The Internal Revenue Service has revolked the tax-exempt status of the all-white Prince Edward Academy, the Southside Virginia school started by whites in 1950 when they closed the public schools for five years rather than desegregate them.

The IRS earlier this month said the Farmville, Va., academy was no longer entitled to the exemption, under which supporters of the school annually make between $75,000 and $100,000 in tax-deductible contributions, because it is refuses to publicly announce that it is nondiscriminatory in its hiring and enrollment practices.

"We're discriminatory as hell," George Leonard, a lawyer representing the school said yesterday after a hearing in U.S. District Court on the academy's bid to overturn the IRS' revocation of the tax exemption.

But Leonard said the school is contesting the IRS ruling on grounds that it is a violation of the school's First Amendment right to free speech. Leonard maintains the school was entitled to remain silent and not say that it is nondiscriminatory in order to keep its tax exemption.

"You can't be compelled to say something," Leonard told Judge John H. Pratt.

Later, Leonard told a reporter, "We're goddamned if we're going to tell everyone that we were hyopcrites all these years" by now saying that the school is nondiscriminatory.

"Fundamentally," Leonard added, "we believe blacks deserve a different type of education that whites. We strongly believe whites among whites and blacks among blacks get a better education."

The closing of the public schools in Prince Edward County - 140 miles southwest of Washington - was one of the most publicized examples of Virginia's "massive resistance" to school desegregation in the late 1950s and early 1960s. Hundreds of black students in the county received no formal education during the five years the public schools were closed.

The IRS published the fact that it had revoked Prince Edward's tax-exempt status in the IRS Bulletin earlier this month. Leonard appeared in court yesterday seeking to have the IRS publish another statement saying that the matter is in litigation while the academy's claim is decided by Pratt.

Leonard said the publication of the revocation of the tax-exempt status "can be absolutely catastrophic" because potential givers would realize that their donations to the school are no longer be deductible on their income tax returns.

Robert T. Redd, the administrator and headmaster of the school, said in a telephoneinterview that the school's annual budget is $740,000, most of which comes from tuition payments white parents make to sent their children to the academy. But he said between $75,000 and $100,000 of the annual budget is paid for with donations.

The academy has an enrollment of about 950 students in kindergarden through the 12th grade, Reed said. Meanwhile, Prince Edward County has 2,256 students in its public schools, 76 percent of them black. The white proportion in the public schools has gradually risen over the last few years, according to a county spokeswoman.

John Cunningham, an attorney in the Justice Department's tax division, told Pratt that donors could continue to make up to $1,000 donations to the school white its tax-exempt status is being decided and not have their tax deductions questioned later.

But Leonard said even that would put a crimp in the school's fund-raising efforts because it would be difficult to go back to $1,000 donors and ask for more, assuming the school wins the case.

Pratt denied the school's request for an order requiring the IRS to note in its publication that the academy's tax status is in dispute.

Pratt said there "is nothing in the record to indicate the (school) will succeed" in the case. Instead, he told Cunningham and Leonard to prepare legal briefs by late November on their contentions. A hearing would be then scheduled on the dispute.