Prince Edward School Foundation v. United States
Headline: Court refuses to review IRS policy that can strip tax-exempt status from private schools unless they publicly adopt nondiscriminatory admissions, leaving a segregated school’s revocation in place for now.
Holding: The Supreme Court denied the petition for review, leaving intact lower courts’ rulings that supported the IRS revocation of the school’s tax-exempt status for failing to publicize a nondiscriminatory admissions policy.
- Allows IRS to revoke tax-exempt status for schools not proving nondiscriminatory admissions.
- Leaves disputed legal standard unsettled nationally because the Court denied review.
- Pressures private schools to publicize nondiscriminatory admissions policies.
Summary
Background
Prince Edward School Foundation, a private nonprofit that runs Prince Edward Academy in Virginia, was formed to ensure segregated education for white children. From 1959 until 1970 the IRS treated the foundation as tax-exempt under §501(c)(3). In 1970 the IRS adopted a policy, reflected in Revenue Procedure 75-50, requiring private schools seeking tax-exempt status to publicize a racially nondiscriminatory admissions policy. The IRS revoked the foundation’s exempt status in 1978 after the school refused to publicize such a policy. The school sued, the District Court upheld the IRS, the Court of Appeals affirmed, and the Supreme Court denied review; Justice Rehnquist dissented from that denial.
Reasoning
The main question was whether the IRS may deny tax-exempt treatment to private schools that practice racial discrimination and what a school must do to show its admissions are nondiscriminatory. The District Court relied on the school’s segregated origins, a prior concession that it practiced exclusiveness, and the school’s refusal to publicize a nondiscriminatory policy to infer ongoing discrimination. The school offered sworn affidavits saying it has an open admissions policy and pointed to a court injunction requiring admission of qualified black applicants. Justice Rehnquist argued the text of §501(c)(3) does not clearly authorize the IRS rule and that the record contained evidence the IRS did not rebut.
Real world impact
Because the Supreme Court denied review, the lower-court ruling upholding the IRS revocation stands for this school and similarly situated institutions. The decision pressures private schools to demonstrate or publicize nondiscriminatory admissions. The larger statutory and constitutional question about the IRS’s authority to impose this requirement remains unresolved and could be decided in a later case.
Dissents or concurrances
Justice Rehnquist dissented, urging the Court to address the important statutory and constitutional questions and noting the school presented affidavits and a court order that, he said, undercut the IRS determination.
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