Thursday, October 21, 2021

Requiring Private Schools to Have More Diverse Boards

In prior posts, I have examined the problem of racial discrimination in private schools and how tax-exempt law might address this systemic problem.  Today, I wanted to explore race issues that are present in tax-exempt law more broadly.  Ideally, examining the issue from a broader perspective will produce creative ways of addressing racial discrimination in private schools.

A great primer on race issues and tax-exempt law is the 2004 article entitled Race and Equality Across the Law School Curriculum: The Law of Tax Exemption by David A. Brennen.  As Brennen observes, race bias in terms of tax-exempt law is focused on the justice or injustice in regard to blacks of the statutory requirements to gain and keep tax-exemption.  One of the main advantages of pursuing an activity through a tax-exempt organization is that such activity may be funded through public and governmental financial support, namely through tax expenditures.  In other words, tax-exempt organizations receive a financial subsidy or financial benefit from the government by virtue of their tax-exempt status.  Brennen asks a poignant question: “How should the government allow tax-exempt organizations to use this indirect, but admittedly financial government/public benefit?”  Accordingly, he next turns directly to an examination of the Bob Jones University public policy doctrine and its implications for racial preferences of tax-exempt charities. 

At the same time, Brennen raises at least two distinct issues aside from the public policy doctrine that are relevant to tax-exempt private schools.  First, he queries whether a charity (such as a private school) should be required to have a racially diverse board of directors if indeed it is to represent the broad community that it claims it serves.  This makes sense because one of the conditions for receiving tax-exempt status is to show that the organization will benefit the public broadly, rather than a group of pre-selected individuals.  Second, Brennen considers whether the prohibition on tax-exempt social clubs’ engaging in racial discrimination should be expanded or revised.   (As an aside, a third interesting point that Brennen raises is how restrictions on political activity might affect tax-exempt charities that have historically served as a meeting ground and voice for the black community, such as black churches).   One must conclude as Brennen does that it is important to examine how certain laws are affecting different racial groups with an eye to possible correction.   His solution of requiring board diversity in the context of tax-exempt private schools is one worth noting.


Khrista McCarden

Hoffman Fuller Associate Professor of Tax Law, Tulane Law School

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