voked several years ago and we still get as many donations as we ever got.

The Internal Revenue Service does not ever challenge us, they know we are tax exempt. There is a little piece of paper they issued. You people in Congress gave us your tax-exempt status, they cannot take it. So if a fellow has any nerve, he goes right on and makes his donation. If he is a big rich fellow who does not want to get any publicity and does not want the Internal Revenue Service to audit him, he may be intimidated.

I would say that the majority of the schools in our association, a $1,000 donation is a big one but we get a heck of a lot of little ones in there. We get a lot of them from people who resent the Internal Revenue Service who just come over and give us a gift.

Mr. GIBBONS. Mr. Gradison?

Mr. GRADISON. I have no questions.

Thank you, Mr. Chairman. Thank you, Mr. Gravatt.

Mr. GRAVATT. Thank you, very much.

Mr. GIBBONS. Mr. Jenkins?

Mr. JENKINS. No questions.

Mr. GIBBONS. Mr. Moore?

Mr. MOORE. No questions, Mr. Chairman.
Mr. GIBBONS. Thank you.

Senator Thurmond, we welcome you and you may proceed as you wish.

STATEMENT OF HON. STROM THURMOND, A U.S. SENATOR FROM THE STATE OF SOUTH CAROLINA

Senator THURMOND. Thank you, very much, Mr. Chairman, and gentlemen of the committee.

I wish to express my appreciation for your providing me an opportunity to appear here this morning. The Senate has a vote at 10 o'clock so I shall talk a little fast to get through my brief statement.

Mr. GIBBONS. All right, sir.

Senator THURMOND. Last December, I had the privilege of making a statement on the proposed IRS guidelines, at a hearing held by the IRS. I must say that I am much more comfortable before this panel today. That is because I feel the issue is at last in the appropriate forum, which is to say a legislative forum.

The guidelines which have been proposed set up a procedure by which the Internal Revenue Service will examine the creation and continuing operation of privtae schools. The purpose of this scrutiny is to determine whether or not these schools discriminate against minorities.

The IRS justifies the procedure because these private schools are tax exempt, although it would seem that the Civil Rights Division of the Justice Department, for example, is a more appropriate agency to carry out investigations into charges of discrimination.

I do not believe that the IRS has the authority to go as far as these regulations go. The regulations themselves refer to only one statutory section, section 501 (c) (3) of the Internal Revenue Code.

As far as I can tell, all section 501 does is to set out those organizations which Congress exempted from taxation. I can find no authority in that section for what the IRS is proposing to do, which is actually

to require affirmative action programs of certain schools. I do not think that Congress intended to authorize any such activity by the IRS when it voted for this section in the 1954 Tax Code.

Of course, racial discrimination must be deplored. But racial discrimination is not the question here. We are a society built upon law and we are talking here about an agency acting outside of its lawful authority, outside the law.

If there is statutory authority for the proposed guidelines, why does the IRS need to include schools adjudicated to be operating in a racially discriminatory manner?

Why have those adjudicated schools retained their tax-exempt status thus far, if the IRS has the authority it says it has?

Now, perhaps Congress ought to give IRS that authority, but as of now, I do not believe that the authority exists.

Legislation in this area will be difficult to draft. There are serious first amendment questions raised by this issue, which have not been settled by the revised proposed guidelines. I trust that those questions have been fully set out for the committee by others. Nor have the revised guidelines solved the problem of the reverse burden of proof imposed upon the schools. Any legislation proposed in this area will have to contend with both of those problems.

Finally, since the IRS seems determined to proceed without statutory authority, it may be necessary by statute to require the agency to wait. We should not be afraid to do so. This is an important issue, one that has evoked more correspondence to IRS than any other single issue.

The public, at the moment, is distrustful of the Government and particularly of the bureaucracy over which it exercises no control by ballot. The people feel that more and more agencies are acting beyond their mandated authority. We have a duty to the people, when we confronted such a case, to correct the situation.

I urge this subcommittee to take a firm stand on this issue. I urge you to reassure the people who elected you that the Federal Government will not invade every aspect of their lives. The people depend upon us, their elected representatives, to gather the facts and act in their interest. I trust that you will do so in this matter.

I mentioned before that I spoke on this subject on December 4, 1978, at a hearing arranged by IRS.

Mr. Chairman, if there is no objection, I ask unanimous consent that a copy of my statement at that hearing be included in the record at the conclusion of my remarks.

I wish to thank you very much. Mr. GIBBONS. It will be so ordered. [The statement referred to follows:]

STATEMENT OF HON. STROM THURMOND, A U.S. SENATOR FROM THE STATE OF SOUTH

CAROLINA

Mr. Commissioner and members of the panel, I appreciate the opportunity today to present this comment before this distinguished body, although I am not happy that the need for this occasion has risen. Comments today and the next two days will be addressed to a proposed procedural regulation which, according to the initial information published in the Federal Register, is not "significant." However, I believe that the issues raised by your proposed revenue procedure on tax-exempt private schools are extremely significant. I object to the proposed procedure and oppose its adoption in its present form.

First, the regulations are unfair in that they embody a presumption which brands certain private schools as guilty until they prove to the satisfaction of the IRS that they are innocent. Such a presumption, a switch in the burden of proof, violates one of the basic underlying principles of our American system of justice that one shall be presumed innocent until proven guilty. Furthermore, innocence may only be demonstrated by certain evidence outlined in the proposed procedure. The evidence amounts to a complicated affirmative action program complete with percentage quotas of certain approved "minorities", discriminatory scholarship programs and hiring policies. The validity of strict quotas was denied by the Supreme Court last term in the Bakke case. The IRS program must be undertaken by schools which have already been granted tax-exempt status, as well as schools which apply for that status in the future. Schools which now have tax-exempt status had the burden of convincing the IRS, initially, that they fell within the statutory language granting tax-exempt status. The IRS determined that they were entitled to that status and awarded it. If the IRS now believes that some of the schools are operating in such a way that they are no longer eligible to claim tax-exempt status, then it already has procedures by which it can challenge and revoke that status. Saving the IRS some time and trouble is not worth this rash and radical departure from existing law and traditional concepts.

I believe that this is a radical departure from traditional concepts and that is my second objection to the proposed procedure.

The assumption behind this regulation is not easy to see at first. It is not stated plainly anywhere. However, it is undoubtedly the assumption that an exemption from taxes by the Government equals financial support by the Government. The financial support, the indirect subsidy as it were, which is "granted" by the government through tax exemptions, is also assumed to justify Government control so that the "subsidy" will not be used to thwart public policy. That first assumption is derived or justified only by the further assumption that the Government is entitled to all revenue, however generated; that the Government, and not the citizen who earns or produces it, has a right to that income, and that the Government is granting a benefit by allowing the producer to keep any of it. That, Gentlemen, is the very basic assumption behind this regulation. I believe it is wrong. The Congress has the right and power to tax, to take from the people only so much revenue as it needs to carry on necessary governmental functions. That is as far as the taxing power extends, and although it can and does extend pretty far when necessary, it has never gone so far as to justify the assumption behind this regulation.

At any rate, the question of whether or not the government is entitled to all income, and by declining to take some confers a benefit, has never been decided in Congress. That very issue was hotly debated on the floor of the Senate during consideration of the Revenue Act of 1978. The issue never came to a direct vote, although by tabling the amendment which provoked the debate, the Senate came closer to denying the assumption.

That brings me to the third objection to the proposed procedure. Much will be said by subsequent witnesses about the effect of this proposed regulation on the First Amendment principle of separation of church and state. I believe that issue is very much involved here, but I will leave to other witnesses the taks of presenting it. Instead, I would like to address another separation issue raised, separation of powers.

The IRS, through this regulation, is acting as a legislative body. There is not a shred of authority for such an action. No change has been made in the statute which grants tax-exempt status to various kinds of organizations, which would justify the actions proposed. The only justification lies in the IRS's perception of social policy and its adoption of the assmption discussed above, that the Government confers a benefit whenever it allows a citizen to keep some of his income. I submit, Gentlemen, that both these issues are substantive matters to be dealt with legislatively, by the legislative branch of government, and not procedural ones to be decided by the administrative branch. The primary purpose of the revenue statutes is to obtain revenue. The purpose of the IRS is to collect the taxes authorized by those statutes, not to enforce social policy. Now, I realize that the issues here are made difficult and sensitive because of the particular social policy involved. The object of the proposed procedure is to revoke the tax-exempt status of private schools actively practicing racial discrimination. It is impossible for a reasonable man to argue against that purpose, and I wish to make it clear that it is not the purpose to

which I am objecting. I object to an agency, a creation of the Congress, possessing only delegated authority, making decisions that have the effect of law and create far-reaching implications not only for the private schools directly involved, but for every organization which possesses a tax-exempt status, and indeed for every citizen who claims a deduction or exemption on his tax return. Finally, Mr. Commissioner, in addition to the objections already mentioned, I object to the way this regulation is being promulgated. Cast in the guise of a "procedure", the regulation is not subject to the rigorous requirements of comment and public hearings that the Administrative Procedure Act prescribes for substantive regulations. We realize that this is not a hearing; that we are not submitting testimony which must be considered-although I am sure you will consider it seriously-but merely making public comments about the proposed regulation.

In the guise of a "procedure," the regulation could slip by. Because it was not considered to be a "significant" regulation, no study of the economic impact was required. However, that impact alone is sufficient to make this regulation significant. There are approximately 20,000 private, independent schools operating in America today. If only 5 percent were to close because they lost their tax-exempt status under this procedure, some estimates show that the tax dollars needed to accommodate those students in public schools would exceed two billion dollars. Surely such a potential alone makes it worthwhile to explore this proposal a little closer.

Therefore, Mr. Commissioner, I wish again to voice my objection. I believe that this proposed regulation is unfair, that it arbitrarily decides an issue of substantive tax law and public policy which is properly within the jurisdiction of the Legislative branch, that it creates serious questions about the separation of church and state, and that it creates far-reaching substantive changes in the lives of those affected. For these reasons, I urge you to reconsider and not promulgate this proposed procedure. If you are determined to go ahead, I urge you to republish it as a substantive regulation, under the APA, subject to substantive criticism, full analysis and public hearings.

Senator THURMOND. That concludes my brief statement, Mr. Chair

man.

Mr. GIBBONS. You do realize that this does raise a very serious first amendment question. In fact, all of our discussion yesterday was devoted to that subject and we had some very intelligent witnesses here discussing that matter for us.

We intend to have the Commissioner back this afternoon at 2 o'clock at which time I hope that we will examine him thoroughly and ask him by what authority he exercises this power and to make sure that these regulations, if he finally puts them into effect, apply uniformly throughout the United States so that no one area is singled out for particular harassment.

I don't have any questions, Senator.

Mr. Gradison, do you have any questions?

Mr. GRADISON. Mr. Chairman, I don't have any questions but I would like to thank the Senator for being with us. The very fact that he has taken time to come over here and also to appear before the IRS shows the strength of his convictions on this subject and it is very helpful in our consideration that he has come over to be with us this morning. Senator THURMOND. Thank you, very much.

Mr. GIBBONS. Mr. Jenkins?

Mr. JENKINS. Mr. Chairman, I have no questions. I thank Senator Thurmond for his testimony. I recognize his need to get back to the Senate for the vote.

Thank you, Senator.

Senator THURMOND. Thank you.

Mr. GIBBONS. Mr. Heftel.

Mr. HEFTEL. No questions.

Mr. GIBBONS. Thank you.

Senator THURMOND. Mr. Chairman, thank you and your committee for your respectful hearing.

Mr. GIBBONS. Our next witness is Cindy Brown from Health, Education, and Welfare.

I understand Miss Brown has no prepared statement and that we will just ask her questions.

Now, Miss Brown, I don't want to cut you off. If you have anything you want to say before we start hammering away on you, I would entertain you first and let you proceed.

STATEMENT OF CYNTHIA BROWN, PRINCIPAL DEPUTY DIRECTOR, OFFICE FOR CIVIL RIGHTS; ACCOMPANIED BY FRED CIOFFI, CHIEF OF THE ELEMENTARY AND SECONDARY EDUCATION DIVISION, OFFICE FOR CIVIL RIGHTS, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

Ms. BROWN. As you know, my name is Cynthia Brown and I am the Principal Deputy Director of the Office for Civil Rights.

I am accompanied today by Mr. Fred Cioffi, who is the Chief of the Elementary and Secondary Education Division in the Office for Civil Rights.

We were called yesterday and asked if we would come up and answer some questions that we understand you had with regard to the work of the Office for Civil Rights in the area of public school desegregation and some concerns you have with how it relates to the IRS proposal.

I have no prepared statement but I will be glad to answer your questions.

Mr. GIBBONS. The desegregation programs, while a need for them has been primarily directed toward the South, the North-specifically Chicago, parts of Detroit, Boston, Los Angeles, and other big cities has just been neglected in this matter.

I say that not in a complaining manner. I come from Hillsborough County, Fla.; it is the 25th largest school district in the United States. It has been perfectly desegregated and there has been no violence; in fact, not even purported violence in the area.

We have proudly carried out our tradition of obeying the law and doing it in a very thorough manner but I don't see that happening in the rest of the United States and I want to know why?

Ms. BROWN. Well, sir, maybe I can explain the responsibilities of our office and some of the other efforts that are going on in school desegregation, and then we can fit the pieces together.

The Office for Civil Rights has authority to act in the area of school desegregation under title VI of the Civil Rights Act of 1964 which prohibits discrimination on the basis of race, color, or national origin in federally assisted programs and activities, including public school systems.

Under title VI, public school systems receiving Federal funds may not discriminate on the basis of race in assigning students to schools. If our office finds that a school district is discriminating and operating