U.S. Supreme Court

BOB JONES UNIVERSITY v. UNITED STATES, 461 U.S. 574 (1983)

461 U.S. 574

BOB JONES UNIVERSITY v. UNITED STATES

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 81-3.

Argued October 12, 1982

Decided May 24, 1983^{Footnote *}

Section 501(c)(3) of the Internal Revenue Code of 1954 (IRC) provides that "[c]orporations . . . 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 under 501(c)(3) to private schools, independent of racial admissions policies, and granted charitable deductions for contributions to such schools under 170 of the IRC. But in 1970, the IRS concluded that it could no longer justify allowing tax-exempt status under 501(c)(3) to private schools that practiced racial discrimination, and in 1971 issued Revenue Ruling 71-447 providing that a private school not having a racially nondiscriminatory policy as to students is not "charitable" within the common-law concepts reflected in 170 and 501(c)(3). In No. 81-3, petitioner Bob Jones University, while permitting unmarried Negroes to enroll as students, denies admission to applicants engaged in an interracial marriage or known to advocate interracial marriage or dating. Because of this admissions policy, the IRS revoked the University's tax-exempt status. After paying a portion of the federal unemployment taxes for a certain taxable year, the University filed a refund action in Federal District Court, and the Government counterclaimed for unpaid taxes for that and other taxable years. Holding that the IRS exceeded its powers in revoking the University's tax-exempt status and violated the University's rights under the Religion Clauses of the First Amendment, the District Court ordered the IRS to refund the taxes paid and rejected the counterclaim. The Court of Appeals reversed. In No. 81-1, petitioner Goldsboro Christian Schools maintains a racially discriminatory admissions policy based upon its interpretation of the Bible, accepting for the most part only Caucasian students. The IRS determined that Goldsboro was not an organization described in 501(c)(3) and hence was required to pay federal social security and unemployment taxes. After paying a portion of such taxes for certain years, Goldsboro filed a refund suit in Federal District Court, and the IRS counterclaimed for unpaid taxes. The District Court entered summary judgment for

the IRS, rejecting Goldsboro's claim to tax-exempt status under 501(c) (3) and also its claim that the denial of such status violated the Religion Clauses of the First Amendment. The Court of Appeals affirmed.

Held:

Neither petitioner qualifies as a tax-exempt organization under 501(c)(3). Pp. 585-605.

(a) An examination of the IRC's framework and the background of congressional purposes reveals unmistakable evidence that underlying all relevant parts of the IRC is the intent that entitlement to tax exemption depends on meeting certain common-law standards of charity - namely, that an institution seeking tax-exempt status must serve a public purpose and not be contrary to established public policy. Thus, to warrant exemption under 501(c)(3), an institution must fall within a category specified in that section and must demonstrably serve and be in harmony with the public interest, and the institution's purpose must not be so at odds with the common community conscience as to undermine any public benefit that might otherwise be conferred. Pp. 585-592.

(b) The IRS's 1970 interpretation of 501(c)(3) was correct. It would be wholly incompatible with the concepts underlying tax exemption to grant tax-exempt status to racially discriminatory private educational entities. Whatever may be the rationale for such private schools' policies, racial discrimination in education is contrary to public policy. Racially discriminatory educational institutions cannot be viewed as conferring a public benefit within the above "charitable" concept or within the congressional intent underlying 501(c)(3). Pp. 592-596.

(c) The IRS did not exceed its authority when it announced its interpretation of 501(c)(3) in 1970 and 1971. Such interpretation is wholly consistent with what Congress, the Executive, and the courts had previously declared. And the actions of Congress since 1970 leave no doubt that the IRS reached the correct conclusion in exercising its authority. Pp. 596-602.

(d) The Government's fundamental, overriding interest in eradicating racial discrimination in education substantially outweighs whatever burden denial of tax benefits places on petitioners' exercise of their religious beliefs. Petitioners' asserted interests cannot be accommodated with that compelling governmental interest, and no less restrictive means are available to achieve the governmental interest. Pp. 602-604.

(e) The IRS properly applied its policy to both petitioners. Goldsboro admits that it maintains racially discriminatory policies, and, contrary to Bob Jones University's contention that it is not racially discriminatory, discrimination on the basis of racial affiliation and association is a form of racial discrimination. P. 605.

No. 81-1, 644 F.2d 879, and No. 81-3,  639 F.2d 147, affirmed.

BURGER, C. J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, BLACKMUN, STEVENS, and O'CONNOR, JJ., joined, and in Part III of which POWELL, J., joined. POWELL, J., filed an opinion concurring in part and concurring in the judgment, post, p. 606. REHNQUIST, J., filed a dissenting opinion, post, p. 612.

William G. McNairy argued the cause for petitioner in No. 81-1. With him on the briefs were Claude C. Pierce, Edward C. Winslow, and John H. Small. William Bentley Ball argued the cause for petitioner in No. 81-3. With him on the briefs were Philip J. Murren and Richard E. Connell.

Assistant Attorney General Reynolds argued the cause for the United States in both cases. With him on the briefs were Acting Solicitor General Wallace and Deputy Assistant Attorney General Cooper.

William T. Coleman, Jr., pro se, by invitation of the Court, 456 U.S. 922, argued the cause as amicus curiae urging affirmance. With him on the brief were Richard C. Warmer, Donald T. Bliss, John W. Stamper, Ira M. Feinberg, and Eric Schnapper.Fn

Fn

Briefs of amici curiae urging reversal in No. 81-3 were filed by Earl W. Trent, Jr., and John W. Baker for the American Baptist Churches in the U.S. A. et al.; by William H. Ellis for the Center for Law and Religious Freedom of the Christian Legal Society; by Forest D. Montgomery for the National Association of Evangelicals; and by Congressman Trent Lott, pro se. Briefs of amici curiae urging affirmance in both cases were filed by Nadine Strossen, E. Richard Larson, and Samuel Rabinove for the American Civil Liberties Union et al.; by Harold P. Weinberger, Lawrence S. Robbins, Justin J. Finger, Jeffrey P. Sinensky, and David M. Raim for the Anti-Defamation League of B'nai B'rith; by John H. Pickering, William T. Lake, and Adam Yarmolinsky for Independent Sector; by Amy Young-Anawaty, David Carliner, Burt Neuborne, and Harry A. Inman for the International Human Rights Law Group; by Robert H. Kapp, Walter A. Smith, Jr., Joseph M. Hassett, David S. Tatel, Richard C. Dinkelspiel, William L. Robinson, Norman J. Chachkin, and Frank R. Parker for the Lawyers' Committee for Civil Rights Under Law; by Thomas I. Atkins,

J. Harold Flannery, and Robert D. Goldstein for the National Association for the Advancement of Colored People et al.; by Leon Silverman, Linda R. Blumkin, Ann F. Thomas, Marla G. Simpson, and Jack Greenberg for the NAACP Legal Defense and Educational Fund, Inc.; by Harry K. Mansfield for the National Association of Independent Schools; by Charles E. Daye for the North Carolina Association of Black Lawyers; by Earle K. Moore for the United Church of Christ; and by Lawrence E. Lewy, pro se. Briefs of amici curiae in both cases were filed by Martin B. Cowan and Dennis Rapps for the National Jewish Commission on Law and Public Affairs; and by Laurence H. Tribe, pro se, and Bernard Wolfman, pro se.

CHIEF JUSTICE BURGER delivered the opinion of the Court.

We granted certiorari to decide whether petitioners, nonprofit private schools that prescribe and enforce racially discriminatory admissions standards on the basis of religious doctrine, qualify as tax-exempt organizations under 501(c) (3) of the Internal Revenue Code of 1954.

I

A

Until 1970, the Internal Revenue Service granted tax-exempt status to private schools, without regard to their racial admissions policies, under 501(c)(3) of the Internal Revenue Code, 26 U.S.C. 501(c)(3),[^{Footnote 1} ] and granted charitable

deductions for contributions to such schools under 170 of the Code, 26 U.S.C. 170.[^{Footnote 2} ]

On January 12, 1970, a three-judge District Court for the District of Columbia issued a preliminary injunction prohibiting the IRS from according tax-exempt status to private schools in Mississippi that discriminated as to admissions on the basis of race. Green v. Kennedy, 309 F. Supp. 1127, appeal dism'd sub nom. Cannon v. Green, 398 U.S. 956 (1970). Thereafter, in July 1970, the IRS concluded that it could "no longer legally justify allowing tax-exempt status [under 501(c)(3)] to private schools which practice racial discrimination." IRS News Release, July 7, 1970, reprinted in App. in No. 81-3, p. A235. At the same time, the IRS announced that it could not "treat gifts to such schools as charitable deductions for income tax purposes [under 170]." Ibid. By letter dated November 30, 1970, the IRS formally notified private schools, including those involved in this litigation, of this change in policy, "applicable to all private schools in the United States at all levels of education." See id., at A232.

On June 30, 1971, the three-judge District Court issued its opinion on the merits of the Mississippi challenge. Green v. Connally, 330 F. Supp. 1150, summarily aff'd sub nom. Coit v. Green, 404 U.S. 997 (1971). That court approved the IRS's amended construction of the Tax Code. The court also held that racially discriminatory private schools were not entitled to exemption under 501(c)(3) and that donors were not entitled to deductions for contributions to such schools under 170. The court permanently enjoined the Commissioner of

Internal Revenue from approving tax-exempt status for any school in Mississippi that did not publicly maintain a policy of nondiscrimination.

The revised policy on discrimination was formalized in Revenue Ruling 71-447, 1971-2 Cum. Bull. 230:

"Both the courts and the Internal Revenue Service have long recognized that the statutory requirement of being `organized and operated exclusively for religious, charitable, . . . or educational purposes' was intended to express the basic common law concept [of `charity']. . . . All charitable trusts, educational or otherwise, are subject to the requirement that the purpose of the trust may not be illegal or contrary to public policy."

Based on the "national policy to discourage racial discrimination in education," the IRS ruled that "a [private] school not having a racially nondiscriminatory policy as to students is not `charitable' within the common law concepts reflected in sections 170 and 501(c)(3) of the Code." Id., at 231.[^{Footnote 3} ]

The application of the IRS construction of these provisions to petitioners, two private schools with racially discriminatory admissions policies, is now before us.

B

No. 81-3, Bob Jones University v. United States

Bob Jones University is a nonprofit corporation located in Greenville, S. C.[^{Footnote 4} ] Its purpose is "to conduct an institution

of learning . . ., giving special emphasis to the Christian religion and the ethics revealed in the Holy Scriptures." Certificate of Incorporation, Bob Jones University, Inc., of Greenville, S. C., reprinted in App. in No. 81-3, p. A119. The corporation operates a school with an enrollment of approximately 5,000 students, from kindergarten through college and graduate school. Bob Jones University is not affiliated with any religious denomination, but is dedicated to the teaching and propagation of its fundamentalist Christian religious beliefs. It is both a religious and educational institution. Its teachers are required to be devout Christians, and all courses at the University are taught according to the Bible. Entering students are screened as to their religious beliefs, and their public and private conduct is strictly regulated by standards promulgated by University authorities.

The sponsors of the University genuinely believe that the Bible forbids interracial dating and marriage. To effectuate these views, Negroes were completely excluded until 1971. From 1971 to May 1975, the University accepted no applications from unmarried Negroes,[^{Footnote 5} ] but did accept applications from Negroes married within their race.

Following the decision of the United States Court of Appeals for the Fourth Circuit in McCrary v. Runyon,  515 F.2d 1082 (1975), aff'd,  427 U.S. 160 (1976), prohibiting racial exclusion from private schools, the University revised its policy. Since May 29, 1975, the University has permitted unmarried Negroes to enroll; but a disciplinary rule prohibits interracial dating and marriage. That rule reads:

"There is to be no interracial dating.

"1. Students who are partners in an interracial marriage will be expelled.

"2. Students who are members of or affiliated with any group or organization which holds as one of its goals or advocates interracial marriage will be expelled.

"3. Students who date outside of their own race will be expelled.

"4. Students who espouse, promote, or encourage others to violate the University's dating rules and regulations will be expelled." App. in No. 81-3, p. A197.

The University continues to deny admission to applicants engaged in an interracial marriage or known to advocate interracial marriage or dating. Id., at A277.

Until 1970, the IRS extended tax-exempt status to Bob Jones University under 501(c)(3). By the letter of November 30, 1970, that followed the injunction issued in Green v. Kennedy, 309 F. Supp. 1127 (DC 1970), the IRS formally notified the University of the change in IRS policy, and announced its intention to challenge the tax-exempt status of private schools practicing racial discrimination in their admissions policies.

After failing to obtain an assurance of tax exemption through administrative means, the University instituted an action in 1971 seeking to enjoin the IRS from revoking the school's tax-exempt status. That suit culminated in Bob Jones University v. Simon,  416 U.S. 725 (1974), in which this Court held that the Anti-Injunction Act of the Internal Revenue Code, 26 U.S.C. 7421(a), prohibited the University from obtaining judicial review by way of injunctive action before the assessment or collection of any tax.

Thereafter, on April 16, 1975, the IRS notified the University of the proposed revocation of its tax-exempt status. On January 19, 1976, the IRS officially revoked the University's tax-exempt status, effective as of December 1, 1970, the day after the University was formally notified of the change in IRS policy. The University subsequently filed returns under the Federal Unemployment Tax Act for the period from December 1, 1970, to December 31, 1975, and paid a tax

totalling $21 on one employee for the calendar year of 1975. After its request for a refund was denied, the University instituted the present action, seeking to recover the $21 it had paid to the IRS. The Government counterclaimed for unpaid federal unemployment taxes for the taxable years 1971 through 1975, in the amount of $489,675.59, plus interest.

The United States District Court for the District of South Carolina held that revocation of the University's tax-exempt status exceeded the delegated powers of the IRS, was improper under the IRS rulings and procedures, and violated the University's rights under the Religion Clauses of the First Amendment. 468 F. Supp. 890, 907 (1978). The court accordingly ordered the IRS to pay the University the $21 refund it claimed and rejected the IRS's counterclaim.

The Court of Appeals for the Fourth Circuit, in a divided opinion, reversed.  639 F.2d 147 (1980). Citing Green v. Connally, 330 F. Supp. 1150 (DC 1971), with approval, the Court of Appeals concluded that 501(c)(3) must be read against the background of charitable trust law. To be eligible for an exemption under that section, an institution must be "charitable" in the common-law sense, and therefore must not be contrary to public policy. In the court's view, Bob Jones University did not meet this requirement, since its "racial policies violated the clearly defined public policy, rooted in our Constitution, condemning racial discrimination and, more specifically, the government policy against subsidizing racial discrimination in education, public or private." 639 F.2d, at 151. The court held that the IRS acted within its statutory authority in revoking the University's tax-exempt status. Finally, the Court of Appeals rejected petitioner's arguments that the revocation of the tax exemption violated the Free Exercise and Establishment Clauses of the First Amendment. The case was remanded to the District Court with instructions to dismiss the University's claim for a refund and to reinstate the IRS's counterclaim.

C

No. 81-1, Goldsboro Christian Schools, Inc. v. United States

Goldsboro Christian Schools is a nonprofit corporation located in Goldsboro, N.C. Like Bob Jones University, it was established "to conduct an institution or institutions of learning . . ., giving special emphasis to the Christian religion and the ethics revealed in the Holy scriptures." Articles of Incorporation 3(a); see Complaint 6, reprinted in App. in No. 81-1, pp. 5-6. The school offers classes from kindergarten through high school, and since at least 1969 has satisfied the State of North Carolina's requirements for secular education in private schools. The school requires its high school students to take Bible-related courses, and begins each class with prayer.

Since its incorporation in 1963, Goldsboro Christian Schools has maintained a racially discriminatory admissions policy based upon its interpretation of the Bible.[^{Footnote 6} ] Goldsboro has for the most part accepted only Caucasians. On occasion, however, the school has accepted children from racially mixed marriages in which one of the parents is Caucasian.

Goldsboro never received a determination by the IRS that it was an organization entitled to tax exemption under 501(c)(3). Upon audit of Goldsboro's records for the years 1969 through 1972, the IRS determined that Goldsboro was not an organization described in 501(c)(3), and therefore was required to pay taxes under the Federal Insurance Contribution Act and the Federal Unemployment Tax Act.

Goldsboro paid the IRS $3,459.93 in withholding, social security, and unemployment taxes with respect to one employee for the years 1969 through 1972. Thereafter, Goldsboro filed a suit seeking refund of that payment, claiming that the school had been improperly denied 501(c)(3) exempt status.[^{Footnote 7} ] The IRS counterclaimed for $160,073.96 in unpaid social security and unemployment taxes for the years 1969 through 1972, including interest and penalties.[^{Footnote 8} ]

The District Court for the Eastern District of North Carolina decided the action on cross-motions for summary judgment. 436 F. Supp. 1314 (1977). In addressing the motions for summary judgment, the court assumed that Goldsboro's racially discriminatory admissions policy was based upon a sincerely held religious belief. The court nevertheless rejected Goldsboro's claim to tax-exempt status under 501(c) (3), finding that "private schools maintaining racially discriminatory admissions policies violate clearly declared federal policy and, therefore, must be denied the federal tax benefits flowing from qualification under Section 501(c)(3)." Id., at 1318. The court also rejected Goldsboro's arguments that denial of tax-exempt status violated the Free Exercise and Establishment Clauses of the First Amendment. Accordingly, the court entered summary judgment for the IRS on its counterclaim.

The Court of Appeals for the Fourth Circuit affirmed, 644 F.2d 879 (1981) (per curiam). That court found an "identity for present purposes" between the Goldsboro case and the Bob Jones University case, which had been decided shortly

before by another panel of that court, and affirmed for the reasons set forth in Bob Jones University.

We granted certiorari in both cases, 454 U.S. 892 (1981),[^{Footnote 9} ] and we affirm in each.

II

A

In Revenue Ruling 71-447, the IRS formalized the policy, first announced in 1970, that 170 and 501(c)(3) embrace the common-law "charity" concept. Under that view, to qualify for a tax exemption pursuant to 501(c)(3), an institution must show, first, that it falls within one of the eight categories expressly set forth in that section, and second, that its activity is not contrary to settled public policy.

Section 501(c)(3) provides that "[c]orporations . . . organized and operated exclusively for religious, charitable . . . or educational purposes" are entitled to tax exemption. Petitioners argue that the plain language of the statute guarantees them tax-exempt status. They emphasize the absence of any language in the statute expressly requiring all exempt organizations to be "charitable" in the common-law sense, and they contend that the disjunctive "or" separating the categories in 501(c)(3) precludes such a reading. Instead, they argue that if an institution falls within one or more of

the specified categories it is automatically entitled to exemption, without regard to whether it also qualifies as "charitable." The Court of Appeals rejected that contention and concluded that petitioners' interpretation of the statute "tears section 501(c)(3) from its roots." 639 F.2d, at 151.

It is a well-established canon of statutory construction that a court should go beyond the literal language of a statute if reliance on that language would defeat the plain purpose of the statute:

"The general words used in the clause . . ., taken by themselves, and literally construed, without regard to the object in view, would seem to sanction the claim of the plaintiff. But this mode of expounding a statute has never been adopted by any enlightened tribunal - because it is evident that in many cases it would defeat the object which the Legislature intended to accomplish. And it is well settled that, in interpreting a statute, the court will not look merely to a particular clause in which general words may be used, but will take in connection with it the whole statute . . . and the objects and policy of the law. . . ." Brown v. Duchesne, 19 How. 183, 194 (1857) (emphasis added).

Section 501(c)(3) therefore must be analyzed and construed within the framework of the Internal Revenue Code and against the background of the congressional purposes. Such an examination reveals unmistakable evidence that, underlying all relevant parts of the Code, is the intent that entitlement to tax exemption depends on meeting certain common-law standards of charity - namely, that an institution seeking tax-exempt status must serve a public purpose and not be contrary to established public policy.

This "charitable" concept appears explicitly in 170 of the Code. That section contains a list of organizations virtually identical to that contained in 501(c)(3). It is apparent that Congress intended that list to have the same meaning in both

sections.[^{Footnote 10} ] In 170, Congress used the list of organizations in defining the term "charitable contributions." On its face, therefore, 170 reveals that Congress' intention was to provide tax benefits to organizations serving charitable purposes.[^{Footnote 11} ] The form of 170 simply makes plain what common sense and history tell us: in enacting both 170 and

501(c)(3), Congress sought to provide tax benefits to charitable organizations, to encourage the development of private institutions that serve a useful public purpose or supplement or take the place of public institutions of the same kind.

Tax exemptions for certain institutions thought beneficial to the social order of the country as a whole, or to a particular community, are deeply rooted in our history, as in that of England. The origins of such exemptions lie in the special privileges that have long been extended to charitable trusts.[^{Footnote 12} ]

More than a century ago, this Court announced the caveat that is critical in this case:

"[I]t 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. . . ." Perin v. Carey, 24 How. 465, 501 (1861) (emphasis added).

Soon after that, in 1877, the Court commented:

"A charitable use, where neither law nor public policy forbids, may be applied to almost any thing that tends to promote the well-doing and well-being of social man." Ould v. Washington Hospital for Foundlings,  95 U.S. 303, 311 (emphasis added).

See also, e. g., Jackson v. Phillips, 96 Mass. 539, 556 (1867). In 1891, in a restatement of the English law of charity[^{Footnote 13} ] which has long been recognized as a leading authority in this country, Lord MacNaghten stated:

"`Charity' in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community, not falling under any of the preceding heads." Commissioners v. Pemsel, 1891. A. C. 531, 583 (emphasis added).

See, e. g., 4 A. Scott, Law of Trusts 368, pp. 2853-2854 (3d ed. 1967) (hereinafter Scoot). These statements clearly reveal the legal background against which Congress enacted the first charitable exemption statute in 1894:[^{Footnote 14} ] charities were to be given preferential treatment because they provide a benefit to society.

What little floor debate occurred on the charitable exemption provision of the 1894 Act and similar sections of later statutes leaves no doubt that Congress deemed the specified organizations entitled to tax benefits because they served desirable public purposes. See, e. g., 26 Cong. Rec. 585-586

(1894); id., at 1727. In floor debate on a similar provision in 1917, for example, Senator Hollis articulated the rationale:

"For every dollar that a man contributes for these public charities, educational, scientific, or otherwise, the public gets 100 per cent." 55 Cong. Rec. 6728.

See also, e. g., 44 Cong. Rec. 4150 (1909); 50 Cong. Rec. 1305-1306 (1913). In 1924, this Court restated the common understanding of the charitable exemption provision:

"Evidently the exemption is made in recognition of the benefit which the public derives from corporate activities of the class named, and is intended to aid them when not conducted for private gain." Trinidad v. Sagrada Orden,  263 U.S. 578, 581 .[^{Footnote 15} ]

In enacting the Revenue Act of 1938, ch. 289, 52 Stat. 447, Congress expressly reconfirmed this view with respect to the charitable deduction provision:

"The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that the Government is compensated for the loss of revenue by its relief from financial burdens which would otherwise have to be met by appropriations from other public funds, and by the benefits resulting from the promotion of the general welfare." H. R. Rep. No. 1860, 75th Cong., 3d Sess., 19 (1938).[^{Footnote 16} ]

A corollary to the public benefit principle is the requirement, long recognized in the law of trusts, that the purpose of a charitable trust may not be illegal or violate established public policy. In 1861, this Court stated that a public charitable use must be "consistent with local laws and public policy," Perin v. Carey, 24 How., at 501. Modern commentators and courts have echoed that view. See, e. g., Restatement (Second) of Trusts 377, Comment c (1959); 4 Scott 377, and cases cited therein; Bogert 378, at 191-192.[^{Footnote 17} ]

When the Government grants exemptions or allows deductions all taxpayers are affected; the very fact of the exemption or deduction for the donor means that other taxpayers can be said to be indirect and vicarious "donors." Charitable exemptions are justified on the basis that the exempt entity confers a public benefit - a benefit which the society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues.[^{Footnote 18} ] History buttresses