The Reagan administration yesterday revoked a 12-year-old government policy of denying tax exemptions to private schools that discriminate against blacks.
The change--a major one in both civil rights policy and the administration's policy--means that even an avowedly segregationist school can enjoy the financial advantage of tax-exempt status. It also means that more than 100 such institutions previously denied exemptions may have them, and other such institutions can seek exemptions.
Officials of the Treasury and Justice departments said they did not want their action interpreted as an endorsement of discrimination. The non-discrimination policy, they said, gives the Internal Revenue Service excessive power to define legitimate charitable tax-exempt activity. Only Congress, they said, should be allowed to draw those distinctions.
Tax exemptions are often a matter of survival for these schools. Denying them such status was considered one of the federal government's most powerful levers to prevent their being spawned in large numbers around the country, particularly in the wake of mandatory busing orders imposed on the public schools.
In reversing that policy, the administration reversed its position, set forth in September, when it successfully sought Supreme Court review of the tax-exemption policy.
The policy, instituted in the first term of the Nixon administration, had been challenged by two religious schools, Bob Jones University in South Carolina and Goldsboro Christian Schools Inc. in North Carolina. The government describes both as "blatantly discriminatory."
In its September Supreme Court brief the government said the policy "derives from the federal government's commitment to the eradication of racial discrimination manifested both in the Constitution and in many federal statutes and the national policy prohibiting public subsidy of racially discriminatory educational institutions, whether public or private ...."
The government said then that the policy also was backed by congressional actions over the years. But yesterday, Deputy Treasury Secretary R.T. McNamar argued that Congress had not spoken clearly on the issue.
In tandem with the announcement yesterday, the Justice Department asked the Supreme Court to throw out the Bob Jones and Goldsboro case and summarily nullify an appellate court ruling upholding the policy of denying tax exemptions to discriminatory schools.
"It is an extraordinary reversal of position that the American Civil Liberties Union finds to be outrageous," said E. Richard Larson, an ACLU lawyer involved in the Supreme Court case.
What the administration has done is "quite appalling," said Samuel Rabinove, attorney for the American Jewish Committee, which also was supporting the policy in court. "We believe discrimination has to be resisted in any possible arena. It certainly should be given no sanction by government. A grant of tax-exempt status is indeed a government sanction."
They and other civil rights organizations have argued that the government is constitutionally required to deny exemptions to discriminatory organizations. To do otherwise, they say, subsidizes discrimination with taxpayers' money.
In a written statement, McNamar of the Treasury Department said that "before the government gets into the business of deciding which organizations are worthy of tax exemption and which are not, we want Congress to fully consider the implications of such a course."
Justice and Treasury officials said they had no plans to ask Congress to consider this issue.
The policy has long been a target of conservatives and conservative religious organizations who argue, among other things, that it interferes with the religious practice of schools like Bob Jones, which claims religious reasons for discriminating.
A meeting of conservative lobbyists took up the exemption issue just before Christmas and decided to "beg the administration to save Bob Jones," according to Connie Marshner, chairman of the Library Court group, a conservative lobby.
Administration officials yesterday said they were aware of lobbying on the issue, but said their decision was not directly related to it.
Though the government had won the Bob Jones and Goldsboro cases in the lower courts, it had asked the Supreme Court to review and uphold them to give the IRS greater authority to enforce the policy.
The action yesterday is part of a pattern of Reagan administration reversals of position in important civil rights and regulatory cases.
The justices were asked to declare the controversy moot in light of the change of position.
Religious, charitable, educational and scientific organizations are eligible for tax exemptions. While all have been covered by the policy, the controversy has centered on the schools.
The main advantage of an exemption is that it allows donors to deduct contributions to the institution. In addition, the exemption frees the institution from paying unemployment taxes, Social Security taxes and taxes on net income.
In the case of Goldsboro, the denial of exempt status resulted in the payment of more than $100,000 in taxes during a two-year period, according to lawyers for that school.
That money and any money owed Bob Jones will be refunded unless the Supreme Court acts to counter the Justice request, according to government officials.
The IRS based its policy on a reading of federal tax laws and a definition of "charity" that entailed furthering some "fundamental national policy" or public good. Exemptions were denied to discriminatory institutions on the grounds that racial bias did not further a public good and should not be encouraged through what is, in effect, a subsidy.
"Whether or not the Treasury Department...agrees with the position of the IRS in particular cases is not the issue," McNamar stated. "The question is whether the IRS is required to decide... whether private organizations conform with fundamental national policies...."