 1901), quoted in Everson ,. Board of Educ., 330 U.S. 1, 63, 65
(1947) (Rutedge, J., dissenting). It is noteworthy that even though the Amish, Jewish, Lutheran
and Roman Catholic religions are all arguably exempt from the revenue procedure, see notes
46-49 supra and accompanying text, representatives from each group testified in opposition to its
adoption. Hearings, supra note 5, at 280-304 (Amish); id. at 503-10 (Jewish); id. at 510-38
(Lutheran); id. at 497-503 (Roman Catholic).
300. Rev. Rul. 71-447, 1971-2 C.B. 230.
301. Rev. Rul. 75-231, 1975-1 C.B. 158, at 159.
302. By letter to the IRS dated March 20, 1978, Jeffrey M. Miller, Assistant Staff Director for
Federal Evaluation of the United States Commission on Civil Rights, demanded that the IRS
"specifically prohibit racial, ethnic and sex discrimination in the treatment and selection of
faculty." Hearings, supra note 5, at 298 (statement of William B. Ball) (emphasis deleted).
303. See Homily by Pope John Paul II, Philadelphia Civic Center (Oct. 4, 1979), reprintedin
N.Y. Times, Oct. 5, 1979, § B, at 5, col. 1.
hierarchy. The Supreme Court has declared that another public policy
prohibits states from regulating abortions during the first trimester of
pregnancy. 304 Will the IRS seek to enforce this policy against religious
schools that teach that abortion is morally wrong? Also, municipal
ordinances have been passed banning discrimination on the basis of
sexual preference, 30 5 and litigation has been initiated seeking to have
churches adhere to this public policy.30 6 If the IRS embraces a
developing policy in this area not to discriminate against homosexual
behavior, should it enforce this policy against religions that consider
homosexuality sinful? Although the compelling state interest in racial
harmony can outweigh religious claims to engage in racial
discrimination, none of the above policies would be likely to survive the
prohibitions of the religion clauses, the values of which the Supreme
Court has "zealously protected. '3 7
Therefore, the danger posed by the revenue procedure is that it may
effectively impose severe economic pressure on all religions to follow a
federally approved dogma. Unless a church stays in step with federal
policy it will lose its tax exemption. Such application of the law will
inevitably lead the government to favor those religious organizations
that parrot federal policy over those that do not. The indirect effect of
this will be to impose a federal presence upon religion contrary to the
fundamental premise of the religion clauses of the first amendment.
A Narrowly Drawn State Interest
Assuming that a sufficiently compelling state interest has been
properly raised by the IRS, when religious exercise is burdened the
state must take any available less restrictive path to ensure that the
state's actions impinge upon the exercise of religion to the least extent
possible. 30 8 The least restrictive alternative principle is drawn from an
early line of cases. 30 9 In Schneider v. New Jersey,3 10 the Court
reversed the conviction of a Jehovah's Witness for distributing
religious circulars and soliciting contributions door-to-door without first
304. Roe v. Wade, 410 U.S. 113 (1973).
305. See, e.g., San Francisco, Cal., Police Code pt. II, ch. VIII, §§ 3301-3310 (1978).
306. Walker v. First Orthodox Presbyterian Church, No. 778930 (San Francisco Mun. Ct.,
filed May 14, 1979).
307. Wisconsin v. Yoder, 406 U.S. 205, 214 (1972). One commentator has called the free
exercise clause "the favored child of the first amendment." Pfeffer, supra note 288, at 1142.
308. Murdock v. Pennsylvania, 319 U.S. 105 (1943); Cantwell v. Connecticut, 310 U.S. 296,
304 (1940); Schneider v. New Jersey, 308 U.S. 147 (1939); see Procunier v. Martinez, 416 U.S.
396, 413 (1974); United States v. Robel, 389 U.S. 258, 264-68 (1967). "[A) purpose of obtaining a
government objective even of the highest order, will not justify the imposition of restraint upon
the free exercise of religion unless the objective cannot otherwise be achieved." New Jersey v.
Chesimard, 555 F.2d 63, 81 (3d Cir. 1977) (en banc) (concurring and dissenting opinion) (footnote
omitted); accord, Wisconsin v. Yoder, 406 U.S. 205, 215 (1972) (only interests "not otherwvise
served" overbalance free exercise).
309. See generally L. Tribe, supra note 225, § 14-10.
310. 308 U.S. 147 (1939).
obtaining a city police permit. 3 1' The town had not purposely
suppressed religion, but had merely attempted to prevent "fraudulent
appeals . . . in the name of charity and religion. ' 3 12 The Court,
however, found that there were less restrictive means available to
achieve this end, such as prosecuting frauds and trespasses:
If it is said that these means are less efficient and convenient than bestowal of power
on police authorities to decide what information may be disseminated from house to
house, and who may impart the information, the answer is that considerations of this
sort do not empower a municipality to abridge freedom of speech and press.' 13
A year later, in Cantwell v. Connecticut,314 the Court applied the least
restrictive alternative principle to a legitimate burden on the free
exercise of religion. In Cantwell, Jehovah's Witnesses had been
convicted for soliciting religious contributions without a state certificate
and for committing a breach of the peace by going from house-to-house
playing an anti-Catholic record to anyone who would listen. The
Supreme Court reversed, holding that because the state had less
drastic means of preventing fraud and preserving peace, safety and
order, 3 1s a "forbidden burden upon the exercise of liberty protected by
the Constitution" had been placed on the criminal defendants. 3 16
Finally, in Murdock v. Pennsylvania,3 17 the Court reversed a
conviction for distributing religious pamphlets and soliciting donations
without first obtaining a license that cost $1.50 per day. 31 8 Again, the
Court viewed the government ends as legitimate in seeking revenue
from those who attempted to take advantage of public thoroughfares
to make profits. The Court held, however, that the state's legitimate
needs for regulation and revenue could otherwise be met without
imposing a burden on religious activity which might be "crushed and
closed out by the sheer weight of the toll or tribute which is exacted
town by town, village by village. ''3 19 Sherbert carried this line of cases
forward when, citing Schneider, the Court said it "would plainly be
incumbent upon the appellees to demonstrate that no alternative forms
of regulation would' 320combat such abuses without infringing First
When analyzed in light of the legitimate concerns of religious
schools, the revised revenue procedure fails under the least restrictive
311. Id. at 165.
312. Id. at 164.
314. 310 U.S. 296 (1940).
315. Id. at 306-07.
316. Id. at 307.
317. 319 U.S. 105 (1943).
318. Id. at 117.
319. Id. at 115.
320. Sherbert v. Verner, 374 U.S. 398, 407 (1963) (footnote omitted); accord, Wisconsin v.
Yoder, 406 U.S. 205, 215 (1972).
alternative principle. As outlined below, alternatives to IRS
enforcement of the revenue procedure exist, but only Congress can devise and
structure a program that would both carry out national policy and
protect legitimate religious concerns.
The mandate of the Internal Revenue Service is to collect the tax
revenues of the United States. To the extent it seeks to become the
enforcer of a varying public policy against religious schools, it exceeds
the scope of its authority and breaches the constitutionally protected
religious freedom of American citizens.
The revenue procedure fails in three respects. First, the IRS's
contention that the Internal Revenue Code and the courts'
interpretation thereof grants it the statutory authority to implement such a
regulation is unsupportable. The structure and language of section
) of the Code indicates that Congress had not intended that a
religious or educational institution be a charitable trust as defined at
common law to qualify for tax exempt and tax deductible status.
Moreover, because Congress has not clearly articulated a national
public policy regarding allegedly discriminatory admissions policies in
religious schools, no such policy may be imputed to Congress from
congressional activities in the area of civil rights. Thus, the
congressional intention not to provide tax benefits to organizations
engaging in specific activities contrary to public policy does not apply to such
schools. Furthermore, although the IRS's grant of tax exempt and tax
deductible status is a form of tax expenditure, there is no
constitutionally proscribed governmental action because the tax expenditure in this
situation does not reflect governmental encouragement and support of
religious schools. Second, if the IRS did possess the necessary authority
to promulgate the revenue procedure, it appears that the procedure's
presently formulated regulatory provisions relating to proof of racially
discriminatory practices probably deprive religious schools of due
process of law. Finally, the revenue procedure presents an ultimate
conflict between the first amendment's guarantee of religious freedom
and the national policy favoring racial integration in education.
Because the procedure would tend to advance particular religious beliefs
over others and create the potential for excessive government
entanglement with religion, implementation would violate the establishment
clause. In addition, the breadth of the revenue procedure presents the
danger of unjustifiably burdening the right to the free exercise of
religion of religious schools that do not practice racial discrimination.
As this Article demonstrates, there is a need for congressional action
to protect the legitimate interests of religious schools as well as to
address the inadequacies of a system that permits racial discrimination
in private school admissions policies solely to avoid the effect of public
school desegregation. Although it is beyond the scope of this Article to
engage in complex legislative drafting, the following suggestions may
satisfy the requirements of the least restrictive alternative principle and
be a step toward the elimination of racial segregation in private
schools. Because of the sensitive nature of these issues, Congress
should establish a method by which the discriminatory admissions
policies of private schools could be challenged in judicial, rather than
administrative, proceedings. First, Congress should amend Title VI of
the Civil Rights Act of 1964321 to specify that in the limited case of
educational institutions found to have racially discriminatory
admissions policies, tax exempt and tax deductible status constitutes federal
financial assistance. Therefore, if a school found to have a racially
discriminatory admissions policy enjoyed such benefits, it would be
violating federal law. 3 2 2 Second, Congress should empower the federal
district courts to entertain suits brought by the government, or by
aggrieved private parties, to challenge racially discriminatory
admissions policies. 323 A court could then determine whether a school is in
fact racially discriminating, by applying the body of decisional law
relating to proof of racial discrimination. Once a school is found to
have violated Title VI, as amended, and if it fails to take corrective
action, its federal financial assistance, in the form of favorable tax
status, could be terminated.3 24 Finally, Congress should amend section
) of the Internal Revenue Code to make it clear that an
institution's tax exempt and tax deductible status will be prospectively
revoked 325 if the institution is properly found to be engaging in racially
discriminatory practices. These reforms would remove the IRS from
the business of setting social policy and return it to the arena of
collecting tax revenues.
321. 42 U.S.C. §§ 2000d to 2000d-6 (1976).
322. Id. § 2000d.
323. For a similar provision in the civil rights laws, see Title VII of the Civil Rights Act of
1964, § 706(f), 42 U.S.C. § 2000e-5(f) (1976).
324. 42 U.S.C. § 2000d-1 (1976).
325. Making the revocation prospective would result in equal treatment for public and
private schools. At present, a private school can lose its favorable tax status retroactively,
although funding for a public school that practices racial discrimination does not end until there
has been review by the federal courts. Id. § 2000d-6; see Hearings,supra note 5, at 1163 (statement
of Robert Lamborn).
1. See generally 0. Krauschaar, Private Schools from the Puritans to the Present ( 1976 ).
2. See, e.g., Wisconsin v . Yoder , 406 U.S. 205 ( 1972 ) (Amish); Pierce v . Society of Sisters , 268 U.S. 510 ( 1925 ) (Roman Catholics); Meyer v . Nebraska , 262 U.S. 390 ( 1923 ) (German Lutherans) . As the Supreme Court noted in Yoder , 406 U.S. at 216, there is biblical authority for this position: "[Ble not conformed to this world: but be ye transformed by the renewing of your mind .... . " Romans 12 : 2 (King James) (footnotes omitted).
3. This perceived hostility can be seen in the highly publicized decisions in which the Supreme Court held mandatory school prayer programs to be unconstitutional . Abington Township School Dist. v. Schempp, 374 U.S. 203 ( 1963 ); Engel v . Vitale , 370 U.S. 421 ( 1962 ). Courts have also attempted to limit voluntary student-initiated extracurricular religious activities . See, e.g., Johnson v. Huntington Beach Union High School Dist., 68 Cal. App. 3d 1 , 137 Cal . Rptr. 43 , cert. denied, 434 U.S. 877 ( 1977 ); Keegan v . University of Del., 349 A.2d 14 (Del . 1975 ), cert. denied, 424 U.S. 934 ( 1976 ).
4. See generally A. Grover , Ohio's Trojan Horse 41 - 55 ( 1977 ) ; Whitehead & Conlan, The Establishment of the Religion of Secular Humanism and Its First Amendment Implications, 10 Tex . Tech L. Rev . 1 ( 1978 ). The doctrine of secular humanism "worships Man as the source of all knowledge and truth, whereas theism worships God as the source of all knowledge and truth." Id . at 30- 31 . According to Messrs. Whitehead and Conlan, the purpose of secular humanism Is to eliminate "traditional theism from the arena of public discourse and American institutional life . " Id. at 1.
5. See Tax-Exempt Status of Private Schools: HearingsBefore the Subcomm . on Oversight of the House Comm. on Ways and Means, 96th Cong., 1st Sess . 1049 ( 1979 ) [hereinafter cited as Hearings] (statement of Louis Wilson Ingram , Jr.).
6. State v. Whisner, 47 Ohio St. 2d 181 , 351 N.E.2d 750 ( 1976 ).
7. NLRB v. Catholic Bishop , 440 U.S. 490 ( 1979 )
8. Grace Brethren Church v. California, No. 79 - 93 (C.D. Cal . Sept. 24 , 1979 ).
9. City of Concord v. New Testament Baptist Church , 118 N.H. 56 , 382 A.2d 377 ( 1978 ).
10. 347 U.S. 483 ( 1954 ). In Brown, the Court held that state-mandated segregation on the basis of race in public schools is "inherently unequal" and thus unconstitutional under the fourteenth amendment . Id. at 495.
11. Section 1 of the thirteenth amendment abolished slavery in the United States . U.S. Coast. amend. XIII, § 1. Section 2 empowers Congress to enforce § 1 . Id. § 2 .
12. Section 1 of the fourteenth amendment guarantees the rights of citizenship to all persons born or naturalized in the United States, including the rights to due process of law and equal protection of law . U.S. Const. amend. XIV, § 1 .
13. The fifteenth amendment prohibits the denial of the right to vote on the basis of race . U.S. Const. amend. XV, § 1;see The Civil Rights Act of 1964, Pub . L. No. 88 - 352 , 78 Stat. 241 (codified at 42 U.S.C. §§ 2000a to 2000h- 6 ( 1976 )).
14. Swann v. Charlotte-Mecklenburg Bd . of Educ., 402 U.S. 1 ( 1971 ); Alexander v. Holmes County Bd . of Educ., 396 U.S. 19 ( 1969 ); Green v . County School Bd., 391 U.S. 430 ( 1968 ). See generally Note, Segregation Academies and State Action , 82 Yale L.J. 1436 ( 1973 ) [hereinafter cited as Segregation Academies] .
15. SegregationAcademies, supra note 14, at 1441. Enrollment in such schools increased from 25 ,000 in 1966 to 535 ,000 by 1972 . Id.
16. IRS News Release (Aug. 2 , 1967 ), reprinted in  7 Stand. Fed. Tax Rep. (CCH) 6734. Section 501 ( c)(3) of the Internal Revenue Code exempts from federal income tax certain organizations including: "Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition ... 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 .. . . " Although Congress has exempted other types of organizations from taxes in other subsections of § 501, for example, civic leagues or organizations operated exclusively for the promotion of social welfare, I .R.C. § S01(c)(4), labor, agricultural or horticultural organizations, id. § 501(c)(5), business leagues and chambers of commerce, id. § 501(c)(6), clubs organized exclusively for pleasure or recreation, id . § 501 (c] (7), fraternal orders, id. § 501(c)(8), qualification for § 501(c)(3) status is especially important because it affords contributors to such organizations an income tax deduction under I.RC. § 170(c)(2)(B) . Also, § 501 ( c )(3) recognition results in exemption from federal social security and unemployment taxes, id . §§ 3121 ( b ), 3306 (c)( 8 ).
17. Rev . Rul. 71 - 447 , 1971 -2 C.B. 230 ; see IRS News Release (July 10, 1970 ), reprinted in [19701 7 Stand. Fed. Tax Rep. (CCH) 6790.
18. Rev . Rul. 71 - 447 , 1971 -2 C.B. 230 . In 1972, the IRS established guidelines for publication by private schools of their racially nondiscriminatory policies . Rev. Proc. 72-54 , 1972 -2 C.B. 834 . In 1975, the IRS reiterated and strengthened these requirements . Rev. Proc. 75-50 , 197S -2 C.B. 587 .
19. Rev . Rul. 75 - 231 , 1975 -1 C.B. 158 ; accord, Goldsboro Christian Schools, Inc. v. United States , 436 F. Supp . 1314 (E.D.N .C. 1977 ).
20. Hearings , supra note 5, at 5 (statement of Jerome Kurtz) . Mr. Kurtz is Commissioner of Internal Revenue.
21. Proposed Revenue Procedure, 43 Fed. Reg. 37 , 296 ( 1978 ).
22. See Hearings, supra note 5 , at 252 (statement of Jerome Kurtz).
23. The proposed revenue procedure, which the IRS considered not sufficiently significant to warrant a formal administrative hearing, resulted in one of the largest outpourings of mail in the history of the IRS and necessitated the scheduling of over four days of public hearings in December, 1978 . Wash. Post, Dec. 6 , 1978 , § A, at 25 , col. 1.
24. See , e.g., Hearings, supra note 5 , at 294-95 (statement of William B. Ball) ; id. at 511 (statement of Rev . Dr. Charles V. Bergstrom); id. at 912 (statement of Mark I. Klein).
25. Announcement 79- 38 , 1979 -11 I.R .B. 33 [ hereinafter cited as Rev . Proc.].
26. See , e.g., Hearings, supra note 5 , at 293-95 (statement of William B. Ball) ; id . at 396 (statement of W. Wayne Allen) ; id. at 503 (statement of George Reed); id . at 505-06 (statement of Martin B . Cowan) ; id . at 927-29 (statement of the Georgia Association of Christian Schools, Inc .); id. at 935-36 (statement of Don Samples) ; id . at 956-57 (statement of Paul W. Cates) ; see pt . IV infra.
27. See Hearings, supra note 5 , at 511 ( statement of the Rev . Dr. Charles V. Bergstrom). Rev . Bergstrom criticized the growing trend toward government intervention in church affairs . Id.
28. Treasury , Postal Service, and General Government Appropriations Act, 1980 , Pub. L. No. 96 - 74 , § 615 , 93 Stat. 559 ( 1979 ).
31. Hearings ,supra note 5, at 267 (statement of Jerome Kurtz); see IRS News Release (July 10 , 1970 ), reprintedin  7 Stand. Fed. Tax Rep. (CCH) 1 6790; IRS News Release (July 19 , 1970 ), reprintedin  7 Stand. Fed. Tax Rep . (CCH) T 6814 ; Equal EducationalOpportunity: Hearings before the Senate Select Comm . on Equal Educational Opportunity, 91st Cong., 2d Sess . 1995 ( 1970 ) (statement of Randolph W . Thrower, then Commissioner of Internal Revenue).
32. Rev . Proc., supra note 25 , § 2 . 04 .
33. Id . § § 5, 6. Once tax exemption is revoked or an application for tax exemption denied, the school, if it wishes to appeal, must first exhaust its administrative remedies and then may seek judicial relief . Id. §§ 5.04 , 6 . 03 .
34. Id . § 3 . 02 .
35. Id . § 4 .01( a ). A school has a significant minority student enrollment when the percentage of minority students in the school is at least 20% "of the percentage of the minority school age population in the community served by the school." For example, a school with 200 students In a community in which the school-age population is comprised of 50% minorities, would need to have 20 minority students to have a significant minority student enrollment (20% of 50% equals 10%, 10% of 200 students equals 20 students) . Id. § 3 .03(b).
45. Id . § 4 .02; see note 36 supra and accompanying text .
46. Rev . Proc., supra note 25 , § 3 .03( c ) (6). The denomination cannot be racially discriminatory. Further, the school's formation or expansion must have been undertaken because it became practical to do so under circumstances "not attributable to a purpose of excluding minorities." Id.
47. See Pierce v. Society of Sisters , 268 U.S. 510 ( 1925 ); Meyer v. Nebraska , 262 U.S. 390 ( 1923 ).
48. Rev . Proc., supra note 25, § 3.03(b) . Rev. Proc. 75-50 , 1975 -2 C.B. 587 , incorporated by the-revenue procedure , Rev. Proc., supra note 25 , § 9, was somewhat broader in that it had allowed religious schools to select students on the basis of church affiliation . Rev, Proc. 75-50 , 1975 -2 C.B. 587 , § 3 . 03 .
49. See Wisconsin v. Yoder , 406 U.S. 205 ( 1972 ) ; Hearings, supra note 5, at 910-13 (statement of Mark I. Klein); id . at 504-05 (statement of Martin B . Cowan).
50. "The primary function of the Internal Revenue Service is to collect the [tax) revenues of the United States." Opening Statement by Jerome Kurtz, Commissioner of Internal Revenue, at the IRS Hearing on the Proposed Revenue Procedure on Tax Exempt Private Schools 2 ( Dec . 5, 1978 ).
51. Rev . Proc., supra note 25 , § 4 . 03 .
52. Rev . Rul. 71 - 447 , 1971 -2 C.B. 230 ; Opening Statement by Jerome Kurtz, Commissioner of Internal Revenue, at the IRS Hearing on the Proposed Revenue Procedure on Tax Exempt Private Schools 3 ( Dec . 5, 1978 ); see Hearings, supra note 5.at 291-92 (statement of William B. Ball).
53. Rev . Rul. 75 - 231 , 1975 -1 C.B. 158 ; see Green v. Connally , 330 F. Supp . 1150 , 1161 (D.D.C. ), aft'd mem. sub nom . Coit v. Green , 404 U.S. 997 ( 1971 ).
54. See Green v. Kennedy , 309 F. Supp . 1127 , 1136 (D.D .C. 1970 ) (per curiam), appeals dismissedfor want ofjurisdictionsub noam . Coit v. Green , 400 U.S. 986 ( 1971 ); Cannon v . Green , 398 U.S. 956 ( 1970 ); Hearings, supra note 5, at 370-71 (statement of Laurence H. Tribe).
55. See note 52 supra; Bob Jones Univ. v. United States , 468 F. Supp . 890 , 896 tD.S.C. 1978 ). But see id . at 906 n.9 (court states that the "meager" legislative history to § 501(c)(3) suggests the opposite conclusion from that drawn by the IRS) .
56. Rev . Rul. 71 - 447 , 1971 -2 C.B. 230 .
57. Id .
58. Restatement (Second) of Trusts § 377 , Comment c ( 1959 ).
59. See notes 10-13 supra and accompanying text.
60. Rev . Rul. 71 - 447 , 1971 -2 C.B. 230 .
67. I.R.C. § 170(b)(1)(A) ( 1954 ) (amended 1964 ) ; see H.R. Rep . No. 749 , 88th Cong., 2d Seas . 52 - 53 ( 1963 ), reprintedin  U.S. Code Cong . & Ad. News 1313 , 1361 - 62 . The 30% limit was later increased to the present 50% . Tax Reform Act of 1969 , Pub. L. No. 91 - 172 , § 201 , 83 Stat. 549 ( codified at I.R.C. § 170 ( 1976 )).
68. I.R.C. §§ 503 ( c ), 6033 (a) ( 1954 ) (amended 1969 ).
69. Id . The statutory distinction between the various types of tax exempt organizations is also consistent with the common law of charitable trusts. Whereas a trust established to advance education, promote religion or protect health can be restricted to a limited class of beneficiaries, a trust for community recreation is considered charitable only "where all the members of the community are eligible to receive a direct benefit . " Rev. Rul . 67 - 325 , 1967 -2 C.B. 113 , 116;see 4 A. Scott , Trusts § 368 (3d ed. 1967 ); Restatement (Second) of Trusts § 368 , Comment b ( 1959 ).
70. Goldsboro Christian Schools , Inc. v. United States , 436 F. Supp . 1314 , 1318 (E.D.N .C. 1977 ).
71. Walz v. Tax Comm'n , 397 U.S. 664 , 673 - 74 ( 1970 ). Indeed, "the use of a social welfare yardstick as a significant element to qualify for tax exemption could conceivably give rise to confrontations that could escalate to constitutional dimensions." Id. at 674.
72. Id . at 677-78.
73. Green v. Connally , 330 F. Supp . 1150 , 1158 -59 (D.D.C. ), aff'd mem. sub nom . Coit v. Green , 404 U.S. 997 ( 1971 ). The changing nature of common law charitable trusts is evident in the history of societies for the prevention of cruelty to animals. Originally this purpose was not recognized as charitable and no mention of it was made in the Statute of Charitable Uses , 1601 , 43 Eliz. 1, c . 4. In 1895, shortly before the enactment of the Internal Revenue Code , which
102. Tax Reform Act of 1969 , Pub. L. No. 91 - 172 , § 902 , 83 Stat. 487 ( 1969 ) (codified at I .R.C. § 162 (c)).
103. S. Rep . No. 91 - 552 , 91st Cong., 1st Sess . 274 ( 1969 ), reprinted in [19691 U.S. Code Cong. & Ad . News 2027 , 2311 .
104. In 1976, Congress added § 501(i) to the Internal Revenue Code to deny tax exempt status to social clubs described in § 501(c)(7) organized to "[discriminate] against any person on the basis of race, color, or religion." I.R.C. § 501 (i). According to the amendment's legislative history, Congress intended to overrule the portion of McGlotten v . Connally , 338 F. Supp . 448 (D.DC . 1972 ), see notes 115- 22 infra and accompanying text, which held that social clubs were entitled to tax exemptions notwithstanding racially discriminatory membership policies . S. Rep. No. 94- 1318 , 94th Cong., 2d Sess. 7-8 ( 1976 ), reprinted in [19761 U.S. Code Cong. & Ad. News 6051 , 6057 - 58 . More significantly, the same Senate Report also noted that Green v. Connally had held that racial discrimination was inconsistent with an educational institution's tax exempt status . Id. at 8 n.5 , reprinted in  U.S. Code Cong . & Ad . News at 6058.
105. See note 325 infra and accompanying text .
106. See note 54 supra and accompanying text .
107. Shelly v. Kraemer , 334 U.S. 1 , 13 ( 1948 ) (footnote omitted).
108. See , e.g., Evans v . Newton , 382 U.S. 296 ( 1966 ) (city's management and control of a
184. Id . at 308.
185. Id . at 308 n.13.
186. See , e.g., Kinsey v . First Regional Sec., Inc., S57 F.2d 830 , 839 (D.C. Cir . 1977 ) (labor pool qualified to be securities sales representatives); Patterson v . American Tobacco Co., 535 F.2d 257 , 275 (4th Cir.) (labor pool qualified to be supervisors), cert . denied, 429 U.S. 920 ( 1976 ); Hester v . Southern Ry. Co., 497 F.2d 1374 , 1379 ( 5th Cir . 1974 ) (labor pool able to type 60 corrected words per minute); Equal Employment Opportunity Comm'n v . E.I. duPont de Nemours & Co., 445 F. Supp . 223 , 237 (D. Del . 1978 ) (labor pool qualified for specific skilled positions); see B. Schlei & P. Grossman, supra note 139, at 1172- 75 ( 1976 ). But see Spurlock v . United Airlines , Inc., 475 F.2d 216 , 218 ( 10th Cir . 1972 ), which held that the plaintiff need not produce statistics showing the number of blacks qualified to be airline flight officers. Spurlock is of questionable weight because the huge disparity between blacks in the defendant's work force and blacks in the general population was sufficient by itself to support an inference of discrimination . See B. SchIei & P. Grossman, supra, at 1175 .
187. See notes 146-47 supra and accompanying text.
188. 438 U.S. 567 ( 1978 ).
189. Id . at 576-78.
190. See Fed. R. Evid . 404 (b).
201. See City of Concord v. New Testament Baptist Church , 118 N.H. 56 , 382 A.2d 377 ( 1978 ); National Conference of Catholic Bishops, To Teach As Jesus Did, 2 Origins 350 ( 1972 ).
202. 403 U.S. 602 ( 1971 ).
203. Id . at 609 (quoting DiCenso v . Robinson , 316 F. Supp . 112 , 117 (D. R.I . 1970 )).
204. Id . at 628 (Douglas, J.,concurring).
205. 421 U.S. 349 ( 1975 ).
206. Id . at 366.
207. For example, a state cannot restrict the subjects taught at a religious school any more than it can regulate the doctrine that is preached from the pulpits . Cf . State v. Whisner, 47 Ohio St. 2d 181 , 351 N.E.2d 750 ( 1976 ) (free exercise of religion is infringed when a state promulgates minimum educational standards that contravene truly held religious beliefs).
208. See Meek v. Pittenger , 421 U.S. 349 , 366 , 371 ( 1975 ); Lemon v . Kurtzman , 403 U.S. 602 , 613 , 615 - 18 ( 1971 ). These cases identify those characteristics which the Supreme Court has most frequently relied upon in discussing the essential religious nature of Christian education .
209. Walz v. Tax Comm'n , 397 U.S. 664 , 668 - 64 ) ( 1970 ).
210. Everson v. Board of Educ., 330 U.S. 1 , 18 ( 1947 ).
211. Walz v. Tax Comm'n , 397 U.S. 664 , 669 ( 1970 ). Government neutrality toward religious organizations is reflected in Title VII of the Civil Rights Act of 1964, which exempts religious institutions from its application . 42 U.S.C. § 2000e- 1 ( 1976 ). As originally enacted, this exemption applied to nonreligious institutions as well, 42 U .S.C. § 2000e- 1 ( 1970 ) (amended 1972), but Congress recently narrowed the scope of the exemption so that it now applies only to religiously affiliated educational institutions . Equal Employment Opportunity Act of 1972 , Pub. L. No. 92 - 261 , § 3 , 86 Stat . 103 - 04 . Other examples of neutrality toward religion can be seen in the areas of national defense, 50 U .S.C. App. § 456 (g), (j) ( 1976 ) (exempting ministers and conscientious objectors from the selective service), and labor law, NLRB v . Catholic Bishop , 440 U.S. 490 ( 1979 ) (exempting church-related schools from coverage by the federal labor laws) . In addition, the tax laws include several special provisions designed to minimize the contact and potential friction between church and state. See generally Whelan, "Church" in the Internal Revenue Code: The DefinitionalProblems , 45 Fordham L. Rev . 885 ( 1977 ) ; Note, The InternalRevenue Service as a Monitor of Church Institutions: The Excessive Entanglement Problem, 45 Fordham L . Rev . 929 ( 1977 ).
212. Walz v. Tax Comm'n , 397 U.S. 664 , 669 ( 1970 ) ; accord, Roemer v . Board of Pub. Works , 426 U.S. 736 , 747 ( 1976 ).
213. Gillette v. United States , 401 U.S. 437 , 461 - 62 ( 1971 ).
214. Sherbert v. Verner , 374 U.S. 398 , 406 ( 1963 ) ; accord, Wisconsin v . Yoder , 406 U.S. 205 , 215 ( 1972 ).
215. Wisconsin v. Yoder , 406 U.S. 205 , 215 ( 1972 ); Sherbert v . Verner , 374 U.S. 398 , 406 ( 1963 ).
216. Walz v. Tax Comm'n , 397 U.S. 664 , 668 ( 1970 ).
217. Id .
218. Meek v. Pittenger , 421 U.S. 349 , 358 ( 1975 ) ; Committee for Pub . Educ. v. Nyquist, 413 U.S. 756 , 772 - 73 ( 1973 ); Lemon v . Kurtzman , 403 U.S. 602 , 612 - 13 ( 1971 ) ; accord , Walz v, Tax Comm'n , 397 U.S. 664 , 674 ( 1970 ). See generally 47 Fordham L . Rev . 622 , 624 - 33 ( 1979 ).
219. Everson v. Board of Educ., 330 U.S. 1 , 15 ( 1947 ).
220. At the outset, it should be noted that tax benefits granted to religious institutions In the form of tax exemptions do not violate the establishment clause because they neither advance nor inhibit religion. Further, the benefit conferred applies equally to both religious and non-religious charitable institutions and "is incidental to the religious character of the institutions concerned." B . Schwartz , Constitutional Law 348-49 ( 1979 ) ; see Walz v . Tax Comm'n , 397 U.S. 664 ( 1970 ).
221. For a discussion of church structure, see H. Kiing , The Church ( 1967 ).
222. Rev . Proc., supra note 25, § 3.03(b).
223. For example, the Episcopal Church could aggregate its minority student membership In a system of parochial schools, but several Baptist congregational schools could not aggregate because the Baptist Church follows a congregational form of church government . See Hearings, supra note 5 , at 548 (statement of James E. Wood, Jr.).
224. Rev . Proc., supra note 25 , § 3 .03( c )( 6 ).
225. See Abington School Dist. v. Schempp, 374 U.S. 203 , 240 ( 1963 ) (Brennan , J., concurring); L. Tribe , American Constitutional Law, § 14 - 6 , at 826 ( 1978 ).
226. One court has applied an excessive entanglement analysis to determine the constitutionality of an administrative agency's interpretation of a statutory exemption for religious organizations . In Grace Brethren Church v. California, No. 79 - 93 (C.D. Cal . Sept. 24 , 1979 ), two religious organizations operating schools challenged the Secretary of Labor's interpretation of a provision in the Federal Unemployment Tax Act that exempted religious organizations from the
237. Id . §§ 3 . 01 , 4 .03( 2 ).
238. Id . §§ 3 .03( c )( 7 ), ( 12 ), ( 14 ), 4 .03( 3 ).
239. This degree of examination is greater than that typically undertaken with respect to religious organizations. The IRS normally reviews an organization's initial application for a tax exemption and then conducts only occasional audits . P. Treusch & N. Sugarman, supra note 126 , at 110- 21 . As a general proposition, the IRS makes every effort not to interfere with religious organizations, unless it appears that a church is engaging in improper business activity . I.R.C. § 7605 (c). Indeed, the Code permits examination of religious activities only "to the extent necessary" to determine whether an organization is in fact a church. Id. IRS review under the revenue procedure is also unlike the perfunctory review that accompanies annual grants to private universities, which the Supreme Court has specifically held constitutional . Roemer v. Board of Pub. Works , 426 U.S. 736 ( 1976 ); Tilton v . Richardson , 403 U.S. 672 ( 1971 ).
240. Rev . Proc., supra note 25 , § 3 .03( c )( 6 ).
241. Id . § 3 .03( c )( 12 ).
242. Id . § 4 . 03 . These requirements are in certain respects somewhat anomalous . Section 4 .03, for example, lists participation with integrated public schools in sports as evidence of a nondiscriminatory purpose. Some religious schools, however, do not engage in sports at all . Hearings,supra note 5 , at 287 (statement of William B. Ball). Others have had their offers to play integrated public schools refused. For example, Catholic schools have sued for the right to play public schools in at least three instances . Denis J. O'Connell High School v . Virginia High School League , 581 F.2d 81 ( 4th Cir . 1978 ), cert. denied, 440 U.S. 936 ( 1979 ); Valencia v . Blue Hen Conference , 476 F. Supp . 809 ( D. Del . 1979 ) ; Christian Bros . Inst. v. Northern New Jersey Interscholastic League, No. L-31408 -75 (N.J. Super . Ct. Law Div. Nov. 28 , 1978 ) (oral opinion); cf. South Dakota High School Interscholastic Activities Ass'n v . St. Mary's Inter-Parochial High School , 82 S.D. 84 , 141 N.W.2d 477 ( 1966 ) (constitutional prohibitions on aiding religious schools do not require that parochial students be barred from participation with public school students in interscholastic activities that would utilize public school facilities ).
243. Rev . Proc., supra note 25 , § 3 .03( c )( 6 ).
246. J. Madison , Memorial and Remonstrance Against Religious Assessments, in 2 Writings of James Madison 183 (G . Hunt ed. 1901 ), quoted in Everson v. Board of Educ., 330 U.S. 1 . 67 ( 1947 ) (Rutledge , J., dissenting).
247. United States v. Ballard , 322 U.S. 78 , 86 - 87 ( 1944 ). "Freedom of thought, which includes freedom of religious belief, is basic in a society of free men .... Men may believe what they cannot prove. They may not be put to the proof of their religious doctrines or beliefs." Id. at 86.
248. Fowler v. Rhode Island , 345 U.S. 67 , 70 ( 1953 ) ; see State v . \Vhisner, 47 Ohio St. 2d 181 , 351 N.E.2d 750 ( 1976 ).
249. The Court will jaot uphold a tax exemption that calls for "official and continuing surveillance." Walz v . Tax Comm'n , 397 U.S. 664 , 675 ( 1970 ). Although no tax exemption could result in a total absence of contact between church and state, only an exemption that "tends to complement and reinforce the desired separation insulating each from the other" is constitutional . Id.at 676.
250. Sherbert v. Verner , 374 U.S. 398 , 404 ( 1963 ) (quoting Braunfeld v . Brown , 366 U.S. 599 , 607 ( 1961 )).
251. Cantwell v. Connecticut , 310 U.S. 296 ( 1940 ).