Annual Certification of Racial Nondiscrimination

I. PURPOSE

Form 5578 is used by “organizations that operate tax-exempt private schools to provide the Internal Revenue Service with . . . annual certification of racial nondiscrimination[.]”

II. HISTORY

“Until 1970, the Internal Revenue Service (IRS) granted tax-exempt status to private schools, without regard to their racial admissions policies[.]” This changed in 1971 when the Internal Revenue Service issued Revenue Ruling 71-447, which prohibited tax exemptions for private schools with discriminatory practices and required private schools seeking tax-exempt status to publish their nondiscriminatory policies. These requirements were updated in 1975 when the IRS issued Revenue Procedure 75-50.

The IRS receives authority to administer and enforce the Internal Revenue Code (IRC) directly from the United States Code, which includes enforcing the regulations that govern tax-exempt organizations. “[U]nderlying all relevant parts of the [IRC ]is the intent that entitlement to tax exemption depends on meeting certain common-law standards of charity—namely, that an institution seeking tax-exempt status must serve a public purpose and not be contrary to established public policy.” This established public policy includes the policy objectives of racial nondiscrimination found in Brown v. Board of Education and the Civil Rights Act of 1964. Thus, courts have held that the IRS is within its statutory authority to deny tax-exempt status to racial discriminatory organizations and create related requirements.

III. APPLICABILITY TO BYU–Hawaii

Organizations that both (1) claim tax exemption under section 501(c)(3) of the IRC and (2) operate, supervise, or control a private school must file an annual certification of racial nondiscrimination by using Form 5578. By filing Form 5578, schools certify they follow the requirements found in sections 4.01 through 4.05 of Revenue Procedure 75-50 for having a racial nondiscrimination policy and publicizing that policy. As a private university with tax exempt status under section 501(c)(3) of the IRC, BYU–Hawaii must annually file a certification of nondiscrimination by using Form 5578 and follow the requirements found in sections 4.01 through 4.05 of Revenue Procedure 75-50 if the university wishes to maintain its tax-exempt status.

IV. REQUIREMENTS

A. Statement of Policy

A school must include a statement in its charter, bylaws, a resolution of its governing body, or other governing instrument that the school has a nondiscrimination policy for students and does not discriminate against applicants and students on the basis of race, color, and national or ethnic origin.

B. Publicizing the Policy – Students

A school’s statement of its racially nondiscriminatory policy must be included (1) “in all its brochures and catalogues dealing with student admissions, programs, and scholarships” and (2) in “other written advertising that it uses as a means of informing prospective students of its programs.”

C. Publicizing the Policy – General Community

1. Requirements

Subject to certain exemptions outlined below, a school must also “make its racially nondiscrimination policy known to all segments of the general community served by the school” during the time a school is soliciting students or during the school’s registration period.14 This requirement may be satisfied by either (1) annually publishing a notice in a newspaper of “general circulation that serves all racial segments of the community” or (2) using broadcast media “stations likely to be listened to by substantial numbers of members of all racial segments of the general community.” If using broadcast media, documentation must be provided showing the effort “was reasonably expected to be effective.”

2. Exemptions

a. Religious or Parochial Schools

If a church-related school has for the last three years consisted of students “at least 75 percent of whom are members of the sponsoring religious denomination[,]” the school may publicize its “racially nondiscriminatory policy in whatever newspaper or circulars the religious denomination or unit utilizes in the communities from which the students are drawn.” However, if the religious school advertises in general newspapers, it may have to comply with the normal publicity requirements, unless the school falls under one of the other two exemptions.

b. Schools with Students Nationwide or Worldwide

If a school “draws a substantial percentage of its students” nationwide, worldwide, or from a large geographic area and follows a racially nondiscriminatory policy for students, then meeting the policy publicity requirements set forth in IV.B. above will be considered sufficient. A school falling under this exemption may demonstrate that it follows a nondiscriminatory policy that meets this requirements if the school (1) enrolls students of ethnic minorities in meaningful numbers or (2) if that is not the case, its “promotional activities and recruiting efforts in each geographic area [are] reasonably designed to inform students of all racial segments[.]”

c. Schools within Local Communities

If a school “customarily” draws its students from local communities and follows a racially nondiscriminatory policy for students, then meeting the policy publicity requirements set forth in IV.B. above will be considered sufficient. A school falling under this exemption may demonstrate that it follows a nondiscriminatory policy that meets these requirements if the school enrolls students of ethnic minorities in meaningful numbers.

D. Specific Wording for Publicizing the Policy

For brochures, catalogues, and newspaper postings, the following statement of policy is acceptable: [Name of the school] admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs.

For other written advertising aimed towards prospective students, the following statement of policy is acceptable: “[Name of the school] admits students of any race, color, and national or ethnic origin.”

E. Facilities, Programs, and Scholarship and Loan Programs

A school must be able to show its programs and facilities are operated in a racially nondiscriminatory manner. Scholarships and other benefits must be offered on a nondiscriminatory basis, and their availability on this basis should be referred to in the required publicity. Scholarships and loans favoring a racial minority in order to promote a nondiscriminatory policy “will not adversely affect the school’s exempt status.”

V. PENALTIES

Failure to follow the guidelines in Revenue Procedure 75-50 “will ordinarily result in the proposed revocation of the exempt status of a school[.]”

In addition, Form 5578 is signed under penalties of perjury. Penalties of perjury that are felonies may include fines up to $100,000 ($500,000 for a corporation), imprisonment up to three years, or both.

VI. COMPLIANCE CALENDAR

Form 5578 must be filed annually by the fifteenth day of the fifth month after the end of an organization’s calendar year or fiscal period.