One of the biggest church-and-state battles in years is shaping up in the nation’s capital. At issue is a proposed multi-part “procedure” drawn up by the Internal Revenue Service (IRS) to test whether tax-exempt private schools, especially elementary and secondary ones, are operating in a racially nondiscriminatory way. Schools failing the test would lose their tax exemptions, and donors could not claim tax deductions for gifts to the schools.

At present, the IRS simply requires tax-exempt schools to adopt a written policy of nondiscrimination, to publish it annually, and to keep minimal records. Critics both inside and outside of government, however, have argued that for some schools the policy exists only on paper, and that the IRS therefore needs tougher guidelines.

Under the proposed procedure, the IRS would assume that a “badge of doubt” rests upon any school founded or “substantially” expanded in the year preceding action on a public school desegregation plan “in the community” or up to three years following its final implementation. A school in this category would be classified as “reviewable.” It would then be required to show “significant minority enrollment” (at least “20 per cent of the percentage of the minority school-age population in the community served by the school”) or pass four of five other tests: (1) “significant” financial aid for minority students; (2) “vigorous” minority recruitment programs; (3) an “increasing” percentage of minority student enrollment; (4) employment of minority teachers and professional staff; (5) other “substantial” evidence of good faith involving ...

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