Green v. Connally

Decision Date30 June 1971
Docket NumberCiv. A. No. 1355-69.
Citation330 F. Supp. 1150
PartiesWilliam H. GREEN et al., Plaintiffs, v. John B. CONNALLY et al., Defendants, v. Dan COIT et al., Intervenors.
CourtU.S. District Court — District of Columbia





Frank R. Parker, Jackson, Miss., and James Robertson, Washington, D. C., for plaintiffs.

Johnnie M. Walters, Asst. Atty. Gen., Tax Div., Richard M. Roberts, Deputy Asst. Atty. Gen., Tax Div., Stanley F. Krysa, Trial Atty., Tax Div. and Jack B. Teplitz, Dept. of Justice, for defendants.

George S. Leonard, of Leonard, Clammer & Flues, Washington, D. C., for intervenors.

Before LEVENTHAL, Circuit Judge, and WADDY and PRATT, District Judges.


LEVENTHAL, Circuit Judge:

Plaintiffs, Negro Federal taxpayers and their minor children attending public schools in Mississippi, brought this class action on May 21, 1969, seeking to enjoin the Secretary of the Treasury and Commissioner of Internal Revenue from according tax exempt status to private schools in Mississippi which exclude Negro students on the basis of race or color. They sought a declaration (1) that granting tax exempt status to such schools is violative of the provisions of the Internal Revenue Code of 1954 governing charities and charitable contributions; or (2) that if granting such status is authorized by the Code, then to that extent Sections 170 and 501 of the Code are unconstitutional.


In our Opinion issued January 12, 1970, in support of our Order for Preliminary Injunction, we concluded that these tax benefits and deductions "mean a substantial and significant support by the Government to the segregated private school pattern," and that accordingly plaintiffs had "a reasonable probability of success" on the merits of their constitutional claims.1

On January 21, 1970, we granted the Motion to Intervene filed by Intervenors, Dan Coit, et al., as representatives of the class of parents and children who support or attend private, nonprofit, hitherto tax exempt schools in Mississippi having an enrollment consisting only of members of the white race and established as an alternative for white students seeking to avoid desegregated public schools.2

On the same day we granted Plaintiffs' motion to compel discovery, and Defendants have responded to requests for admissions and Plaintiffs have taken depositions. On June 26, 1970, we entered a supplemental order requiring defendants to suspend advance assurances of deductibility of contributions, previously given to segregated private schools in Mississippi, unless and until the Internal Revenue Service (IRS) determined that these schools were not part of a system of private schools operated on a racially segregated basis as an alternative to white students seeking to avoid desegregated public schools. Intervenors' motion to set this order aside was considered afresh, after oral argument on August 27, 1970, and denied on September 14, 1970. Intervenors appealed to the Supreme Court from the orders of this court of January 13, June 26 and September 14, 1970. The appeal was dismissed for want of jurisdiction on January 11, 1971. Coit v. Green, 400 U.S. 986, 91 S.Ct. 460, 27 L.Ed.2d 435 (1971).

In the midst of this litigation, the Internal Revenue Service changed its course with respect to segregated private schools. On July 10 and 19, 1970, the Service issued two Releases, discussed hereafter, announcing that "it can no longer legally justify allowing tax-exempt status to private schools which practice racial discrimination nor can it treat gifts to such schools as charitable deductions for income tax purposes." In testimony before the Senate Select Committee on Equal Educational Opportunity,3 the Commissioner of Internal Revenue explained, "An organization seeking exemption as being organized and operated exclusively for educational purposes, within the meaning of section 501(c) (3) and section 170, must meet the tests of being `charitable' in the common-law sense." As the IRS now construes the Code private schools which practice racial discrimination do not meet such requirements.


Upon reflection, we have concluded that the plaintiffs were entitled at the filing of the complaint and are now entitled to a declaration that the Code requires the denial and elimination of Federal tax exemptions for racially discriminatory private schools and of Federal income tax deductions for contributions to such schools.4

A. Code Provisions

The relevant provisions of the Internal Revenue Code are as follows:

Internal Revenue Code § 170, 26 U.S.C. § 170.
(c) Charitable contribution defined. — For purposes of this section, the term "charitable contribution" means a contribution or gift to or for the use of —
* * * * * *
(2) A corporation, trust, or community chest, fund, or foundation —
(A) created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States;
(B) organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes or for the prevention of cruelty to children or animals;
(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and
(D) no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation.
A contribution or gift by a corporation to a trust, chest, fund, or foundation shall be deductible by reason of this paragraph only if it is to be used within the United States or any of its possessions exclusively for purposes specified in subparagraph (B).
Internal Revenue Code § 501, 26 U.S. C. § 501:
(c) List of exempt organizations. — * * *
* * * * * *
(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office.

The key words are not defined with particularity in the Code or Treasury Regulations. But clearly, the term "charitable" is used "in its generally accepted legal sense," Treas.Reg. § 1.501 (c) (3)-1(d) (2), and not in a street or popular sense (such as, e. g., benevolence to the poor and suffering). See H. Reiling, "What is a Charitable Organization?" 44 A.B.A.J. 525, 527 (1958). Thus "strong analogy" can be derived from the general common law of charitable trusts, at least for close interpretative questions. Girard Trust Co. v. Commissioner of Internal Revenue, 122 F.2d 108, 110 (3d Cir. 1941); Pennsylvania Co. for Insurance of Lives and Granting Annuities v. Helvering, 62 App.D.C. 254, 66 F.2d 284 (1933).

B. Denial of Exemptions and Deductions May Be Required by Underlying Law of Charitable Trusts

There is at least a grave doubt whether an educational organization that practices racial discrimination can qualify as a charitable trust under general trust law. We need not decide that question, but brief discussion provides helpful perspective.

1. General Law of Charitable Trusts.

Apart from tax advantages, the law bestows on charitable trusts many privileges not accorded their non-charitable cousins. As Bogert's text notes, these include: permission for the trust to be perpetual in duration; to inure to the benefit of beneficiaries who are not definitely ascertainable at creation of the trust or within the period of the rule against perpetuities; and to escape some of the rules regarding accumulations, as well as those against remoteness in vesting and suspension of the power of alienation. Special rules of construction are applied in an effort to support a charitable trust. And under the cy pres doctrine the courts modify charitable trusts to meet changing conditions in a way not permitted with regard to private trusts. "All these exceptions and exemptions imply more or less disadvantage to the community. The law must find in the trust which is to receive the name `charitable' some advantages to the public which more than offset the detriments which arise out of the special privileges accorded to that trust.5"

It is because society is "the real beneficiary of every charitable trust" that it is enforceable even though there are no ascertainable beneficiaries to bring an issue or controversy to the chancellor. It is the "public benefits arising from the charitable trust" that result in its enforcement by a public official, traditionally the Attorney General whose duties include protection of the people of the state in general.6 And if the purpose of a trust does not merit classification as beneficial to the community and hence a charitable trust, then however honorable its purpose — say, a trust for the erection of monuments, the care of graves, the support of animals, and in various states for the saying of masses, — there is only an "honorary trust" which the transferee may decline to fulfill and remit to the settlor or estate. There is no community benefit which permits the time and effort of a public official to be devoted to its enforcement.7

Underlying the law of charitable trusts is the conception, both in definition and requirement, that a "charitable" trust is...

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