461 U.S. 574, 600, 103 S.Ct. 2017, 76 L.Ed.2d 157 (1988)
Until 1970 the Internal Revenue Service granted tax-exempt status to private schools without regard to their racial admissions policies under section 501(c)(3) of the Internal Revenue Code.1
On January 12, 1970, a three-judge district court issued a preliminary injunction in Green v. Kennedy prohibiting the IRS from according tax-exempt status to private schools in Mississippi that discriminated on the basis of race.2 In July 1970 the IRS concluded it could no longer legally justify allowing tax-exempt status to private schools practicing racial discrimination and announced it would not treat gifts to such schools as charitable deductions.3 The IRS formalized its revised policy in Revenue Ruling 71-447, stating that a school not having a racially nondiscriminatory policy as to students is not charitable within the common-law concepts reflected in sections 170 and 501(c)(3).4
Bob Jones University is a nonprofit corporation located in Greenville, South Carolina, whose purpose is to conduct an institution of learning giving special emphasis to the Christian religion and the ethics revealed in the Holy Scriptures.5 The university operates a school with an enrollment of approximately 5,000 students from kindergarten through college and graduate school and requires its teachers to be devout Christians while teaching all courses according to the Bible.6 Until 1971 the university completely excluded Negroes.7 From 1971 to May 1975 it accepted no applications from unmarried Negroes but did accept applications from Negroes married within their race.8 Following the Fourth Circuit decision in McCrary v. Runyon, the university revised its policy. Since May 1975 the university has permitted unmarried Negroes to enroll while maintaining a disciplinary rule that prohibits interracial dating and marriage and expels students who violate it.9 The university continues to deny admission to applicants engaged in an interracial marriage or known to advocate interracial marriage or dating.10
Until 1970 the IRS extended tax-exempt status to Bob Jones University under section 501(c)(3).11 On January 19, 1976, the IRS officially revoked the university's tax-exempt status effective December 1, 1970.12 The university paid a $21 federal unemployment tax for 1975, had its refund request denied, and filed suit in the United States District Court for the District of South Carolina seeking recovery of that amount while the government counterclaimed for $489,675.59 in unpaid taxes for 1971 through 1975.13 The district court ordered the IRS to pay the refund and rejected the counterclaim, but the Fourth Circuit reversed.14
Goldsboro Christian Schools is a nonprofit corporation located in Goldsboro, North Carolina, established to conduct an institution of learning giving special emphasis to the Christian religion and the ethics revealed in the Holy Scriptures.15 Since its incorporation in 1963 the school has maintained a racially discriminatory admissions policy based upon its interpretation of the Bible.16 Goldsboro has for the most part accepted only Caucasians. On occasion, however, the school has accepted children from racially mixed marriages in which one of the parents is Caucasian.17 Upon audit the IRS determined that Goldsboro was not an organization described in section 501(c)(3) and required it to pay taxes under the Federal Insurance Contribution Act and the Federal Unemployment Tax Act.18 Goldsboro paid the IRS $3,459.93 in taxes for one employee for the years 1969 through 1972 and filed suit in the United States District Court for the Eastern District of North Carolina seeking a refund while the government counterclaimed for $160,073.96 in unpaid taxes.19 The district court granted summary judgment to the IRS on its counterclaim, and the Fourth Circuit affirmed per curiam.20
The Supreme Court granted certiorari in both cases.21 The cases were argued on October 12, 1982.22 The Court decided the cases on May 24, 1983.23
Whether nonprofit private schools that prescribe and enforce racially discriminatory admissions standards on the basis of religious doctrine qualify as tax-exempt organizations under section 501(c)(3) of the Internal Revenue Code?24
Section 501(c)(3) requires that an organization be organized and operated exclusively for one of the enumerated purposes.25 Its activities must not be contrary to established public policy.26 This draws from common law charitable trust principles that a charitable purpose must confer a public benefit and not violate fundamental public policy.27
No. Bob Jones University excluded Negroes until 1971 and then restricted unmarried Negroes until 1975 while maintaining a ban on interracial dating and marriage enforced by expulsion.28 Goldsboro Christian Schools accepted only Caucasians for the most part with occasional exceptions for children from racially mixed marriages where one parent was Caucasian.29 These policies violate the national policy against racial discrimination in education articulated in Brown v. Board of Education and numerous congressional enactments and executive orders.30 The IRS correctly determined in Revenue Ruling 71-447 that a school without a racially nondiscriminatory policy as to students is not charitable within the common law concepts reflected in sections 170 and 501(c)(3).31
Nonprofit private schools with racially discriminatory admissions policies do not qualify as tax-exempt organizations under section 501(c)(3).32
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Justice Powell concurred in the judgment but wrote separately to caution that the Court's opinion risks granting the IRS excessive authority to identify fundamental public policies.33 He emphasized that Congress rather than the agency should determine which policies override tax-exempt status.34 Powell noted that a decade of legislative acquiescence supported the result here without endorsing the broader rationale that every exempt organization must demonstrably serve and be in harmony with the public interest as defined by the Court.35
He stressed the value of pluralism and the role of tax exemptions in encouraging diverse viewpoints rather than conformity with government-approved policies.36
Justice Rehnquist dissented on this issue, arguing that the plain language of section 501(c)(3) lists eight specific exempt purposes without any additional public policy requirement.37 He maintained that Congress alone possesses the power to add such a limitation.38 Rehnquist concluded that the IRS interpretation constituted an impermissible expansion beyond the statute's text and nearly a century of legislative history showing that Congress itself defined the qualifying organizations.39
The statute explicitly enumerates the requirements for exemption and leaves no room for an undefined public policy overlay imposed by the agency.40
Whether the Internal Revenue Service exceeded its statutory authority by denying tax-exempt status to private schools with racially discriminatory admissions policies?41
The IRS possesses broad authority under 26 U.S.C. § 7805(a) to interpret the Internal Revenue Code in light of changing conditions and longstanding principles of charitable trust law.42 Its construction must be consistent with congressional intent and must not contradict explicit statutory language.43
No. The IRS acted within its authority when it issued Revenue Ruling 71-447 in 1971 after the injunction in Green v. Kennedy.44 Congress had long vested the agency with primary responsibility for construing sections 170 and 501(c)(3) against the background of common law charity principles.45 The rulings aligned with the firm national policy against racial discrimination in education already declared by all three branches of government before 1970.46
The Internal Revenue Service did not exceed its statutory authority by denying tax-exempt status to private schools with racially discriminatory admission policies.47
Related opinions on this issue
Justice Powell agreed that the IRS reached a permissible construction of the Code supported by a decade of legislative acquiescence in and ratification of the 1970 and 1971 rulings.48 He stressed that the agency should not be viewed as possessing open-ended power to define which overriding public policies require denial of tax exemptions.49 In Powell's view, that role is reserved for Congress through affirmative legislation rather than through administrative interpretation alone.50
He cautioned against allowing the IRS to decide which public policies are sufficiently fundamental to require denial of tax exemptions, noting that the agency's expertise lies in revenue administration rather than in formulating social policy.51 This limitation preserves the important function of tax exemptions in fostering a pluralistic society with diverse viewpoints.52
Justice Rehnquist maintained that the IRS lacked any authority to graft a public policy requirement onto section 501(c)(3).53 The statute's text and nearly a century of legislative history demonstrate that Congress itself defined the qualifying organizations without delegating policy-making power to the agency.54 He viewed the IRS action as an impermissible addition to the explicit statutory criteria.55
Rehnquist would have reversed because the IRS had no power to add requirements beyond those Congress expressly listed.56
Whether denial of tax-exempt status to religious schools that engage in racial discrimination on the basis of sincerely held religious beliefs violates the Free Exercise Clause of the First Amendment?57
Although the Free Exercise Clause protects against governmental regulation of religious beliefs and provides substantial protection for conduct grounded in sincere religious belief, the government may justify a limitation on religious liberty by demonstrating that the restriction is essential to accomplish an overriding governmental interest.58
No. Bob Jones University and Goldsboro Christian Schools sincerely held religious beliefs that the Bible forbids interracial dating and marriage.59 Yet the government's compelling interest in eradicating racial discrimination in education substantially outweighs the burden imposed by denial of tax benefits.60 No less restrictive means exist to achieve that interest.61
Denial of tax-exempt status to religious schools that engage in racial discrimination on the basis of sincerely held religious beliefs does not violate the Free Exercise Clause of the First Amendment.62
Whether the Internal Revenue Service properly applied its policy to Bob Jones University and Goldsboro Christian Schools?63
Once the IRS establishes that an institution maintains a racially discriminatory admissions policy, the policy applies uniformly to all private schools, including those claiming religious motivation.64 Discrimination on the basis of racial affiliation and association constitutes racial discrimination regardless of the form it takes.65
Yes. Goldsboro Christian Schools openly maintained a racially discriminatory admissions policy based on its biblical interpretation.66 Bob Jones University continued to deny admission to applicants engaged in interracial marriage or known to advocate interracial marriage or dating even after permitting unmarried Negroes to enroll in 1975.67 The IRS correctly revoked or denied tax-exempt status in both cases.68
The Internal Revenue Service properly applied its policy to Bob Jones University and Goldsboro Christian Schools.69
Related opinions on this issue
Justice Rehnquist would have held that the IRS lacked authority to apply any such policy at all.70 The statute contains no racial nondiscrimination requirement.71 Petitioners satisfied the explicit statutory criteria of being organized and operated for educational purposes without lobbying or political campaign activity.72
He would have reversed the Court of Appeals on that ground because the agency had exceeded its proper role by adding an extra-statutory condition.73