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June 30, 1971

William H. GREEN et al., Plaintiffs,
John B. CONNALLY et al., Defendants, v. Dan COIT et al., Intervenors

Leventhal, Circuit Judge.

The opinion of the court was delivered by: LEVENTHAL

Syllabus by the Court

This is a class action by plaintiffs, Negro parents of school children attending public schools in Mississippi, to enjoin U. S. Treasury officials from according tax-exempt status and deductibility of contributions to private schools in Mississippi discriminating against Negro students. Intervenors represent the class of parents and children who support or attend such private schools. After the three-judge District Court granted a preliminary injunction, the Internal Revenue Service (IRS) announced that it would no longer allow tax-exempt status and deductibility of contributions to any private schools in the Nation which practice racial discrimination. The three-judge District Court granted plaintiffs judgment on the merits, both declaratory relief and a permanent injunction. The court held:

 I. Under the Internal Revenue Code, properly construed, racially discriminatory private schools are not entitled to the Federal tax exemption provided for charitable, educational institutions, and persons making gifts to such schools are not entitled to the deductions provided in case of gifts to charitable, educational institutions.

 A. It is open to serious doubt whether the privileges the common law accords to charitable trusts because of their benefits to the community are still available to trusts establishing racially discriminatory educational institutions in light of (1) the rule that a charitable trust cannot validly be established for accomplishment of a purpose contrary to public policy and (2) case law trends eliminating or vitiating the enforceability of discriminatory provisions in the instruments establishing educational trusts. pp. 5-13.

 B. Federal tax exemptions and deductions are generally not available for activities contrary to declared Federal public policy. Specifically the exemptions and deductions provided for charitable, educational institutions are not available for private schools discriminating on ground of race against students, in view of Federal policy against government support for racial segregation of public or private schools, declared in the post-Civil War amendments to the Constitution, the rulings of the Supreme Court and the Civil Rights Act of 1964. (pp. 17-20).

 C. This construction of the Code avoids serious constitutional questions, since the Constitution would plainly prohibit direct government grants to schools practicing racial discrimination among students, and tax exemptions and deductions likewise provide support, albeit in the nature of an indirect, matching grant rather than an unconditional direct grant. pp. 20-21.

 D. This construction of the Code by the IRS does not unconstitutionally deprive intervenors of their rights:

 1. While the First Amendment grants to the people a broad freedom of association, including the liberty of a parent to educate his child in a school of his choice, (pp. 21-23), this is not a constitutional right to government support for policies and practices of racial discrimination among students. (pp. 23-25). Moreover, there is a compelling Government interest in the interdiction of racial discrimination which would be dominant over other constitutional interests if they were in complete and unavoidable conflict. (pp. 25-27).

 2. This construction of the Code is not inconsistent with the tax exemptions and deductions granted to private religious schools. (pp. 27-29).

 II. The court is required to grant declaratory and injunctive relief: (pp. 31-50).

 A. Although the three-judge court was convened because of plaintiffs' constitutional claims it has pendent jurisdiction to hear and determine plaintiffs' statutory claims.

 B. A declaration of plaintiffs' Federal statutory rights under the Code provides more enduring, permanent relief than defendants' possibly discretionary declaration of policy apparently based on shifting state common law doctrine.

 C. Plaintiffs are entitled to protection, including effective procedures, ensuring that the Code will not be applied in fact to provide tax benefits to private Mississippi schools practicing racial discrimination as to students. Since prior history and court findings leave private Mississippi schools with a badge of doubt on this issue, the IRS is enjoined from granting final exemption rulings, unless it has supplemented the steps already taken by IRS in implementing the proper construction of the Code: (a) by advising private schools in Mississippi that they must make a showing that they have not only adopted, but also given meaningful notice to the community concerning the schools' racially nondiscriminatory policy in regard to students, and (b) by requiring schools in Mississippi to provide information as to the racial composition of students, Faculty, staff, applicants for admission, recipients of scholarship and loan awards; and the listing of incorporators, founders, board members, and donors of land or buildings, and a statement whether any of these have an announced identification with organizations having maintenance of segregated school education as a primary objective.

 The order sets forth that this information is material in order for IRS to be in an effective position to determine whether the school has adopted a racially nondiscriminatory policy as to students and ensures this material will be before the IRS for its ...

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