Tuesday, September 14, 2010
Exemption of Private School Denied for Failure to Comply in Good Faith with Racially Nondiscriminatory Policy
The Internal Revenue Service has denied an application for federal income tax exemption filed by a private school because the school failed to establish that it maintained a racially nondiscriminatory policy as to students. The letter, reported in Tax Notes Today, is available at 2010 TNT 176-28. The gist of the rationale for denying exemption is set forth in the following excerpt:
While you have adopted a racially nondiscriminatory policy and even created an outreach committee, your school operation, however, failed to show enrollment of black students … [Further, your school] stated that the failure to "entice" them to become students at your school [w]as not yours. Instead, you suggested putting the blame on the black students themselves and their parents -- black students do not want your offered good education; they prefer schools where they are not held accountable for making good grades, and that it provided free lunches, transportation and where they do not have to pay. You even suggested that it is a traditional choice in the area that black students go to one school and the white students go to another school. We believe, however, that the lack of black students, and also that of teachers and administrative staff, in your school is because of your failure to make intensive, comprehensive and good faith efforts to reach the black community for their enrollment and employment. You have not provided us sufficient evidence supporting any such efforts in your submitted materials. … Therefore, although you have adopted a policy of nondiscrimination and … created an outreach committee, it appears that your adoption of a nondiscriminatory policy and creation of an outreach committee are merely done for compliance in form … and not in good faith. Also, any efforts toward outreach to the black community are minimal. … [W]e conclude that you failed to demonstrate that you have taken sufficient steps to overcome [an] inference of racial discrimination [as set] … forth in the court cases cited herein. As a school without a nondiscriminatory policy to students, as such term is defined in Rev. Rul. 71-447, you are not considered operated exclusively for exempt purposes under section 501(c)(3) of the Code.
This determination letter reminds me of the counsel I received from my parents from the time I was a child: Actions speak louder than words. Private schools seeking to obtain or maintain federal income tax exemption would do well to heed this determination letter and act like they mean what they say in their official policies of racial nondiscrimination.