An earlier post about 501(c)(3) schools discussed the many requirements that must be satisfied in order for a school to be recognized as a charity under section 170(b)(1)(a)(ii) of the Internal Revenue Code (the Code). In this post, we specifically explore the requirement that schools not discriminate against students on the basis of race, particularly with respect to non-U.S. schools.
The Nondiscrimination Requirement: U.S. Private Schools and All "Foreign School Grantees"
Historically, U.S. private schools and non-U.S. schools (both public and private) only qualified for exemption (or equivalency) under Code section 501(c)(3) if they complied with Revenue Procedure 75-50 (PDF). This 1975 revenue procedure was issued by the Internal Revenue Service (IRS) following a series of litigation concerning discriminatory tax-exempt schools, which were deemed to be contrary to public policy and therefore not charitable.
Rev. Proc. 75-50 sets forth how private schools can demonstrate that they are not racially discriminatory. It requires that the school "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." The revenue procedure expressly does not extend to U.S. public schools, likely for the sufficiency of the state and national laws that already prohibit racial discrimination in public education.
Almost two decades later, the IRS issued Revenue Procedure 92-94 (PDF), governing Equivalency Determinations (EDs). It similarly required that "foreign school grantees" reviewed for ED be able to "explain any basis for the grantee school's failure to comply with one or more of the provisions of Rev. Proc. 75-50, 1975-2 C.B. 587."
Rev. Proc. 92-94 left uncertain whether all aspects of the 1975 revenue procedure applied to non-U.S. schools. Specifically, Rev. Proc. 75-50 established a "publicity requirement," intended to ensure that schools not only adopted policies of nondiscrimination, but also made the policies widely known in the community. The publicity requirement provided for two methods of publicizing the policy: either by publishing a notice "in a newspaper of general circulation that serves all racial segments of the community … repeated at least once annually" or by "us[ing] broadcast media to publicize its racially nondiscriminatory policy … to all segments of the general community the school serves," such as radio or television stations.
Earlier this year, the IRS issued Revenue Procedure 2019-22, which added a third method of achieving the publicity requirement; namely, "[t]he school may display a notice of its racially nondiscriminatory policy on its primary publicly accessible Internet homepage," as long as the notice is "in a manner reasonably expected to be noticed by visitors to the homepage."
Requirements Applicable to Non-U.S. Schools
As previously reported on this blog, in 2017, the IRS issued Revenue Procedure 2017-53 (PDF), superseding Rev. Proc. 92-94. Rev. Proc. 2017-53 clarifies the application of the racial nondiscrimination policy requirement to non-U.S. schools. Specifically, the IRS noted that while non-U.S. schools have historically been subject to the same nondiscrimination requirements as private schools, "compliance with all the provisions of Rev. Proc. 75-50 is sometimes impracticable in foreign jurisdictions," and "foreign jurisdictions may not have the same history of racial discrimination as the United States." It concluded, nevertheless, that "racial nondiscrimination remains an important principle in determining whether an organization should be recognized as described in section 501(c)(3)."
To satisfy the racial nondiscrimination requirement, a non-U.S. school must be able to evidence
- that it has "adopted a policy in its governing instrument, or in a resolution of its governing body, that … [it] does not discriminate against [student-]applicants and students on the basis of race, color, or national or ethnic origin," and
- that it "actually operates in a racially nondiscriminatory manner as to students."
The revenue procedure explains that "[e]vidence of racial nondiscrimination regarding students can be shown by compliance with Rev. Proc. 75-50 (or any successor revenue procedure). Compliance with that revenue procedure with respect to a foreign school grantee is not required, however, in order to provide evidence that the grantee actually operates in a racially nondiscriminatory manner as to students." Rev. Proc. 2017-53.
To ensure that a non-U.S. school meets the above requirements, the school must formally certify in the NGOsource questionnaire that it follows a racially nondiscriminatory policy as to students.
In addition, NGOsource requests an officially adopted nondiscrimination policy (if available) and asks for information evidencing that the school's student body is representative of the community. If the school does not have a formally adopted nondiscrimination policy, NGOsource conducts a thorough review of the school's governing documents, relevant statements on its website, application materials, publications, or other public-facing materials, as well as local laws prohibiting racial discrimination in education.
As the IRS noted in Rev. Proc. 75-50, "[t]he question whether a school satisfies the [non-discrimination requirements] will be determined on the basis of the facts and circumstances of each case."
NGOsource will not recognize a school as equivalent to a 501(c)(3) charity if it finds evidence of racial discrimination. However, NGOsource also recognizes that schools around the globe have different ways of operating, and makes every effort to respect these cultural differences, while applying U.S. tax law requirements.
All of the following are PDF documents.
- Rev. Proc. 75-50, 1975-2 C.B. 587 (January 1, 1975)
- Rev. Proc. 92-94, 1992-2 C.B. 507 (November 16, 1992)
- Rev. Proc. 2017-53, 2017-40 I.R.B. 263 (October 2, 2017)
- Rev. Proc. 2019-22, 2019-22 I. R.B. 1260 (May 28, 2019)
- Berkovsky, Cowen, Daume and Megosh, "Private School Update," IRS E.O. CPE Text (2000)
This article is for general informational purposes only and does not represent legal advice as to any particular set of facts. Please seek legal counsel as you deem necessary.