TAX-EXEMPT STATUS OF PRIVATE SCHOOLS THURSDAY, FEBRUARY 22, 1979 HOUSE OF REPRESENTATIVES, The subcommittee met at 9:30 a.m., pursuant to notice, in room 1100, Longworth House Office Building, Hon. Sam M. Gibbons (chairman of the subcommittee) presiding. Mr. GIBBONS. This is the meeting of the Oversight Subcommittee of the Ways and Means Committee. This morning, the Subcommittee on Oversight concludes this phase of the hearings on the Internal Revenue Service revised proposal for insuring that private schools which practice racial discrimination will not be accorded tax exempt status. When this session ends this afternoon, it will be the most comprehensive set of hearings the subcommittee has held on anything since I assumed the chairmanship at the beginning of the 95th Congress. While not every voice has been heard, it is my hope that we have dealt with every argument on this controversial subject. Today has been set aside to hear specifically from groups that have requested time to appear on this issue. Today, we will also be accommodating those witnesses who could not make it on the 20th and 21st to the greatest extent possible we will do that. Because we have not had a lot of witnesses scheduled, we must once again insist that witnesses limit their testimony to 5 minutes or less. This afternoon, Commissioner Kurtz will return for an opportunity for us to question him after we have had an opportunity to hear a great variety of other witnesses express their views. Let me again express my views for the situation we face. Private schools play a valuable role in our society. Tax exemption is a privilege awarded by the Government to institutions that meet certain conditions and are deemed to be in the public interest. At issue here is a complex and controversial question about what the IRS can do or should be doing to insure that the conditions imposed by law are met. Our first witness this morning is Congressman Ronald Mottl. We welcome you here and you may proceed as you wish. (579) STATEMENT OF HON. RONALD M. MOTTL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO Mr. MOTTL. Thank you, very much, Chairman Gibbons, Mr. Jenkins, Mr. Gradison. I thank you for your courtesy in inviting me to testify before your committee now holding hearings on the revised proposed regulations concerning private tax-exempt schools. As I am sure you are aware, I testified last December 5 at a hearing by the Internal Revenue Service on the original proposal. At that time I interpreted the regulations as posing a very real threat to freedom of religion in this country. Indeed, we had just been shocked by the news of the horrible suicide massacre of about 900 Americans belonging to the People's Temple located in Guyana. I pointed out at that time that I believed it to be a travesty that this disgusting cancer on the body politic should be nurtured and strengthened by tax-exempt status while many of our worthy private institutions of learning at the high school level were being threatened with loss of tax-exemption unless they accepted a quota on minority students. At the hearing last December 5, I characterized the proposed regulations as being poorly written, not well thought out, absurd, and arbitrary, and that, if implemented, would involve the IRS in social planning and imposing social standards instead of being solely the collection agency for our tax dollars. I urged the IRS at that time to rewrite the regulations or stick to the status quo. Unfortunately, they decided at the IRS to rewrite the regulations. I admit that a modest degree of progress has been made by removing certain private colleges and universities from this provision. They have taken one small step, to parody Neil Armstrong, but it is doubtful that mankind will benefit by it. The dangerous precedent that will be set if these regulations are accepted is one that could lead to complete Federal control of our education. After racial controls will come bureaucratic snooping into the school textbooks, and I fear that the many fine private schools affiliated with churches will be given a hard time. The code word will be arbitrary quotas. Could we condone such an absurdity as denying tax exemption to a Hebrew academy because it did not have Black or Spanish-speaking Catholic students? Last December 5 I posed the question that these proposed regulations would most likely be found to be in conflict with the Supreme Court decision in the case of Bakke v. University of California Regents. In the Bakke case, as you all know, the Supreme Court split 5 to 4 to invalidate the University of California's Davis Medical School's minority quota admissions program. It was Justice Powell who cast the deciding vote, writing that "racial and ethnic distinctions of any sort are inherently suspect and thus call for the most exacting judicial examination." Later, he wrote: Preferring members of any one group for no reason other than race or ethnic origination is discrimination for its own sake. This the Constitution forbids. Thank you, very much, Mr. Chairman, for allowing me to give this testimony this morning. Mr. GIBBONS. Yes, sir. We thank you, Mr. Mottl, for coming and we appreciate your statement. Mr. Gradison? Mr. GRADISON. I just would like to join the Chairman in thanking my colleague from Ohio for his useful contribution. Mr. MOTTL. Thank you, Bill. Mr. GIBBONS. Mr. Jenkins? Mr. JENKINS. I have no questions, Mr. Chairman. Mr. GIBBONS. Mr. Heftel? Mr. HEFTEL. No questions. Mr. GIBBONS. Thank you. Are any of our scheduled witnesses here? Yes, sir, would you come forward and identify yourself, please, sir. We know the weather has played havoc with our schedule. In the past few days we have had more witnesses than we have had time and it is very unusual to have this kind of circumstance this morning. Mr. GRAVATT. I am W. M. Gravatt, Jr., of the Virginia Independent Schools Association. Mr. GIBBONS. Fine, we will hear from you. STATEMENT OF W. M. GRAVATT, JR., VICE PRESIDENT, VIRGINIA INDEPENDENT SCHOOLS ASSOCIATION Mr. GRAVATT. Having identified myself, I will say that I am speaking for the Virginia Independent Schools Association and we oppose the unconstitutional attempts of the Internal Revenue Service to take over and regulate private education in the United States. There is one basic principle that seems to be intentionally overlooked by the IRS. The Congress of the United States gave us our tax exempt status and only Congress can take it way. Not the IRS. Section 501 (c) (3) grants exemption from tax to nonprofit entities organized and operated exclusively for educational purposes. Section 503(b) (2) described an educational organization which qualifies as: An educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at a place where its educational activities are regularly carried on. Congress has here made a clear and unequivocal definition and this is all that is required for tax exemption, nothing more. The IRS, through the adoption of revenue procedures, has in fact usurped the legislative powers of Congress. In spite of Congress and the courts, the IRS has declared its own ideas of public policy without regard to any revenue purpose. The Service then undertakes to enforce its policy by revoking congressionally granted exemptions. We deny that Revenue Procedure 75-50 is intended to produce revenue for the United States and is therefore void. We particularly call to the attention of this honorable subcommittee the case of Runyan v. McCrary, 427 U.S. 160. Our member schools were parties intervenor in the case and we have an "open admissions" situation by reason of a permanent injunction of the Federal district court. By order of that court, no private school in the United States can refuse to admit a black student. Much to the disappointment of the IRS, however, the Supreme Court ruled in the case that the Government could not do exactly what the IRS is attempting to do by Revenue Procedure 75-50 and the latest proposed procedures. The Court said that although the schools must admit blacks that "parents have the first amendment right to send their children to educational institutions that promote the beliefs that racial segregation is desirable." The conclusion of every court on the right of the individual to express unorthodox opinions, whether heretic or whatever, was summed up in the 1978 case of Collier v. Smith (447 D. Supp. 676) where State authorities were enjoined from prohibiting the National Socialist Party from asserting its beliefs; the Court said: It must be made clear from the outset that the defendants have no power to prevent the plaintiffs from stating their political philosophy including their opinions of Black and Jewish people, however noxious and reprehensible that philosophy may be. Simply stated, the IRS has no more right to demand and require a school to publish a statement of open admissions than it would require them to say, "Heil Hitler." An aside here from my written statement. The courts have ruled that the schools cannot require a child to take the oath of allegiance to the United States in the public schools. We feel that the Internal Revenue Service is in effect telling us that to operate our private schools we must take our oath of allegiance to the Internal Revenue Service. In conclusion, I would call to your attention the very recent case of Bob Jones University v. United States of America. The U.S. District Court of South Carolina ruled in favor of the university and said in its opinion: Having determined that revocation of plaintiff's tax exempt status by defendant was improper under defendant's own rulings and procedures violated plaintiff's First Amendment rights, and resulted from the Treasury's exceeding those powers delegated to it, the court determines that it is unnecessary to examine further claims made by plaintiff. For the foregoing reasons, the court concludes plaintiff was entitled to exemption for the calendar year of 1975 under Section 501 (c) (3). The present proposed actions of IRS makes us proud of the fact that Virginia is one of the States which refused to ratify the income tax amendment to the Constitution. It was Richard Evelyn Byrd, Speaker of the House, and grandfather of our present U.S. Senator, who spoke in the legislature against the amendment. Sixty-eight years ago he warned the people of Virginia that an income tax law would bring about the regulation and interference by the government in the everyday private affairs and freedoms of every citizen. How right he was. Please, gentlemen, we are asking you to get the IRS out of social engineering and back to its authorized, but despised job of tax collecting. Thank you, very much. Mr. GIBBONS. Thank you, sir. Let me ask you about your association. Do you have any statistics as to the number of black students that are enrolled in your schools? Mr. GRAVATT. As far as I know, there are not any. Mr. GIBBONS. Why is that? Mr. GRAVATT. I can only answer for the particular schools I am more familiar with but I think the answer to it is that none have applied. We are under that injunction from Judge Bryant and he was very careful to admonish us in court. That was in the RunyanMcCrary case. He admonished us in court that that was the first case that had ever come up and he was not levying any punitive damages at that time or putting anybody in jail. If we refused a black at the door of our schools, Judge Bryant could not only put us in jail and hold us in contempt, he could levy a punitive judgment against our school which would bankrupt us and put us out of business immediately. So, in answer to your question, the government through the courts have every tool they need or could ever want for enforcing open admissions into the private schools. The Internal Revenue Service is not needed in that case. Mr. GIBBONS. About how many students attend your schools? Mr. GRAVATT. Well, sir, we had about 40 schools to begin with and when the Internal Revenue Service came forth with 75-50 demanding the open admissions policy, about half of our schools got out on that limb, we called that the hypocrite's limb and the government is sawing it off behind the man. The others have stayed in the association. We have about 16 schools left in the association which refuse to be intimidated and I would say we have about probably 5,000 students. I don't mean to say that everybody that declared open admissions is a hypocrite but I would say that all the hypocrites are out on that limb. Mr. GIBBONS. Well, let me ask you, in that group of so-called hypocrites, do you know anything about the enrollment in their schools? Has the enrollment in their schools changed at all as far as blackwhite ratio is concerned? Mr. GRAVATT. No, sir. If you are saying whether 75-50 got any black students into the crowded schools, my answer would have to be, no, it never did and I don't think adopting these new regulations will do it either. Mr. GIBBONS. Do your schools depend much upon gifts or just upon tuition? Mr. GRAVATT. We depend on gifts but the major part of our operation is tuition and we make no profits. We would not owe any tax any way. Mr. GIBBONS. The only real question that bothers you then other than the issue on principle is a question of whether the giver would be able to make a tax deductible gift to them. Mr. GRAVATT. Yes; but if you let me get personal, the school which I am affiliated with personally, that I am on the board of directors, our taxes advance the assurance of tax deductibility. That was re |