Bob Jones University v. United States

Justice Rehnquist,

dissenting.

The Court points out that there is a strong national policy in this country against racial discrimination. To the extent that the Court states that Congress in furtherance of this policy could deny tax-exempt status to educational institutions that promote racial discrimination, I readily agree. But, unlike the Court, I am convinced that Congress simply has failed to take this action and, as this Court has said over and over again, regardless of our view on the propriety of Congress’ failure to legislate we are not constitutionally empowered to act for it.

In approaching this statutory construction question the Court quite adeptly avoids the statute it is construing. This I am sure is no accident, for there is nothing in the language *613of § 501(c)(3) that supports the result obtained by the Court. Section 501(c)(3) provides tax-exempt status for:

“Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.” 26 U. S. C. § 501(c)(3).

With undeniable clarity, Congress has explicitly defined the requirements for § 501(c)(3) status. An entity must be (1) a corporation, or community chest, fund, or foundation, (2) organized for one of the eight enumerated purposes, (3) operated on a nonprofit basis, and (4) free from involvement in lobbying activities and political campaigns. Nowhere is there to be found some additional, undefined public policy requirement.

The Court first seeks refuge from the obvious reading of § 501(c)(3) by turning to § 170 of the Internal Revenue Code, which provides a tax deduction for contributions made to § 501(c)(3) organizations. In setting forth the general rule, § 170 states:

“There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if ver*614ified under regulations prescribed by the Secretary.” 26 U. S. C. § 170(a)(1).

The Court seizes the words “charitable contribution” and with little discussion concludes that “[o]n its face, therefore, §170 reveals that Congress’ intention was to provide tax benefits to organizations serving charitable purposes,” intimating that this implies some unspecified common-law charitable trust requirement. Ante, at 587.

The Court would have been well advised to look to subsection (c) where, as § 170(a)(1) indicates, Congress has defined a “charitable contribution”:

“For purposes of this section, the term ‘charitable contribution’ means a contribution or gift to or for the use of ... [a] corporation, trust, or community chest, fund, or foundation . . . organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals; . . . no part of the net earnings of which inures to the benefit of any private shareholder or individual; and . . . which is not disqualified for tax exemption under section 501(c) (3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.” 26 U. S. C. § 170(c).

Plainly, § 170(c) simply tracks the requirements set forth in § 501(c)(3). Since § 170 is no more than a mirror of § 501(c)(3) and, as the Court points out, §170 followed § 501(c)(3) by more than two decades, ante, at 587, n. 10, it is at best of little usefulness in finding the meaning of § 501(c)(3).

Making a more fruitful inquiry, the Court next turns to the legislative history of § 501(c)(3) and finds that Congress in*615tended in that statute to offer a tax benefit to organizations that Congress believed were providing a public benefit. I certainly agree. But then the Court leaps to the conclusion that this history is proof Congress intended that an organization seeking § 501(c)(3) status “must fall within a category specified in that section and must demonstrably serve and be in harmony with the public interest. ” Ante, at 592 (emphasis added). To the contrary, I think that the legislative history of § 501(c)(3) unmistakably makes clear that Congress has decided what organizations are serving a public purpose and providing a public benefit within the meaning of § 501(c)(3) and has clearly set forth in § 501(c)(3) the characteristics of such organizations. In fact, there are few examples which better illustrate Congress’ effort to define and redefine the requirements of a legislative Act.

The first general income tax law was passed by Congress in the form of the Tariff Act of 1894. A provision of that Act provided an exemption for “corporations, companies, or associations organized and conducted solely for charitable, religious, or educational purposes.” Ch. 349, § 32, 28 Stat. 556 (1894). The income tax portion of the 1894 Act was held unconstitutional by this Court, see Pollock v. Farmers’ Loan & Trust Co., 158 U. S. 601 (1895), but a similar exemption appeared in the Tariff Act of 1909 which imposed a tax on corporate income. The 1909 Act provided an exemption for “any corporation or association organized and operated exclusively for religious, charitable, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual.” Ch. 6, §38, 36 Stat. 113 (1909).

With the ratification of the Sixteenth Amendment, Congress again turned its attention to an individual income tax with the Tariff Act of 1913. And again, in the direct predecessor of § 501(c)(3), a tax exemption was provided for “any corporation or association organized and operated exclusively for religious, charitable, scientific, or educational purposes, *616no part of the net income of which inures to the benefit of any private stockholder or individual.” Ch. 16, §II(G)(a), 38 Stat. 172 (1913). In subsequent Acts Congress continued to broaden the list of exempt purposes. The Revenue Act of 1918 added an exemption for corporations or associations organized “for the prevention of cruelty to children or animals.” Ch. 18, §231(6), 40 Stat. 1057, 1076 (1918). The Revenue Act of 1921 expanded the groups to which the exemption applied to include “any community chest, fund, or foundation” and added “literary” endeavors to the list of exempt purposes. Ch. 136, §231(6), 42 Stat. 253 (1921). The exemption remained unchanged in the Revenue Acts of 1924, 1926, 1928, and 1932.1 In the Revenue Act of 1934 Congress added the requirement that no substantial part of the activities of any exempt organization can involve the carrying on of “propaganda” or “attempting to influence legislation.” Ch. 277, § 101(6), 48 Stat. 700 (1934). Again, the exemption was left unchanged by the Revenue Acts of 1936 and 1938.2

The tax laws were overhauled by the Internal Revenue Code of 1939, but this exemption was left unchanged. Ch. 1, § 101(6), 53 Stat. 33 (1939). When the 1939 Code was replaced with the Internal Revenue Code of 1954, the exemption was adopted in full in the present § 501(c)(3) with the addition of “testing for public safety” as an exempt purpose and an additional restriction that tax-exempt organizations could not “participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.” Ch. 1, § 501(c) (3), 68A Stat. 163 (1954). Then in 1976 the statute was again amended adding to the purposes for which an exemption would be authorized, “to foster national or international ama*617teur sports competition,” provided the activities did not involve the provision of athletic facilities or equipment. Tax Reform Act of 1976, Pub. L. 94-455, § 1313(a), 90 Stat. 1730 (1976).

One way to read the opinion handed down by the Court today leads to the conclusion that this long and arduous refining process of § 501(c)(3) was certainly a waste of time, for when enacting the original 1894 statute Congress intended to adopt a common-law term of art, and intended that this term of art carry with it all of the common-law baggage which defines it. Such a view, however, leads also to the unsupportable idea that Congress has spent almost a century adding illustrations simply to clarify an already defined common-law term.

Another way to read the Court’s opinion leads to the conclusion that even though Congress has set forth some of the requirements of a § 501(c)(3) organization, it intended that the IRS additionally require that organizations meet a higher standard of public interest, not stated by Congress, but to be determined and defined by the IRS and the courts. This view I find equally unsupportable. Almost a century of statutory history proves that Congress itself intended to decide what § 501(c)(3) requires. Congress has expressed its decision in the plainest of terms in § 501(c)(3) by providing that tax-exempt status is to be given to any corporation, or community chest, fund, or foundation that is organized for one of the eight enumerated purposes, operated on a nonprofit basis, and uninvolved in lobbying activities or political campaigns. The IRS certainly is empowered to adopt regulations for the enforcement of these specified requirements, and the courts have authority to resolve challenges to the IRS’s exercise of this power, but Congress has left it to neither the IRS nor the courts to select or add to the requirements of § 501(c)(3).

The Court suggests that unless its new requirement be added to § 501(c)(3), nonprofit organizations formed to teach pickpockets and terrorists would necessarily acquire tax-ex*618empt status. Ante, at 592, n. 18. Since the Court does not challenge the characterization of petitioners as “educational” institutions within the meaning of § 501(c)(8), and in fact states several times in the course of its opinion that petitioners are educational institutions, see, e. g., ante, at 580, 583, 604, n. 29, 606, n. 32, it is difficult to see how this argument advances the Court's reasoning for disposing of petitioners' cases.

But simply because I reject the Court’s heavyhanded creation of the requirement that an organization seeking § 501(c)(3) status must “serve and be in harmony with the public interest,” ante, at 592, does not mean that I would deny to the IRS the usual authority to adopt regulations further explaining what Congress meant by the term “educational.” The IRS has fully exercised that authority in Treas. Reg. § 1.501(c)(3)-1(d)(3), 26 CFR § 1.501(c)(3)-1(d)(3) (1982), which provides:

“(3) Educational defined — (i) In general. The term ‘educational’, as used in section 501(c)(3), relates to—
“(a) The instruction or training of the individual for the purpose of improving or developing his capabilities; or
“(b) The instruction of the public on subjects useful to the individual and beneficial to the community.
“An organization may be educational even though it advocates a particular position or viewpoint so long as it presents a sufficiently full and fair exposition of the pertinent facts as to permit an individual or the public to form an independent opinion or conclusion. On the other hand, an organization is not educational if its principal function is the mere presentation of unsupported opinion.
“(ii) Examples of educational organizations. The following are examples of organizations which, if they otherwise meet the requirements of this section, are educational:
*619“Example (1). An organization, such as a primary or secondary school, a college, or a professional or trade school, which has a regularly scheduled curriculum, a regular faculty, and a regularly enrolled body of students in attendance at a place where the educational activities are regularly carried on.
“Example (2). An organization whose activities consist of presenting public discussion groups, forums, panels, lectures, or other similar programs. Such programs may be on radio or television.
“Example (S). An organization which presents a course of instruction by means of correspondence or through the utilization of television or radio.
“Example (k). Museums, zoos, planetariums, symphony orchestras, and other similar organizations.”

I have little doubt that neither the “Fagin School for Pickpockets” nor a school training students for guerrilla warfare and terrorism in other countries would meet the definitions contained in the regulations.

Prior to 1970, when the charted course was abruptly changed, the IRS had continuously interpreted § 501(c)(3) and its predecessors in accordance with the view I have expressed above. This, of course, is of considerable significance in determining the intended meaning of the statute. NLRB v. Boeing Co., 412 U. S. 67, 75 (1973); Power Reactor Development Co. v. Electrical Workers, 367 U. S. 396, 408 (1961).

In 1970 the IRS was sued by parents of black public school children seeking to enjoin the IRS from according tax-exempt status under § 501(c)(3) to private schools in Mississippi that discriminated against blacks. The IRS answered, consistent with its longstanding position, by maintaining a lack of authority to deny the tax exemption if the schools met the specified requirements of § 501(c)(3). Then “[i]n the midst of this litigation,” Green v. Connally, 330 F. Supp. 1150, 1156 (DC), summarily aff’d sub nom. Coit v. Green, 404 U. S. 997 (1971), and in the face of a preliminary injunc*620tion, the IRS changed its position and adopted the view of the plaintiffs.

Following the close of the litigation, the IRS published its new position in Revenue Ruling 71-447, stating that “a school asserting a right to the benefits provided for in section 501(c)(3) of the Code as being organized and operated exclusively for educational purposes must be a common law charity in order to be exempt under that section.” Rev. Rul. 71-447,1971-2 Cum. Bull. 230. The IRS then concluded that a school that promotes racial discrimination violates public policy and therefore cannot qualify as a common-law charity. The circumstances under which this change in interpretation was made suggest that it is entitled to very little deference. But even if the circumstances were different, the latter-day wisdom of the IRS has no basis in § 501(c)(3).

Perhaps recognizing the lack of support in the statute itself, or in its history, for the 1970 IRS change in interpretation, the Court finds that “[t]he actions of Congress since 1970 leave no doubt that the IRS reached the correct conclusion in exercising its authority,” concluding that there is “an unusually strong case of legislative acquiescence in and ratification by implication of the 1970 and 1971 rulings.” Ante, at 599. The Court relies first on several bills introduced to overturn the IRS interpretation of § 501(c)(3). Ante, at 600, and n. 25. But we have said before, and it is equally applicable here, that this type of congressional inaction is of virtually no weight in determining legislative intent. See United States v. Wise, 370 U. S. 405, 411 (1962); Waterman S.S. Corp. v. United States, 381 U. S. 252, 269 (1965). These bills and related hearings indicate little more than that a vigorous debate has existed in Congress concerning the new IRS position.

The Court next asserts that “Congress affirmatively manifested its acquiescence in the IRS policy when it enacted the present §501(i) of the Code,” a provision that “denies tax-exempt status to social clubs whose charters or policy state*621ments provide for” racial discrimination. Ante, at 601. Quite to the contrary, it seems to me that in § 501(i) Congress showed that when it wants to add a requirement prohibiting racial discrimination to one of the tax-benefit provisions, it is fully aware of how to do it. Cf. Commissioner v. Tellier, 383 U. S. 687, 693, n. 10 (1966).

The Court intimates that the Ashbrook and Dornan Amendments also reflect an intent by Congress to acquiesce in the new IRS position. Ante, at 602, n. 27. The amendments were passed to limit certain enforcement procedures proposed by the IRS in 1978 and 1979 for determining whether a school operated in a racially nondiscriminatory fashion. The Court points out that in proposing his amendment, Congressman Ashbrook stated: “ ‘My amendment very clearly indicates on its face that all the regulations in existence as of August 22, 1978, would not be touched.’” Ibid. The Court fails to note that Congressman Ashbrook also said:

“The IRS has no authority to create public policy. . . . So long as the Congress has not acted to set forth a national policy respecting denial of tax exemptions to private schools, it is improper for the IRS or any other branch of the Federal Government to seek denial of tax-exempt status. . . . There exists but a single responsibility which is proper for the Internal Revenue Service: To serve as tax collector.” 125 Cong. Rec. 18444 (1979).

In the same debate, Congressman Grassley asserted: “Nobody argues that racial discrimination should receive preferred tax status in the United States. However, the IRS should not be making these decisions on the agency’s own discretion. Congress should make these decisions.” Id., at 18448. The same debates are filled with other similar statements. While on the whole these debates do not show conclusively that Congress believed the IRS had exceeded its authority with the 1970 change in position, they likewise are *622far less than a showing of acquiescence in and ratification of the new position.

This Court continuously has been hesitant to find ratification through inaction. See United States v. Wise, supra. This is especially true where such a finding “would result in a construction of the statute which not only is at odds with the language of the section, in question and the pattern of the statute taken as a whole, but also is extremely far reaching in terms of the virtually untrammeled and unreviewable power it would vest in a regulatory agency.” SEC v. Sloan, 436 U. S. 103, 121 (1978). Few cases would call for more caution in finding ratification by acquiescence than the present ones. The new IRS interpretation is not only far less than a longstanding administrative policy, it is at odds "with a position maintained by the IRS, and unquestioned by Congress, for several decades prior to 1970. The interpretation is unsupported by the statutory language, it is unsupported by legislative history, the interpretation has led to considerable controversy in and out of Congress, and the interpretation gives to the IRS a broad power which until now Congress had kept for itself. Where in addition to these circumstances Congress has shown time and time again that it is ready to enact positive legislation to change the Tax Code when it desires, this Court has no business finding that Congress has adopted the new IRS position by failing to enact legislation to reverse it.

I have no disagreement with the Court’s finding that there is a strong national policy in this country opposed to racial discrimination. I agree with the Court that Congress has the power to further this policy by denying § 501(c)(3) status to organizations that practice racial discrimination.3 But as of yet Congress has failed to do so. Whatever the reasons for the failure, this Court should not legislate for Congress.4

*623Petitioners are each organized for the “instruction or training of the individual for the purpose of improving or developing his capabilities,” 26 CFR § 1.501(c)(3) — 1(d)(3) (1982), and thus are organized for “educational purposes” within the meaning of § 501(c)(3). Petitioners’ nonprofit status is uncontested. There is no indication that either petitioner has been involved in lobbying activities or political campaigns. Therefore, it is my view that unless and until Congress affirmatively amends § 501(c)(3) to require more, the IRS is without authority to deny petitioners § 501(c)(3) status. For this reason, I would reverse the Court of Appeals.

See Revenue Act of 1924, ch. 234, § 231(6), 43 Stat. 282; Revenue Act of 1926, ch. 27, § 231(6), 44 Stat. 40; Revenue Act of 1928, ch. 852, § 103(6), 45 Stat. 813; Revenue Act of 1932, ch. 209, § 103(6), 47 Stat. 193.

See Revenue Act of 1936, ch. 690, § 101(6), 49 Stat. 1674; Revenue Act of 1938, ch. 289, § 101(6), 52 Stat. 481.

I agree with the Court that such a requirement would not infringe on petitioners’ First Amendment rights.

Because of its holding, the Court does not have to decide whether it would violate the equal protection component of the Fifth Amendment for *623Congress to grant § 501(c)(3) status to organizations that practice racial discrimination. Ante, at 599, n. 24. I would decide that it does not. The statute is facially neutral; absent a showing of a discriminatory purpose, no equal protection violation is established. Washington v. Davis, 426 U. S. 229, 241-244 (1976).