Thursday, March 3, 2011
Following on the heels of Darryll's post yesterday about the Westboro Baptist Church and the public policy limitation on exempt status, I offer this tidbit.
The Former Majority Association for Equality says the following in its mission statement:
Our short term aspiration is simple: Award a $500 scholarship to five individuals that meet or exceed our qualifications on July 4, 2011. Upon achieving this we look forward to giving at least five scholarships for each Spring and Fall semester. Awardees remain eligible for future semesters as long as one's overall GPA exceeds 3.0. Scholarship applicants should be caucasian, male, demonstrate a commitment to education, and substantiate financial need.
The scholarship application form states that applicants must be "Male - no less than 25% caucasian." And the web site proclaims that a donation "Is tax deductible as a donation to a nonprofit public charity."
So is providing scholarship for deserving male students "no less than 25% caucasian" a charitable purpose? Well, that's a very good question.
Bob Jones University v. United States, 461 U.S. 574 (1983) tells us that an organization will not be exempt from tax under I.R.C. Section 501(c)(3) if it violates a clearly established public policy. The case goes on to declare that such a policy exists with respect to discrimination on the basis of race in education, at least as long as the discrimination is against the minority class (it is much less clear whether Bob Jones applies to discrimination in favor of the minority class). It is pretty clear (I think) that a school that barred admission to anyone but male students "not less than 25% caucasian" would violate Bob Jones.
When it comes to organizations that offer scholarships, however, the IRS has been all over the place in applying the public policy doctrine. In one 1978 General Counsel's Memorandum, the IRS took the position that a scholarship fund that limited its benefits to students of the Caucasian race violated the public policy limitation and would not be eligible for tax exemption. GCM 37462 (March 17, 1978). That GCM, however, was revoked in GCM 39082 (Nov. 30, 1983), where the IRS seemed to adopt a fact-based balancing approach, requiring a case-by-case determination whether the scholarship in question actually fostered racial discrimination, and that the "well-established policy of promoting private educational trusts should, on balance, prevail even where the benefits of the trust are limited to members of a particular race." The 1995 Examination Guidelines for Colleges and Universities indicated that scholarships limited to Caucasian students might be valid under certain circumstances, such as scholarships for Caucasian students to attend a predominantly minority institution. Another factor identified in the Guidelines was whether the scholarships "account for a comparatively large share of the total financial assistance avilable to students . . ."
So is FMAE really an exempt organization under 501(c)(3)? I have not been able to find it listed in the IRS's Master List of organizations qualified to receive deductible contributions (Publication 78), nor did the organization show up in a search of Guidestar. But that may simply be because of lag time in the listings. All I can say is, I'd conclude not, but the law is unclear.
For those of you interested in the broader issue of the scope of Bob Jones, I can recommend several articles by the editors/contributing editors of this blog. See, e.g., David A. Brennan, The Power of the Treasury: Racial Discrimination, Public Policy, and "Charity" in Contemporary Society, 33 U.C. Davis L. Rev. 389 (2000); David A. Brennan, Charities and the Constitution: Evaluating the Role of Constituional Principles in Determining the Scope of the Tax Law's Public Policy Limitation for Charities, 5 Fla. Tax Rev. 779 (2002); Johnny Rex Buckles, Do Law Schools Forfeit Federal Income Tax Exemption WHen THey Deny Military Recruiters Full Access to Career Services Programs?: The Hypothetical Case of Yale University v. Commissioner, 41 Ariz. St. L.J. 1 (2009); Nicholas A Mirkay, Is it "Charitable" to Discriminate? The Necessary Transformation of Section 501(c)(3) into the Gold Standard fo Charities, 2007 Wisc. L. Rev. 45 (2007).