DefemdliEg tin© Revocation of ttlln© Tax-Exempt Status

off Certain Private Schools im Light off

tike AsMbroolk Amneinidliniiieinit

The Ashbrook amendment’s limitation on the expenditure of appropriated funds by the 

Internal Revenue Service (IRS) on actions that would cause the revocation of a 

school's tax-exempt status applies only prospectively, and revocation notices issued 

prior to its effective date thus remain valid.

A bar on the expenditure of appropriations which does not amend underlying substantive 

law will not lightly be interpreted to prohibit the Executive from appearing in court to 

defend legally authorized actions previously taken.

Neither the plain language nor the legislative history of the Ashbrook amendment 

suggests a congressional intent to bar IRS from defending its valid revocation notices 

in a court proceeding, though the manner in which IRS defends its revocation notices 

may be relevant to whether it is complying with the spirit as well as the letter of the 

Ashbrook amendment.

December 24, 1981

MEMORANDUM OPINION FOR THE GENERAL COUNSEL, 

DEPARTMENT OF THE TREASURY

In connection with our analysis of the ramifications of the Ashbrook 

amendment, §616 of H.R. 4121, 97th Cong., 1st Sess. (1981), for future 

actions of the Department of the Treasury, you have requested an early 

response to the question whether your Department may engage in 

certain pending litigation. Specifically, may the Internal Revenue Service (IRS), through its Office of the Chief Counsel, consistent with the 

Ashbrook amendment, answer and defend petitions filed in the United 

States Tax Court by five formerly tax-exempt nonsectarian private 

schools challenging the revocation of their tax-exempt status under 

§ 501(c)(3) of the Internal Revenue Code of 1954 (Code) 26 U.S.C. 

§ 501(c)(3)? The notices of revocation, dated August 17, 1981, concluded that each of the five schools “no longer qualifies for continued 

exemption under section 501(c)(3).” These revocations occurred at a 

time when the IRS was, as it continues to be, subject to an injunction 

issued by the district court in Green v. Miller, No. 69-1355 (D.D.C. 

May 5, 1980) (clarified and amended June 2, 1980), the general thrust of 

which is to require the IRS to enforce more vigorously the implied 

prohibition in § 501(c)(3) on the eligibility for tax-exempt status of 

private, nonprofit schools which discriminate on the basis of race.
We do not, in this memorandum, attempt to resolve the plethora of 

complex questions—including those articulated by Secretary Regan in 

his letter to the Attorney General dated October 1, 1981—raised by the 

Ashbrook amendment. The Supreme Court may resolve some of these 

questions in the cases of Goldsboro Christian Schools, Inc. v. United

States and Bob Jones University v. United States, cert, granted, 454 U.S. 

892 (1981), and Regan v. Wright.* For present purposes, we shall 

simply assume, without reaching questions of constitutionality, that the 

Ashbrook amendment was intended, at least in part, to restrict your 

Department’s ability to comply with the injunction issued in Green v. 

Miller. We conclude, for the reasons set forth below, that the IRS may 

file answers to and defend the five petitions without violating any 

constraints the Ashbrook amendment may otherwise have placed on 

the IRS’ administration of the Code.

I. Background

The history of the Green and Wright cases, and their interrelationship 

with the Ashbrook amendment, is extraordinarily complex.1 However, 

a detailed recapitulation of that history is unnecessary for resolution of 

the present problem. Briefly, prior to 1970, the IRS as a general rule 

recognized non-profit private schools not receiving state aid as taxexempt, charitable institutions under § 501(c)(3) of the Code and as 

eligible donees of charitable contributions deductible under § 170(a) and

(c)(2) of the Code regardless whether the school was racially discriminatory. In 1971, the district court in Green v. Connally, 330 F. Supp. 

1150, 1171, 1179 (D.D.C.) (three-judge court), a ffd mem. sub nom. Coit

v. Green, 404 U.S. 997 (1971), held, as a matter of statutory interpretation, that the Internal Revenue Code requires denial of tax-exempt 

status and deductibility of contributions to private schools practicing 

racial discrimination.2 Plaintiffs in Green reopened the litigation in 

1976, alleging that the IRS had failed to enforce effectively the earlier 

order that racially discriminatory private schools in Mississippi be 

denied tax-exempt status.3 That action resulted in a modified and ampli-

•N o t e . The Supreme Court’s opinion in Bob Jones University v. United States is pnnted 461 U.S.

574 (1983); its opinion in the Wright case appears a t_U.S. 104 S. Ct. 3315 (1984), sub nom. Allen

v. Wright. Ed.

1 See Wright v. Regan, 656 F.2d 820, 823-26 (D.C. Cir.) (1981) (detailing history of the case); Note, 

The Judicial Role in Attacking Racial Discrimination in Tax-Exempt Private Schools, 93 Harv. L. Rev. 

378, 379-84 (1979). See also Neuberger & Crumplar, Tax Exempt Religious Schools Under Attack:

Conflicting Goals o f Religious Freedom and Racial Integration, 48 Fordham L. Rev. 229 (1979) (general 

discussion of court, agency, and congressional action in this area).

2 To support this determination, the court reasoned that with respect to private schools, § 501(c)(3) 

must be read in a manner consistent with federal civil rights legislation and the overriding national 

policy against racial discrimination in educational facilities. See also Runyon v. McCrary, 427 U.S. 160 

(1976); Brown v. Board o f Education, 347 U.S. 483 (1954); § 1 of the Civil Rights Act of 1866, 14 Stat.

27, 42 US.C. § 1981; Pub. L. No. 94-568, Sec. 2(a), 90 Stat. 2697 (1976) (prohibition of tax-exempt 

status for social club whose charter or governing instrument provides for discrimination).

3 At the same time, parents of black children in desegregating school districts in seven states 

commenced a class action seeking nationwide relief on a basis similar to that sought in Mississippi in

Continued

445
fled injunction against the IRS which went beyond the guidelines the 

IRS had adopted in the wake of the first Green decision to determine 

whether schools seeking or holding exempt status are in fact discriminatory.4 The district court enjoined the IRS from granting tax-exempt 

status to private Mississippi schools: (1) adjudged racially discriminatory in adversary or administrative proceedings; or (2) established or 

expanded at the time of local public school desegregation unless the 

schools “clearly and convincingly” demonstrate that they observe nondiscriminatory policies and practices in “admissions, employment, 

scholarships, loan programs, athletics and extra-curricular programs.” 

Green v. Miller, No. 69-1355, at 2 (D.D.C. May 5, 1980) (clarified and 

amended June 2, 1980).5 Subsequent to the court order, the IRS, in the 

course of its surveys and examinations of private schools, sent the five 

notices of revocation of tax-exempt status that are presently being 

challenged in the Tax Court under 26 U.S.C. § 7428.®

In order to determine whether those actions can now be answered 

and defended in Tax Court, they must be viewed against the backdrop 

of the Ashbrook amendment. Section 616, which Congressman 

Ashbrook offered as an amendment to the Treasury Department, Postal 

Service, and General Government Appropriations Bill for the fiscal 

year 1982, provides:

None of the funds made available pursuant to the provisions of this Act shall be used to formulate or carry out 

any rule, policy, procedure, guideline, regulation, standard, court order, or measure which would cause the loss 

of tax-exempt status to private, religious, or church-operated schools under section 501(c)(3) of the Internal Revenue Code of 1954 unless in effect prior to August 22,

1978.

Section 616 passed the House on July 30, 1981. See 127 Cong. Rec. 

H5398 (daily ed. July 30, 1981). It was approved by the Senate Committee on Appropriations on September 15, 1981. See 127 Cong. Rec. 

D1057 (daily ed. Sept. 15, 1981). Although the House bill has not yet

the reopened Green case. See Wright v. Regan, 656 F.2d 820, 825, 829-30, 835 (D.C. Cir. 1981). While 

Green has a long history and involves Mississippi schools alone, the issues in the two cases are 

essentially the same. Moreover, the original Green court specifically noted that its interpretation of 

§ 501(c)(3) was not confined to the situation in Mississippi. Rather ‘*[t]he underlying principle is 

broader, and is applicable to schools outside Mississippi with the same or similar badge of doubt.*’ 

Green v. Connally, 330 F. Supp. at 1174. The Ashbrook amendment does not, on its face, distinguish 

between schools inside and outside Mississippi.

4 See, e.g.t Rev. Proc. 72-54, 1972-2 C.B. 834; Rev. Proc. 75-50, 1975-2 C.B 587.

6 The district court has subsequently stayed its order insofar as it applies to private sectarian 

schools. See Suspension of Court’s O rders of May 5, 1980, and June 2, 1980 (D.D.C. July 13, 1981).

6 Section 7428 of Title 26 provides that an organization whose qualification, or classification under 

§ 501(c)(3) is in issue may file within 90 days a petition in the United States Tax Court, the United 

States Court o f Claims, or the district court of the United States for the District of Columbia, seeking 

a declaratory judgment with respect to such initial qualification, continuing qualification, or revocation.

446
been enacted, the restrictions contained in § 616 were temporarily effective from October 1, 1981, until November 20, 1981, pursuant to Pub. 

L. No. 97-51, 95 Stat. 958 (1981), the continuing Appropriations Act. 

That Act was extended, by amendment, to December 15, 1981. See

Pub. L. No. 97-85, 95 Stat. 1098 (1981). On December 15, a joint 

resolution further extending these conditions for fiscal year 1982, 

became law. See Pub. L. No. 97-92, 95 Stat. 1183 (1981).7

Section 616 is Congress’ most recent attempt to limit what it perceives to be unwarranted governmental interference with private sectarian and nonsectarian schools. The amendment is substantially similar 

to amendments sponsored by Congressmen Ashbrook and Doman to 

Treasury appropriations for fiscal years 1980 and 1981.8 These “riders” 

were intended to preserve guidelines the IRS had adopted prior to 

August, 1978 to identify racially discriminatory private schools and to 

prevent the IRS from augmenting those guidelines with more aggressive procedures and detailed reporting requirements. See 125 Cong. 

Rec. 18,444-50 (1979); id. at 18812-16 (1979); id. at 22,876-928 (1979); 

id. at 23,204-11 (1979); 126 Cong. Rec. 15,383 (1980); id. at 21,981-90

(1980); id. at 22,166-70 (1980). Originally, these provisions were explained as attempts to rechannel the responsibility for formulating tax 

policy from the IRS to Congress or the courts,9 and they have been so 

interpreted by a court.10

The fiscal year 1982 Ashbrook amendment differs, however, in scope 

and impact: the earlier language was altered by inserting “court 

order.” 11 Inasmuch as the Ashbrook amendment can now be read on 

its face to prohibit the use of appropriations to “carry out any . . . 

court order . . . which would cause the loss of tax-exempt status . . . 

unless in effect prior to Aug. 22, 1978,” there may be conflicts between 

§616 and the obligations of the IRS under the modified Green injunction. The specific potential conflict at issue here is whether § 616 affects 

the IRS’s ability to defend the actions brought in the Tax Court.

7 Similar to Pub. L. No 97-51, a proviso to § 101(aX3) of Pub. L. No. 97-92 states that “when an 

Act listed in this subsection has been reported to a House, but not passed by that House as of 

December 15, 1981, it shall be deemed as having been passed by that H ouse” The Treasury, Postal 

Service, and General Government Appropriations Act of 1982 is listed in subsection (a) and has been 

reported to the floor of the Senate by the Senate Committee on Appropriations. Thus, the amendment 

involved here is now effective.

6 See Treasury, Postal Service, and General Government Appropriations Act, 1980, Pub. L. No. 

96-74, 93 Stat 559, §§ 103, 615 (1979); restriction reinstated on December 16, 1980, effective through 

September 30, 1981, Pub. L. No. 96-536, 94 Stat. 3166, §§ 101(a)(1), 101(a)(4) (1980); as amended Pub. 

L. No. 97-12, 95 Stat. 95, §401 (1981).

9 See 125 Cong. Rec. 18,447 (1979) (remarks of Rep. Ashbrook).

10 See Wright v. Regan. 656 F.2d 820, 835 (D.C. Cir. 1981) (“riders are holding orders and they 

hold only the IRS, they do not purport to control judicial dispositions.”), petition for certiorari filed, 

Regan v. Wright, No. 81-970 (Nov. 23, 1981).

" S e e 127 Cong. Rec. H5392, 5398 (daily ed. July 30, 1981).

447
The first question to be addressed is whether the notices of revocation sent out by the IRS on August 17, 1981, are themselves nullified 

by the Ashbrook amendment, which became operative on October 1, 

1981. The plain language of § 616 does not indicate that it should apply 

retroactively. As written, it is future-oriented: no appropriations “shall 

be used,” not “no appropriations should have been used.” Nor could a 

provision forbidding the use of appropriations logically be read to make 

prior expenditures illegal. Were that possible, persons who had properly authorized the obligation of appropriations under the previous law 

could be subjected, ex post facto, to criminal prosecution under the 

Antideficiency Act, 31 U.S.C. § 665, in violation of the Constitution. 

U.S. Const., Art. I, § 9, cl. 3.12

In addition, a general rule of statutory construction is that retroactive 

application of statutes is not assumed absent explicit congressional 

intent to the contrary. See Nichols v. Coolidge, 274 U.S. 531, 542 (1927) 

(tax which applied retroactively so as to burden past lawful transactions 

violated Fifth Amendment); Billings v. United States, 232 U.S. 261, 282 

(1914) (statutes should be so construed as to prevent them from operating retroactively). We have carefully reviewed the legislative history 

and find no evidence whatsoever that Congress intended § 616 to apply

12 We note that the Ashbrook amendment to the 1980 Appropriations Act, which was the governing law prior to October 1, 1981, did not prohibit any actions taken pursuant to a court order. (Section 

103 of the Treasury, Postal Service, and General Government Appropriations Act, 1980, Pub. L. No. 

96-74, 93 Stat. 562, expired on September 30, 1980, the end of the 1980 fiscal year, but was reinstated 

for the period December 16, 1980, through the close of the 1981 fiscal year, by § 101(aX4), H.R. J. 

Res. 644 of Dec. 16, 1980, Pub. L. No. 96-536, 94 Stat. 3166, as amended by §401, Supplemental 

Appropriations and Rescission Act, 1981, Pub. L. No 97-12, 95 Stat. 95.) That section read:

None of the funds made available pursuant to the provisions of this Act shall be used 

to formulate or carry out any rule, policy, procedure, guideline, regulation, standard, 

or measure which would cause the loss of tax-exempt status to private, religious, or 

church-operated schools under section 501(c)(3) o f the Internal Revenue Code of 1954 

unless in effect prior to August 22, 1978.

When Congressman Ashbrook initially proposed § 103, he described it as a holding order on the IRS, 

not the courts. “We are just saying do not go forward with these broad regulations or procedures, 

. . . until the Congress or a court affirmatively acts on that subject.” 125 Cong. Rec. 18,447 (1979) 

(remarks of Rep. Ashbrook). Thus, neither the plain language nor the legislative history of the 1980 

fiscal year Ashbrook amendment—the applicable law on August 17, 1981—prohibited sending out the 

revocation letters.

Although Congressman Ashbrook attempted to expand the scope of his amendment a year later so 

as to affect court orders as well, the Chair ruled that the amendment was out of order. 126 Cong. Rec. 

21,980 (1980). Congressman Ashbrook then offered an alternative version which was adopted by the 

House, with respect to which he stated: t4The new version of the amendment does not challenge the 

May 5 Green order, . . . it does not address or seek to alter the order of Judge Hart in the Green case 

or the implementation of that order in the State of Mississippi.” 126 Cong. Rec. 22,166 (1980). This 

amendment never became law, because Congress failed to pass the 1981 fiscal year Appropriations 

Act. Funding was authorized pursuant to a continuing budget resolution which incorporated existing 

1980 restrictions, including the earlier Ashbrook amendment. But at no point prior to the appropriation rider for 1982 did Congress regard either the Ashbrook or Doraan amendments as interfering 

with the enforcement o f outstanding court orders. See also 126 Cong. Rec. 17,508 (remarks of Sen. 

Javits) (1980); 126 Cong. Rec. at 21,983 (remarks of Rep. Doman) (1980); id at 21,984 (ruling of the 

Chair).
retroactively.13 We therefore conclude that § 616 in no way affects the 

administrative actions taken by the IRS on August 17, 1981.14

The next question is whether the IRS can defend challenges to those 

revocation notices brought under 26 U.S.C. § 7428 and filed in the Tax 

Court on November 17, 1981. Under rules of the Tax Court, the IRS 

must respond to at least one of the five petitions by January 11, 1982. 

We understand from IRS attorneys that the proceedings before the Tax 

Court will be ones in which any facts upon which the administrative 

determinations were made may be determined de novo by the Tax Court 

at trial of the causes. Any relevant evidence supporting contentions 

raised during the administrative revocation process may be raised 

before the Tax Court by either the IRS or the organization. See Incorporated Trustees o f the Gospel Workers Society v. United States, 81-1 

USTC H 9174, n.6 (D.D.C. 1981). But cf. Prince Edward School Foundation v. C.I.R., 478 F. Supp. 107, 110 (D.D.C. 1979) a ffd by unpublished

order, No. 79-1622, cert, denied, 450 U.S. 944 (1981) (judicial review 

limited to review for error of administrative determination). In its 

answers to the five petitions, the IRS expects to deny most of the 

paragraphs of the petitions. Trial would not be held in any of the cases 

until May 1, 1982, at the earliest, with legal memoranda to be submitted 

subsequent to the trial.

The plain language of § 616, while prohibiting the use of funds either 

to formulate rules and regulations or to carry out guidelines or court 

orders which were not in effect prior to August 22, 1978, does not 

address specifically the appearance of the Executive in court. We 

would generally be most reluctant to give § 616 a reading that Congress 

intended to bar the Executive from performing its quintessential function of appearing in court to support legally authorized actions it had 

previously taken. We would be particularly reluctant to give such a 

reading to a statute making appropriations (and, as here, denying the 

use of appropriations), because such a statute does not amend underlying substantive law—it merely suspends the use of appropriations for so 

long as the statute remains in force. It would also, we believe, be 

anomalous to attribute to Congress in 1981 an intent on the one hand to 

leave the notices of revocation unchanged and an intent on the other 

hand to prohibit the defense of those administrative notices in the Tax 

Court. Such potentially inconsistent effects should be resolved, if possit3See 127 Cong. Rec. H5392-98 (daily ed. July 30, 1981). Indeed, during floor debate over his 1982 

fiscal year version, Congressman Ashbrook himself expressed doubts that even that proposal would 

affect the ability of the IRS to comply fully with the Green v. Miller injunction within the State of 

Mississippi See 127 Cong. Rec. H5394 (daily ed. July 30, 1981) (exchange between Reps. Ashbrook 

and Gradison). We assume for present purposes that the 1982 fiscal year version was intended to 

interdict compliance with the Green v. Miller order after October 1, 1981, without deciding that issue.

14 Analogously, the court of appeals in Wright v. Regan. 656 F 2 d at 832-35, reached a parallel 

conclusion that the enactment by Congress of the Ashbrook amendment (§ 103) and Dornan amendment (§ 615) to the Treasury, Postal Service, and General Government Appropriations Act, 1980, Pub. 

L No. 96-74, 93 Stat. 559, was prospective in operation: an attempt to stay further IRS initiatives.

449
ble, in favor of permitting the agency to defend its prior, permissible 

actions, rather than forcing a reading that would require the Executive 

to default in court. Moreover, our earlier conclusion—that Congress 

did not intend to nullify the letters of revocation—leaves the underlying substantive rule of law to be relied upon in the Tax Court outstanding. Cf. Pennsylvania v. Wheeling & Belmont Bridge Co., 59 U.S. (18 

How.) 421 (1855) (Congress explicitly changes the substantive rule of 

law supporting prior decision.). If neither § 501(c)(3) nor the notices of 

revocation have been amended or extinguished, it would be illogical to 

find in the Ashbrook amendment an intent to prohibit the Executive 

from responding to challenges to the revocation letters.

Notwithstanding these considerations, however, the complex history 

of the Ashbrook amendments suggests that we should examine the 

manner in which the defense in the Tax Court might be construed as 

carrying out a court order, namely the Green v. Miller injunction, 

entered after August 22, 1978, and therefore as potentially violative of 

the spirit of the Ashbrook amendment. Significantly, the modified 

Green v. Miller injunction does not mention the issue of the IRS 

defending actions in the Tax Court. Nor would the district court judge 

presume to dictate the proceedings in another tribunal. Cf. GTE Sylvania, Inc. v. Consumers Union o f the United States, 445 U.S. 375 (1980) 

(agency complying with order in one court’s proceeding should not be 

required to commit contempt of that court because of contradictory 

order from {mother court). The Tax Court functions independently in 

determining what legal standard should govern under the present circumstances and whether or not the petitioner organizations are taxexempt. See Prince Edward School Foundation v. C.I.R., 478 F. Supp. 

107, 111-12 (D.D.C. 1979), a ffd by unpublished order, No. 79-1622 

(D.C. Cir. June 30, 1980), cert, denied, 450 U.S. 944 (1981) (validity of 

particular revenue procedure does not bear on court’s interpretation of 

the prerequisites for § 501(c)(3) status and its ultimate decision whether 

or not plaintiff is exempt under that section). Therefore, the IRS, as an 

initial matter, would not logically turn to the rules developed in the 

recent Green order for instruction as to its present defense to the 

challenges under 26 U.S.C. § 7428 in the Tax Court.

Several options, independent of the modified Green injunction and 

compatible with the Ashbrook amendment, would be available to the 

IRS in the Tax Court proceedings. The IRS could base its defense of 

the revocations on a determination that the schools involved have 

violated Rev. Proc. 75-50 or other pre-August 22, 1978, law, either by 

failing to demonstrate affirmatively the adoption, communication, and 

observance of a nondiscriminatory policy or by failing to fulfill the 

equivalent duty of a meaningful communication of a nondiscriminatory

450
policy.15 Under this analysis, the IRS would take the position that the 

schools have allegedly failed to demonstrate that they operate on a 

racially nondiscriminatory basis in conformity with the original order in 

Green v. Connally, 330 F. Supp. 1150 (D.D.C.) (three-judge court) a ffd

sub nom. Coit v. Green, 404 U.S. 997 (1971), and Rev. Proc. 75-50, both 

of which were consciously left undisturbed by the Ashbrook amendment.

It is also possible that, at some time during the litigation in the Tax 

Court, the IRS might desire to argue that the schools had not successfully rebutted a factual inference of discrimination raised by the circumstances surrounding their creation, or their substantial expansion, at 

approximately the time of a local desegregation order. While such a 

position could arguably be linked to the language of the modified Green

v. Miller injunction, the IRS had actual knowledge of the relevant facts 

surrounding the schools’ formation independent of that court order. See

Coffey v. State Educational Finance Commission, 296 F. Supp. 1389 

(S.D. Miss. 1969) (three-judge court); Green v. Connally, 330 F. Supp. 

at 1173-74; Norwood v. Harrison, 382 F. Supp. 921, 924-26 (N.D. Miss. 

1974). These cases treated evidence of a school’s formation or expansion at times reasonably proximate to public school desegregation litigation as sufficient to create a “badge of doubt.” The IRS could assert 

this well-recognized and accepted inference in its present defense 

should it choose to rely on that inference.16

Another aspect of the Tax Court defenses which arguably could be 

viewed as “carrying out” the modified Green v. Miller injunction in 

violation of §616 would involve the IRS’ resort to the “clear and 

convincing” evidence standard that the modified Green decree imposes 

on the schools in order to overcome a prima facie case of discrimination. Of course, the IRS has no way of predicting exactly what burdens 

of proof the Tax Court might eventually place on the litigants.17 We 

are informed that a “clear and convincing” standard of proof is extremely rare in Tax Court proceedings. Moreoever, as indicated above, 

the district court in Green in no way displayed a purpose to prescribe 

the rebuttal standard to be employed in the Tax Court.

15 Rev. Proc. 75-50, Sec. 2.02 specifically requires that '*[a] school must show affirmatively both 

that it has adopted a racially nondiscriminatory policy as to students that is made known to the 

general public and that since the adoption of that policy it has operated in a bona fide manner in 

accordance therewith.” See also Green v. Connally, 330 F. Supp. 1150, 1179 (D.D.C. 1971) (three-judge 

court) (school must publicize policy in manner that is intended and reasonably effective to bring it to 

attention of students of minority groups).

lBSee also Brumfield v Dodd, 425 F. Supp. 528, 531-32 (E.D. La. 1977) (adopting Norwood v. 

Harnson, 382 F. Supp. 921, 925 (N.D. Miss. 1974), standard that “the critical time of a private school's 

formation or unusual enlargement must be a significant factor, though one not necessarily decisive, in 

determining whether it is racially discriminatory”).

11 See Prince Edward School Foundation v. C.I.R., supra at 110-11; Western Catholic Church v. 

Commissioner, 73 T.C. 196, 206 (1979); Hancock Academy o f Savannah, Inc. v. Commissioner, 69 T.C. 

488, 492 (1977) (burden of proof on petitioner; exact standard not addressed).

451
More importantly, should the IRS, to sustain its case, desire to argue 

that such a standard should control, it need not invoke the modified 

Green injunction to support its position. Rather, it can point to the 

burdens of proof developed in Norwood v. Harrison, 382 F. Supp. at 

924-26, on remand from the Supreme Court, 413 U.S. 455, 471 (1973); 

an approach reaffirmed in Brumfield v. Dodd, 425 F. Supp. 528, 531-32 

(E.D. La. 1977).18 These cases predate August 22, 1978, and we do not 

read the Ashbrook amendment as intending to affect these decisions or 

to prohibit the IRS from arguing their relevance and applicability in the 

Tax Court proceedings. Given these precedents and the lack of a firm 

position by the IRS whether the Norwood inference should apply at all, 

we see no conflict, at least in the immediate future, between the 

Ashbrook amendment and the filing of an answer to the five petitions 

in the Tax Court or, generally, the defense of those actions.

At a more fundamental level, the IRS defense does not violate the 

basic thrust of § 616. Congress neither intended to change the law 

proscribing tax-exempt status for discriminatory schools nor desired to 

impinge on the IRS’ ability to withdraw the tax-exempt status of 

schools that do discriminate. Indeed, in reiterating his initial intention 

this year, Congressman Ashbrook stated:

I made it clear at the time that IRS should be able to 

proceed on the basis of the regulations they had in existence. If they know of discrimination, they can litigate, 

they can withdraw the tax-exempt status, anything that 

they could do prior to August 22, 1978, the time when 

they endeavored to implement these Draconian regulations, could be implemented by IRS. In no way am I 

trying to impinge on IRS’s ability to withdraw the taxexempt status of any school which might violate the law.

127 Cong. Rec. H5395-96 (daily ed. July 30, 1981).19 These proceedings 

will give the court an opportunity to consider what rules should be 

used to determine nondiscrimination—a result sought by Congressman 

Ashbrook when he first introduced his amendment.20 Thus, the Tax

18 Similarly, the court in United States v. State o f Mississippi, 499 F.2d 425, 434-35 & n.17 (5th Cir 

1974) (en banc) interpreted Norwood to require that the litmus test for receiving governmental support 

was actual evidence of nondiscrimination, not a simple statement of a nondiscriminatory policy.

l9See also 127 Cong. Rec. H5398 (daily ed. July 30, 1981) (remarks of Rep. Lott) ("If this 

amendment passes, the IRS'w ill still be free to investigate charges of racial discrimination. It will be 

free to deny exemptions to any institution proven guilty o f racial discrimination through fair hearings. 

In short, it will be free to enforce the regulations and court orders in effect in 1978.”)

20The governing statute, 26 U.S.C. § 7428(c)(1), explicitly provides that any individual contributions 

up to $1,000 made to the school during the pendency of the proceedings are deductible, regardless of 

the eventual outcome of the litigation. Congress fashioned the proceeding involved here in response to 

the Supreme Court's suggestion that *‘[s]pecific treatment o f not-for-profit organizations to allow them 

to seek pre-enforcement review” might be a method for alleviating “[t]he degree of bureaucratic 

control that, practically speaking, has been placed in the Service [and] . . . is susceptible of abuse, 

regardless of how conscientiously the Service may attempt to carry out its responsibilities.” Bob Jones

University v. Simon, 416 U.S. 725, 749-50 (1974). See H.R. Rep. No. 658, 94th Cong., 1st Sess. 282, 

283-84 (1975); S. Rep. No. 938, 94th Cong., 2d Sess. 585-87 (1976) (basis for enacting § 1306(a), Tax 

Reform Act of 1976, Pub. L. No. 94-455, 90 Stat. 1520).

452
Court proceedings function to further, rather than to undermine, the 

spirit of the Ashbrook amendment. We therefore conclude that the IRS 

defense in the Tax Court violates neither the letter nor the spirit of 

§ 616.

We are continuing our review of other issues raised in the Secretary’s 

letter to the Attorney General, particularly the potential effect of the 

Ashbrook amendment on the responsibility of the IRS to notify two 

“paragraph 1” schools 21 of their reporting obligations under the modified Green injunction. We will remain in touch with your office and 

IRS attorneys in our efforts to resolve this matter.

T h e o d o r e B. O l so n

Assistant Attorney General

Office o f Legal Counsel

31 Paragraph 1 schools are schools which in the past have been determined in court or administrative proceedings to be racially discriminatory, or were established or expanded at or about the time 

the districts in which they are located were undergoing desegregation and which cannot demonstrate 

that they do not presently discriminate. See Green v. Miller, No. 69-1355, Order and Permanent 

Injunction (D.D.C. May 5, 1980) (clarified and amended, June 2, 1980). Even if the school establishes 

that it observes a nondiscriminatory policy, the IRS is enjoined from continuing its tax-exempt status if 

the school fails to supply certain information annually for a period of three years.

453