Reagan Proposal on Tax Exemptions Meets Opposittion, Doubts in

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Washington--Support for President Reagan's proposed bill to deny tax-exempt status to racially discriminatory private schools dwindled last week, as the Administration's position was attacked strongly from all sides.

There were signs that the bill--which would give explicit statutory backing to what the Administration maintains was simply an arbitrary Internal Revenue Service (irs) policy without legal standing--was in trouble in the Senate.

Doubts Expressed

Senator Robert J. Dole, Republican of Kansas and chairman of the Committee on Finance, introduced the bill in the Senate for the President, but expressed some doubts about the necessity for it during hearings held last week before his committee.

"Is this legislation absolutely necessary to validate the irs policy?" he asked. "Is it worth it if it's going to make moot the current Supreme Court cases and we have to wait six months before the issue comes up again?"

And Senator Gary Hart, Democrat of Colorado who had planned to introduce a bill that would apply the same criteria for tax-exempt status contained in the irs's old policy, has changed his mind because, according to a spokesman, "we are concerned if the bill passes, it will cloud the issue."

Instead, the Senator and 27 co-sponsors have proposed a concur-rent resolution, now before the Senate Finance Committee, that asserts that existing federal statutes and judicial precedents provide clear authority for the irs's policy.

"If you start passing specific legislation to give the government the power to enforce the Civil Rights Act," Senator Hart's spokesman said, "it could create a situation where a court or somebody might say that specific legislation is needed to back up every aspect of the act."

Resolutions similar to Senator Hart's have been introduced in the House. And opposing the President's legislation from another point of view is Senator Jesse A. Helms, Republican of North Carolina, who has introduced a bill that would require the irs to prove discriminatory intent in court before it could deny tax exemptions.

At a hearing of the Senate Finance Committee, Administration officials, who defended their interpretation of existing laws by arguing that there is neither a constitutional nor a statutory basis for the practice followed by the irs since 1970, received a thorough going-over from Republican and Democratic senators.

In press conferences before the hearing, representatives of conservative Christian groups called Mr. Reagan a "hypocrite" for proposing the legislation.

Meanwhile, civil-rights leaders argued, both in separate press conferences and in a hearing before the House Ways and Means Committee that the Administration's position was the result of faulty legal analysis and that the irs's former policy is sufficiently supported by existing law.

And support from within the Administration was weakened as more than 200 employees of the Justice Department's civil-rights division, including some 100 of the division's 170 lawyers, signed a letter charging that the policy shift "violates existing federal civil-rights law" and criticizing the role played by William Bradford Reynolds, assistant attorney general for civil rights, in arranging the change.

Main Proponent

Mr. Reynolds, according to internal memoranda and testimony in Congressional hearings, was one of the chief proponents of the Reagan Administration's decision to drop the policy of denying tax privileges to schools that discriminate.

"Of particular concern to us are news reports that the leadership of the Civil Rights Division was responsible for the legal research underlying the change in irs policy," the employees' letter states.

"These reports cast serious doubts upon the division's commitment to enforce vigorously the nation's civil rights laws."

The letter also asks for an explanation of the division's role in the matter.

John V. Wilson, a spokesman for the Justice Department, said that Mr. Reynolds had not formally responded to the letter at midweek, but that he intended to circulate copies of legal analyses he helped to develop on the issue.

Edward C. Schmults, deputy attorney general, and representatives from the Treasury Department told the Senate Finance Committee that the Administration's decision to grant the exemptions was a sign of commitment to the principle that Congress, and not the executive branch, must make the laws governing tax exemptions.

'Equally Vulnerable'

If the "legally unjustified" refusal of exemptions had continued, Mr. Schmults said, "Tomorrow, the tax exemption could well be eliminated by the [Internal Revenue] Service--again without any Congressional action--for private schools that enroll only males or females. Presumably, hospitals that do or do not permit abortions could be equally vulnerable to the taxing decision of the irs on the basis of its perceptions of national policy at any given time."

Some senators on the panel questioned Mr. Schmults's reasoning.

Daniel Patrick Moynihan, Democrat of New York and a domestic-policy adviser to President Nixon at the time the policy was established in the summer of 1970, said, ''The fate of this legislation is uncertain."

He argued that the bill was not necessary and that the irs policy was legally justified under the Supreme Court's 1970 ruling ordering more vigorous federal enforcement of Brown v. Board of Education, the 1954 case in which the Court declared segregated schools unconstitutional.

When the government finally did begin to enforce Brown, Senator Moynihan said, segregationist academies began to appear, and "there arose the possibility that another dual system would spring up in the form of segregated academies."

Denial of tax-exempt status was one way to fight them, he said.

Senator Spark M. Matsunaga, Democrat of Hawaii, said it "bothers me that the Administration is placing so much emphasis on 'statutory' and not 'legal."'

He argued that the irs policy has a clear legal basis in the 1971 district-court decision in a case now known as Green v. Regan, which held that tax exemptions must be denied to segregationist private schools in Mississippi.

Civil-rights groups, senators, and others have argued that the Civil Rights Act of 1964, in barring federal financial assistance to organizations that discriminate, implicitly forbids tax exemptions for schools that do so. Those who support the Administration's position say tax exemptions are not a form of federal assistance.

The current controversy began on Jan. 8 when the Treasury and Justice departments announced that the irs would no longer withhold tax-exempt status from private schools that have racially discriminatory policies.

After that decision, the Justice Department dropped its case against Bob Jones University and the Goldsboro (N.C.) Christian schools--cases that have been consolidated and are scheduled to be considered by the U.S. Supreme Court. The Court has not yet acted on the Justice Department's request that the case be declared moot.

When the Court decided last fall to hear the case, Mr. Schmults said, the Justice Department's tax division prepared a draft brief on the case and submitted it for review to the civil-rights division.

As a result, early last December Mr. Reynolds, the head of the civil-rights division, "voiced concern" to Mr. Schmults over "the claimed legal basis for irs authority to deny tax exemptions to schools under Section 501(c)(3) of the Internal Revenue Code of 1954."

(This section of the code, which allows tax exemptions for nonprofit educational and charitable organizations, was used as the rationale for denying tax exemptions to discriminatory private schools by the U.S. Court of Appeals for the Fourth Circuit in both the Bob Jones and Goldsboro cases. While the code does not specifically mention discrimination, the appellate court construed the term "charitable" to exclude any organization that discriminates on the basis of race.)

It was the feeling of Mr. Schmults and Mr. Reynolds, Mr. Schmults recounted to the committee, that there was no statutory or judicial prece-dent for the irs policy.

Following a month of memo-writing, meetings, and discussions involving Justice, Treasury, and White House officials, and the receipt of a letter from Representative Trent Lott, Republican of Mississippi, who urged the Administration to argue that the schools deserved tax exemption regardless of their racial policies, the Administration announced the change in policy.

Vol. 01, Issue 20

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