The U.S. Supreme Court’s 1983 opinion in Bob Jones University v. United States, Goldsboro Christian School v. United States, was a landmark decision in companion cases on tax exemptions for charitable giving to colleges and universities as well as K–12 schools. Institutions of higher education, whether public or private, are exempt from most forms of taxation, because they provide an essential public service for society. At issue in Bob Jones was whether nonprofit private universities that prescribe and enforce racially discriminatory admission standards on the basis of religious doctrine qualify as tax-exempt organizations under Section 501(c)(3) of the Internal Revenue Code. Ultimately, the Supreme Court ruled that such institutions do not qualify as tax-exempt organizations, because discriminatory policies and practices do not serve a public purpose and are contrary to established public policy.
Facts of the Case
According to Section 501(c)(3) of the Internal Revenue Code (IRC) of 1954, “Corporations . . . organized and operated exclusively for religious, charitable . . . or educational purposes” are entitled to tax exemption. Until 1970, the Internal Revenue Service (IRS) granted tax-exempt status to all private institutions independent of their racial admissions policies and permitted charitable deductions for contributions to such institutions under Section 170 of the IRC. However, in July 1970, the IRS announced that it could no longer justify extending tax exemptions to private colleges and universities that practiced racial discrimination. The IRS notified Bob Jones University officials on November 30, 1970, of the pending challenge to its tax exemption, and in early 1971, the IRS issued Revenue Ruling 71-447 requiring all “charitable” institutions to adopt and publish a nondiscrimination policy in compliance with the common law concepts in sections 501(c)(3) and 170 of the IRC.
In 1970, Bob Jones University was a nonprofit religious and educational institution serving 5,000 students from kindergarten through graduate school. The university was not affiliated with any particular religious denomination but was committed to the teaching and propagation of fundamentalist religious doctrine. All courses in the curriculum were taught from the Biblical perspective, and all teachers were required to be devout Christians as determined by university leaders. University benefactors and administrators maintained that the Bible forbade interracial dating and marriage, and African Americans were denied admission based solely on their race prior to 1971.
After the IRS published Ruling 71-447, university officials accepted applications from African Americans who were married to spouses of the same race but continued to deny admission to unmarried African Americans. Following the Fourth Circuit’s 1975 decision in McCrary v. Runyon prohibiting private institutions from excluding minorities, Bob Jones University again revised its policy and permitted single Black students to enroll while implementing a strict rule that prohibited interracial dating and marriage. Students who violated the rule or even advocated its violation were expelled immediately. The university did not adopt and publish a nondiscriminatory admission policy in compliance with Ruling 71-447 directives.
After failing to restore its tax exemption through administrative procedures, Bob Jones University sought to enjoin the IRS from revoking its exemption, but the Supreme Court dismissed the claim. The IRS officially revoked the university’s tax-exempt status on January 19, 1976, making its order effective retroactively to December 1, 1970, the day after the university officials were first informed that the institution’s tax-exemption was in jeopardy. Subsequently, university officials filed suit against the IRS, demanding a $21.00 refund for unemployment taxes paid on one employee in 1975. The federal government counterfiled immediately for approximately $490,000 (plus interest) in unpaid unemployment taxes.
The federal trial court in South Carolina, in ruling that the IRS exceeded its authority, ordered it to pay the refund and dismissed the IRS’s claims, prompting the IRS to appeal. The Fourth Circuit reversed in favor of the IRS, concluding that the university’s admission policy violated federal law and public policy. The Fourth Circuit held that because Bob Jones University could not be considered “charitable,” contributions to it were not deductible under IRC provisions, and the IRS acted legally and appropriately in revoking the tax exemption. The court added that extending the university’s tax-exempt status would have been tantamount to subsidizing racial discrimination with public tax money. The Fourth Circuit remanded the dispute with instructions to dismiss the university’s suit and reinstate the government’s claim for back taxes.
In a companion case involving Goldsboro Christian Schools, the Fourth Circuit rejected the school’s request for tax-exempt status and its claim that denial of a tax exemption would violate its First Amendment rights. Like Bob Jones University, Goldsboro Christian Schools had a racially discriminatory admissions policy against Black students based on its interpretation of the scriptures. As in the Bob Jones case, the Fourth Circuit found that the petitioner did not quality for tax-exempt status under Section 501(c)(3) of the IRC. The U.S. Supreme Court granted certiorari in both cases and affirmed the Fourth Circuit in each.
The Supreme Court’s Ruling
In its review of the cases, the Supreme Court sought to balance the interests of sincerely held religious beliefs and related First Amendment concerns with federal law and public policy prohibiting racial discrimination. The Court traced the history of tax exemptions for charitable institutions, quoting from its landmark 1861 decision in Perin v. Carey, “It has now become an established principle of American law, that courts of chancery will sustain and protect . . . a gift . . . to public charitable uses, provided the same is consistent with local laws and public policy.”
The Supreme Court’s analysis in Bob Jones revealed the following key facts. First, tax-exempt institutions must serve a public purpose through practices that do not violate public policy. The Court pointed out that Bob Jones University’s admission policy clearly discriminated against African Americans in a direct violation of public policy. Second, under IRC provisions, sectarian institutions cannot be tax-exempt if their religious doctrines lead to violations of law. Third, the IRS did not exceed its authority in denying tax exemptions to Bob Jones University and Goldsboro Christian Schools. Indeed, the Court reasoned that the IRS’s ruling was entirely consistent with previous declarations from the legislative, executive, and judicial branches of government. Fourth, the government’s interest in eliminating racial discrimination outweighs a private institution’s exercise of its religious beliefs. Clearly, the Court maintained, the religious interests of Bob Jones University were contrary to the interests and rights of the government and the general public.
In sum, the Supreme Court’s opinion in Bob Jones stands for the proposition that because nonprofit, private universities and schools that enforce discriminatory admission policies based on religious doctrine do not qualify for tax exemptions, contributions to such institutions are not deductible as charitable donations within the meaning of the Internal Revenue Code. As a statement on its Web site shows, in 2000, Bob Jones University acknowledged that it had been wrong in not admitting African American students and lifted its ban on interracial dating.
Robert C. Cloud
- Bob Jones University v. United States, Goldsboro Christian School v. United States, 461 U.S. 574 (1983).
- Internal Revenue Code, 20 U.S.C.A. §§ 170, 501(c)(3).
- McCrary v. Runyon, 515 F.2d 1082 (4th Cir. 1975), aff’d, 427 U.S. 160 (1976).
- Perin v. Carey, 24 How. 465, 501 (1861).