Inside Higher Ed, Higher Ed Groups Condemn Proposal That Could Ax Private College Tax Exemptions:
The IRS says “all forms” of racial or ethnic discrimination could trigger loss of tax-exempt status under the regulation, “regardless of the intent behind or the legality of such discrimination.” Organizations say they fear political abuse.

Higher education advocacy groups and institutions excoriated a proposed rule that threatens private, nonprofit institutions’ tax-exempt status. If enacted, the Treasury Department and Internal Revenue Service proposal would allow officials to revoke that exemption if they determine a private college or university has discriminated based on race or ethnicity.

But colleges argued in public comments on the plan that it’s unclear and unlawful, and they criticized the agency’s sweeping language in explaining the rule’s intent. The IRS said its regulation would mean “all forms of racial discrimination in education, regardless of the intent behind or the legality of such discrimination (for example, where such discrimination is defended as serving remedial or diversity-related objectives), are against a fundamental public policy of the United States and thus preclude a school’s exemption from Federal income tax.”

Losing the federal income tax exemption could make donors hesitate to give to universities because they wouldn’t be able to write contributions off on their taxes. The change could also “severely undermine institutional financial stability,” according to the National Association of College and University Business Officers.

The IRS specified that the rule would consider “race-based action for the purpose of ameliorating societal discrimination” or “past racial discrimination” to be forms of further discrimination, costing universities their exemptions. The rule would prohibit any racial, ethnic or national origin–based discrimination “in the administration of any educational policy, admissions policy, scholarship and loan program, athletic program, or other school-administered or school-supported program.”

American Council on Education President Ted Mitchell submitted a roughly 15-page comment on behalf of his and 40 other higher groups—including the National Association of Independent Colleges and Universities and the American Association of University Professors—lambasting the proposal and saying the Trump administration could use it to further target ideas it disagrees with.

“It is unclear, for example, whether contentious or even offensive classroom instructions on race or history topics could fall into the IRS’s broad definition of ‘discrimination,’” Mitchell wrote. “Nor is it clear what types of campus or student activities could be deemed ‘school-administered or school-supported.’ The proposed rule seemingly leaves it entirely to the IRS’s discretion to decide what conduct is sanctionable.”

Wall Street Journal Op-Ed: Don’t Weaponize Tax Exemptions for Private Schools, by Eugene Scalia:

The new Trump IRS proposal is unlawful and creates endless openings for agency mischief.

In a rule proposed in September for a public comment period ending Tuesday, the IRS seeks a vast expansion of its ability to deny tax exemption to universities and other private schools that discriminate based on race.

Bob Jones’s policies were contemptible, open and notorious, and—in the court’s view—so integral to the school that they defined the institution’s “purpose.” A university with such a wretched purpose, the court said, lacked the charitable character necessary for federal tax exemption.

In part because the court tailored its decision to Bob Jones’s exceptional facts, the IRS has seldom exercised its court-created authority to deny schools tax exemption based on discrimination. But the new IRS proposal ignores Burger’s restrictive language. It broadly states that a school isn’t tax exempt if it has “any” practice, in “any” program, that discriminates based on race. That language would unleash IRS agents. …

The proposal creates endless opportunities for IRS mischief. How will the IRS—a tax authority—determine when illegal race discrimination occurred, and how will it judge when that discrimination is so grave as to forfeit a school’s tax exemption? How extensive must that discrimination be, how purposeful, how central to the school’s publicly declared mission? At Bob Jones, the initial policy was essentially “no blacks need apply.” Yet the IRS proposal would deny tax exemption for “any” discrimination. This would give IRS agents boundless discretion to select schools to investigate, threaten, coerce and disqualify.

A final principle is relevant here, one of administrative law and of politics: What goes around comes around. This administration can’t govern with an eye only to the next two years. The legal authorities it asserts are loaded guns, to be picked up and wielded by its successors.

Some in the Trump administration may have a list of universities they believe should lose tax exemption. If this IRS rule is adopted and withstands judicial scrutiny, the next Democratic president will arrive with a list, too.

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