Abstract

Excerpted From: David A. Brennen, Race Conscious Affirmative Action by Tax Exempt 501(c)(3) Institutions after Students for Fair Admissions v. Harvard and UNC, 21 Pittsburgh Tax Review 49 (Fall, 2023) (53 Footnotes) (Full Document)

In 1983, several years after its 1954 decision in Brown v. Board of Education, the United States Supreme Court decided a case that significantly impacted tax-exempt § 501(c)(3) charitable schools that consider race in making admissions decisions. In Bob Jones University v. United States, the Court held that a private school that discriminates against African Americans in admissions is not entitled to § 501(c)(3) tax-exempt status. The Court based its decision on the public policy doctrine, an off-shoot of the well-established illegality doctrine. Pursuant to the public policy doctrine, the Court upheld the IRS's decision to deny § 501(c)(3) tax exemption to a private school because its actions violated clear, established public policy. Among the many determinants of established public policy is constitutional law doctrine. Thus, since the Court held for decades that discrimination against African Americans in school admissions violates the Fourteenth Amendment's Equal Protection Clause, the Court naturally concluded that a private school engaged in such discrimination is not entitled to § 501(c)(3) tax exemption.

Since its decision in Bob Jones, the Court has ruled many times on the constitutionality of race-based actions when making resource allocation decisions. While the Court has consistently stuck to its guns on the matter of discrimination against African Americans, it has not shown the same fortitude in its analysis of affirmative action--that is, race-conscious decisions aimed at helping (as opposed to hurting) African Americans and other minority groups. In fact, in a line of decisions involving the workplace and education, the Court has consistently recognized that, while invidious racial discrimination against minority groups is always prohibited, benign affirmative action is at times permissible if done in the right way and for the right reasons. Accordingly, tax-exempt law's public policy doctrine has likewise consistently been interpreted as prohibiting invidious racial discrimination against African Americans and other minority groups while simultaneously permitting the use of race-conscious affirmative action.

In its October 2022 term, the Supreme Court heard yet another case aimed at addressing the issue of the Fourteenth Amendment's limitations on the use of race in educational admissions. But this case was different. The Court's race-conscious affirmative action cases typically involve claims by white people that affirmative action aimed at helping African Americans or other minority groups impermissibly harm (or discriminate against) them as white people. In SFFA v. Harvard/UNC, instead of white people complaining about harm, one minority group (Asian Americans) alleged they suffered harm due to race-conscious affirmative action aimed at helping other minority groups (African Americans, Hispanics, and Native Americans). Specifically, the Court in SFFA v. Harvard/UNC faced the issue of whether race-conscious affirmative action should necessarily be prohibited if it has a negative impact on members of other minority populations, as opposed to on members of the majority white population. This Essay will examine the potential impact of this important constitutional law decision on the applicability of the public policy doctrine as a possible limitation on the use of race-conscious affirmative action by tax-exempt § 501(c)(3) charitable entities.

Part I of this Essay examines how constitutional law limits on the use of race in college admissions are impacted by the Court's recent decision in SFFA v. Harvard/UNC. Specifically, Part I focuses on the ramifications of the Court's decision on the ability of public colleges, as well as private ones that receive federal financial assistance, to use race when making admissions decisions. Part II provides a brief primer on tax-exempt law's public policy limitation--emphasizing its correlation (or lack thereof) with Equal Protection Clause jurisprudence when it comes to limiting race-based activity by tax-exempt § 501(c)(3) charitable entities. Part III hypothesizes how the IRS, in light of the Court's decision in SFFA v. Harvard/UNC, might interpret the public policy limitation in the context of determining the permissibility of race-based affirmative action by tax-exempt § 501(c)(3) entities. Finally, the Essay concludes that despite the apparent inability of public colleges (or private ones that receive federal financial assistance) to engage in race-based affirmative action after SFFA v. Harvard/UNC, tax-exempt § 501(c)(3) entities are not necessarily prohibited from using race as a factor when making important resource allocation decisions, such as admission to college.

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The Court's decision in SFFA v. Harvard/UNC sends a reasonably clear message as to the constitutionality of the use of race in college admissions. Prior to SFFA v. Harvard/UNC, the use of race was constitutionally allowed if race was one of many factors in the admissions decision and not a deciding factor. After SFFA v. Harvard/UNC, it appears that race cannot (with minor exceptions) be a factor in admissions decisions of public colleges or private ones that receive federal financial assistance. Since the Court in Bob Jones relied principally on constitutional law doctrine in concluding that a private § 501(c)(3) tax-exempt entity that engages in invidious racial discrimination against African Americans in making admissions decisions is not entitled to tax exemption, the question arises as to what the implications are of the Court's decision in SFFA v. Harvard/UNC for the public policy doctrine. Since the public policy doctrine is defined not only by constitutional norms but also by executive and legislative enactments, this essay concludes that the SFFA v. Harvard/UNC decision is not the sounding of the death knell for race-based affirmative action by private § 501(c)(3) entities that are not state actors and not recipients of federal financial assistance. Further, given the goal of § 501(c)(3) entities to contribute to a “vigorous, pluralistic society,” it makes sense that such entities are not necessarily constrained to the same extent that government is so constrained.

Professor of Law, University of Kentucky J. David Rosenberg College of Law; B.B.A, Florida Atlantic University; J.D., L.L.M., University of Florida College of Law.