Highlights from the 2026 ABA Fall Tax Meeting – Exempt Organizations – Part One

Published on: by Gene Takagi Category:EVENTS, IRS & FEDERAL TAX ISSUES
"TAX" "LAW" "CHANGES" on wooden blocks

Here are some of the highlights from the first two American Bar Association Exempt Organizations Committee sessions held on October 6 as part of the ABA Virtual Fall Tax Meeting. As with all of our posts capturing highlights of events, my interpretations, opinions, and additions of supplemental resources may be sprinkled in with the information provided by the presenters.

Insights from the Government: Sharing the Latest Developments on Tax-Exempt Organizations

Racial Discrimination & Public Policy: Impact of the New IRS Regulations

  • Proposed regulation – “Nondiscrimination requirement. A private school is not operated exclusively for exempt purposes if it adopts, maintains, or enforces any policy or practice that discriminates on the basis of race, color, or national or ethnic origin in the administration of any educational policy, admissions policy, scholarship or loan program, athletic program, or other school-administered or school-supported program. For purposes of this section, discrimination on the basis of race, color, or national or ethnic origin includes any discrimination on the basis of race, color, or national or ethnic origin for any purpose.”
    • Parts of preamble (including carve out of religious schools) not in regulations and therefore would not become law
    • Rev. Rul. 71-447 is retained but its remedial rationale is silently eliminated
    • Rev. Proc. 75- 50’s safe harbor for minority preferences — reaffirmed as recently as 2019 — is deleted
    • The regulation excludes public schools (asymmetry with private schools made subject to a more strict standard)
    • The regulation covers private schools but is silent on foundations and donors who fund scholarships directly to students, not through a school
    • The regulation requires neither a quantity of discrimination to lose exemption (no materiality standard) nor an intent to discriminate
    • The regulation applies to all §170(b)(1)(A)(ii) educational organizations — maybe 18,000 K-12 private schools, not just universities
    • The economic analysis associated with the regulation covered only scholarships and admissions — not the catchall extending to curriculum, faculty hiring, and student organizations or the chilling effect on charitable giving
    • Vagueness and Constitutionality problems (Big Mama Rag, “Vague laws are not tolerated for a number of reasons, and the Supreme Court has fashioned the constitutional standards of specificity with these policies in mind. First, the vagueness doctrine incorporates the idea of notice-informing those subject to the law of its meaning. … A law must therefore be struck down if ” ‘men of common intelligence must necessarily guess at its meaning.’ ” … Second, the doctrine is concerned with providing officials with explicit guidelines in order to avoid arbitrary and discriminatory enforcement. … These standards are especially stringent, and an even greater degree of specificity is required, where, as here, the exercise of First Amendment rights may be chilled by a law of uncertain meaning.”)
    • The regulations are under what is charitable rather than under schools or what is educational
    • The regulations may be a test run to see how broadly the regulations can apply the fundamental public policy doctrine across other areas
    • Under Loper Bright, the regulations, if promulgated, are going to be challenged, but courts may differ on interpretations of statutory law and whether Treasury’s promulgation of the regulations are within the statutory boundaries set by Congress (since there is no more Chevron deference), possibly noting that –
      • There is no statutory fundamental public policy test regarding 501(c)(3) qualifications in the statute
      • Bob Jones targeted exclusionary racial discrimination and not remedial racial discrimination with inclusionary goals
      • The catch-all provision in the regulations shifts the burden to private schools to prove that they have no race-conscious programs or policies across all of their supported activities
  • Bob Jones Supreme Court 8-1 opinion key quote: “We are bound to approach these questions with full awareness that determinations of public benefit and public policy are sensitive matters with serious implications for the institutions affected; a declaration that a given institution is not “charitable” should be made only where there can be no doubt that the activity involved is contrary to a fundamental public policy. … On the record before us, there can be no doubt as to the national policy. In 1970, when the IRS first issued the ruling challenged here, the position of all three branches of the Federal Government was unmistakably clear.”
    • Key quotation from concurring opinion: “I am unwilling to join any suggestion that the IRS is invested with authority to decide which public policies are sufficiently “fundamental” to require denial of tax exemptions.”
    • Key quotation from dissenting opinion: “With undeniable clarity, Congress has explicitly defined the requirements for §501(c)(3) status…. Nowhere is there to be found some additional, undefined public policy requirement.”
    • Subsequent IRS Use of Public Policy Doctrine – “Hardly any. It is sometimes mentioned as an ancillary justification for denial of exempt status in cases and administrative determinations, but never as the sole source of authority for an adverse outcome.”
  • Students for Fair Admissions Supreme Court case held race-conscious admission programs of Harvard and UNC violated the Due Process Clause
    • “Nonetheless, the decision permitted universities to assess an applicant’s discussion of “how race affected his or her life, be it through discrimination, inspiration, or otherwise” on an individualized basis”
    • Federal Administration asserts: A race-conscious admissions policy violates the Equal Protection Clause.- “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 under section 501(c)(3).”
    • 10 states saying they will not allow cy pres to reform donor intent to conform with the federal administration’s view