*©2002 David A. Brennen.
**Associate Professor of Law, Mercer University School of Law. B.B.A.

Florida Atlantic University; J.D., LL.M., University of Florida College of Law. I would
like to thank my colleagues at Mercer and elsewhere who provided guidance to me on
this paper, including Alice Abreu, Alice Baker, Anthony Baldwin, Robert Chapman,
Beverly Moran, David Oedel and Virginia Williams. I would also like to thank Shelly
All, Denise Gibson, Wesley Person and Amber Pride for valuable research assistance.
Thank you also to Randall W. Roth for his insights on the Kamehameha schools.  As
always, thanks to my wife for her lasting support. Earlier versions of this article were
presented and discussed at the Critical Tax Theory Conference held at St. Louis
University School of Law on April 21, 2001, and at the Law, Culture and Humanities
conference held at The University of Pennsylvania School of Law on March 8, 2002.
Research for this article was funded in part by a summer research grant awarded by
Mercer University School of Law.

FLORIDA TAX REVIEW
VOLUME 5 2002 NUMBER 9

Charities and the Constitution: Evaluating the Role of
Constitutional Principles in Determining the Scope of Tax Law�s

Public Policy Limitation for Charities*

David A. Brennen**

PROLOGUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 781
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 785
II. TAX LAW�S PUBLIC POLICY LIMITATION . . . . . . . . . . . . . . . . 788

A. The Origins of the Public Policy Limitation . . . . . . . . . 789
B. The Consequences of Violating the Public Policy

Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793
C. Service Statements That the Constitution Dictates When a

Public Policy Is Sufficiently �Established� . . . . . . . . . 796
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 796
2. The Bishop Estate Schools . . . . . . . . . . . . . . . . 797
3. The Service�s Public Policy Findings with Respect

to the Bishop Estate Schools . . . . . . . . . . . . . . . 799
III. INTERPRETATIONAL CONCERNS WITH USING CONSTITUTIONAL

LAW PRINCIPLES TO DEFINE THE SCOPE OF THE PUBLIC POLICY
LIMITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803
B. Equality: a Sword Against Charitable Status . . . . . . . . 805

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 805



780 Florida Tax Review [Vol5:9

2. Equality principles concerning discrimination and
minority preferences . . . . . . . . . . . . . . . . . . . . . 806

3. Use of equality principles as a sword to invalidate
affirmative action remedial efforts . . . . . . . . . . 808

4. Problems with using constitutional equality
principles as a sword against tax-exempt charities
that engage in affirmative action . . . . . . . . . . . 809
a. Differences between Fourteenth Amendment

equality and Fifteenth Amendment
equality . . . . . . . . . . . . . . . . . . . . . . . . 810

b. Fourteenth Amendment equality . . . . . 812
1) Fluctuating standard of review 813
2) Circuit spilt: race as a factor . 820
3) Service lacks expertise on racial

matters . . . . . . . . . . . . . . . . . . 822
4) Conclusions . . . . . . . . . . . . . . 823

c. Fifteenth Amendment equality . . . . . . . 824
C. Freedom of Expressive Association: a Shield to Protect

Charitable Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . 830
2. Freedom of expressive association . . . . . . . . . . 831
3. Use of freedom of expressive association as a

shield against violation of state anti-discrimination
law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832

4. Problems with using freedom of expressive
association as a shield to protect tax-exempt
charities that discriminate . . . . . . . . . . . . . . . . 839

IV. THEORETICAL CONCERNS WITH USING CONSTITUTIONAL LAW
PRINCIPLES TO DEFINE THE SCOPE OF THE PUBLIC POLICY
LIMITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 843
A. The Public Benefit Subsidy Theory . . . . . . . . . . . . . . . . 843
B. The Inconsistency of Reliance on Constitutional Principles

with the Public Benefit Subsidy Theory . . . . . . . . . . . . . 845
V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 846



2002] Charities and the Constitution 781

1. See, e.g., Johnson v. Bd. of Regents of Univ. of Ga., 263 F.3d 1234 (11th
Cir. 2001) (state of Georgia could not use race as a factor in University admission
decision); Hopwood v. Tex., 78 F.3d 932 (5th Cir. 1996), cert. denied, 518 U.S. 1033
(1996) (state of Texas cannot consider race as a factor when making law school
admissions decisions); Podberesky v. Kirwan, 38 F.3d 147, 161-62 (4th Cir. 1994), cert.
denied, 514 U.S. 1128 (1995) (race-exclusive scholarship program offered by state
university violates the Equal Protection Clause). But see Grutter v. Bollinger, 2002 U.S.
App. LEXIS 9126 (6th Cir. 2002) (holding that the University of Michigan School of
Law�s use of race as a factor in its admission decision does not violate the Equal
Protection Clause); Smith v Univ. of Wash. Law School, 233 F.3d 1188 (9th Cir. 2000),
cert denied, 532 U.S. 1051 (2001) (affirming district court conclusion that �race could
be used as a factor in educational admissions decisions, even where that was not done
for remedial purposes�).

Another example of this race-neutral application of the Equal Protection Clause
is a recent decision by a federal circuit court to expand application of strict scrutiny to
government recruiting, not just hiring, of minorities. See Broadcasters Ass�n v. Fed.
Communication Comm�n, 236 F.3d 13 (D.C. Cir. 2001). In Broadcasters Ass�n, the
District of Columbia Circuit court invalidated an FCC rule that required outreach efforts
in hiring by FCC licensees. This is in stark contrast to the prevailing view announced
by the Supreme Court in Regents of the Univ. of Cal. v. Bakke, 438 U.S. 265 (1978),
that race could be considered in such outreach efforts. When the Supreme Court
invalidated the UC Davis medical school�s affirmative action plan in 1978, it objected
to the medical school�s use of race as a factor when making its admissions decisions. See
discussion infra notes 123-27 and accompanying text. The Court indicated that the
medical school could achieve its goal of a diversified student body in a constitutionally
permissible manner such as increasing efforts to attract minority applicants, so long as
the actual admissions decision was not based on race. See Bakke, 438 U.S. at 316
(discussing the acceptability of Harvard College�s efforts to recruit �not only
Californians or Louisianans but also blacks and Chicanos and other minority students�).
In fact, the Supreme Court has never invalidated government outreach efforts to attract
minorities so long as the actual decision to grant the government benefit at issue (e.g.,
to admit a student or try to hire an employee.) was not based on race. However, in
Broadcasters Ass�n, the District of Columbia federal circuit signaled its intention to
reverse this state of affairs when it invalidated an FCC rule that required outreach efforts

PROLOGUE

The judicial assault on constitutionally permissible social justice efforts
including affirmative action for minorities and ending discrimination against
homosexuals continues. Through the rubric of �neutrality,� �equality� and �free
expression,� courts today are using constitutional law principles to arrest efforts
by state and federal governments either to (1) remedy present effects of
historical discrimination or (2) end current discrimination. Accordingly, various
federal circuit courts have interpreted Equal Protection Clause strict scrutiny
as prohibiting government from considering race as a factor when making
university admissions decisions or granting scholarships.1 Thus, it is not



782 Florida Tax Review [Vol5:9

in hiring by FCC licensees. The rule violated the Equal Protection Clause by putting
pressure on FCC licensees to �focus recruiting efforts upon women and minorities in
order to induce more applications from those groups.� See Broadcasters Ass�n, 236 F.3d
at 19. This was held not narrowly tailored and violative of the Equal Protection Clause.
Id.

2. In fact, the Eleventh Circuit in Johnson recently refused to decide whether
racial diversity is a �compelling� state interest.  Johnson, 263 F.3d at 1244. �We need
not, and do not, resolve in this opinion whether student body diversity ever may be a
compelling interest supporting a university�s consideration of race in its admissions
process,� in part, because that court expects the United States Supreme Court to address
this issue. Id. at 1245 �[A] majority of the Supreme Court may eventually adopt Justice
Powell�s opinion as binding precedent, and even now the opinion has persuasive value
. . . .� Id. However, the court in Johnson did conclude that considering race in college
admissions is not constitutionally �necessary.� Id. at 1244-45. �Even assuming that
UGA�s asserted interest in student body diversity is a compelling interest, UGA�s 1999
freshman admissions policy is unconstitutional because UGA has plainly failed to show
that its policy is narrowly tailored to serve that interest.� Id.

3. See, e.g., Boy Scouts of America v. Dale, 530 U.S. 640 (2000).
4. Private actors are not directly subject to the restrictions imposed by

constitutional law provisions like the Equal Protection Clause of the Fourteenth
Amendment. See United States v. Morrison, 529 U.S. 598, 620-27 (2000) (invalidating
the Violence Against Women Act�s civil remedies holding that Congress could not
regulate private behavior pursuant to its Fourteenth Amendment Section 5 enforcement
powers); The Civil Rights Cases, 109 U.S. 3 (1883) (invalidating Civil Rights Act of

inconceivable that the Supreme Court might soon rule that a state school�s
consideration of race, in order to obtain a more diverse student body, violates
Equal Protection Clause strict scrutiny � either because racial diversity is not
�compelling� or because considering race is not �necessary.�2 Additionally, the
Supreme Court invalidated, under the guise of free expression, state law
attempts to lessen discrimination against homosexuals.3

Though appealing on its face, this race-neutral and free expression
trend in constitutional decision-making actually hinders efforts by government
to achieve social justice through elimination of both current discrimination and
lingering effects of past discrimination. For example, race-neutrality under the
Equal Protection Clause�s strict scrutiny test does not generally permit
government to make proper distinctions between different types of racial
preferences like invidious discrimination against racial minorities and benign
affirmative action for such minorities. Tax-exempt charities, because they
generally are not government actors, are not ordinarily subject to the
requirements of constitutional law principles like Equal Protection Clause strict
scrutiny. Thus, even if the Supreme Court ultimately rules that the Constitution
prohibits state schools from considering race in their admissions decisions,
private schools that have 501(c)(3) tax-exemption would not necessarily be
prohibited from considering race in their admissions decisions.4 However, these



2002] Charities and the Constitution 783

1875 that provided for the full enjoyment of public accommodation because the
Fourteenth Amendment only applied to state action and did not give Congress the power
to prohibited private behavior). But see Katzenbach v. McClung, 379 U.S. 294 (1964);
Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241 (1964); United States v.
Lopez, 514 U.S. 549 (1995) (private discrimination that has a substantial effect on the
economy can be regulated by Congress through the Commerce Clause under art. 1,
section 8, clause 2). However, private actors may be subject to any number of civil
rights statutes that impose restrictions that are similar in many respects to those imposed
by the Constitution.

5. See, e.g., The Civil Rights Cases, 109 U.S. 3, 11 (1883) (�It is state action
of a particular character that is prohibited. Individual invasion of individual rights is not
the subject-matter of the [Fourteenth] Amendment.�); Lugar v. Edmondson Oil Co., Inc.,
457 U.S. 922, 937 (1982) (�Our cases have accordingly insisted that the conduct
allegedly causing that deprivation of a [constitutional] federal right be fairly attributable
to the State.�); United States v. Morrison, 529 U.S. 598, 621 (2000) (�[T]he Fourteenth
Amendment, by its very terms, prohibits only state action.�).

6. See, e.g., Evelyn Brody, Of Sovereignty and Subsidy: Conceptualizing the
Charity Tax Exemption, 23 Iowa J. Corp. L. 585 (1998):

The modern U.S. political economy is traditionally described in terms
of three sectors: the public sector (government), the proprietary sector
(business), and the nonprofit sector (private, but with public
purposes). No one would argue that the nonprofit sector enjoys true
co-sovereignty with the public sector, because the nonprofit sector
lacks the compulsory powers that inhere in a sovereign. Nevertheless,
tax exemption carries with it a sense of leaving the nonprofit sector
inviolate, and the very concept of sovereignty embodies the
independent power to govern. Indeed, a major trade association of
charities takes a most sovereign-sounding name, calling itself �The
Independent Sector.�

Id. at 588 (footnotes omitted).

private schools, like all other charities, are subject to the public policy
limitation which prohibits violations of �established public policy.� This
Article examines the question of how the Service should rely on constitutional
law principles when it applies the public policy limitation to particular tax-
exempt charities such as private schools.

This Article expands the discussion of whether tax-exempt charities,
for constitutional law purposes, should be treated as government actors, as
private actors or as something in between. While government actors are subject
to constitutional law restrictions concerning discrimination and free speech,
private non-government actors are not generally subject to these same
restrictions.5 Although tax-exempt charities are often thought of as sovereigns
and, thus, government-like,6 the fact remains that charities are private entities



784 Florida Tax Review [Vol5:9

7. See Bob Jones Univ. v. United States, 461 U.S. 574, 587-88 (1983). �[I]n
enacting . . . § 501(c)(3), Congress sought to provide tax benefits to charitable
organizations, to encourage the development of private institutions that serve a useful
public purpose or supplement or take the place of public institutions of the same kind.�
Id.

8. But see Linda Sugin, Tax Expenditure Analysis and Constitutional
Decisions, 50 Hastings L.J. 407, 457-59 (1999) (outlining an approach under which the
Equal Protection Clause could be applied against the government for allowing tax
deductions for contributions to charities that discriminate based on race). Professor
Sugin suggests that the Service�s knowing grant of tax-exempt charitable status to
organizations that discriminate based on race, like Bob Jones University, might violate
the Equal Protection Clause. See id. at 452-53 (asserting that application of § 501(c)(3)
�to authorize exemptions for racially discriminatory private schools, such as Bob Jones
University, could potentially violate equal protection� because of the view that �the
government actively approves of a private party�s discrimination by affirmatively
granting a discriminating party an exemption and placing that organization on the
official and public list of approved organizations�).

9. Though private in a constitutional law sense, tax exempt charities have many
public qualities. But see discussion supra note 8. For instance, a charity must, in
accordance with IRC § 501(c)(3), provide a benefit to the public and avoid providing
either private benefits or private inurement to members, insiders and others. IRC §
501(c)(3). Additionally, a charity is required to make public much of its typically private
corporate (or trust) information concerning officers, directors, finances and operations.
See generally IRC § 6104 (providing for public inspection of a variety of information
relative to tax-exempt charities, such as applications for tax exemption including any
papers submitted in support of such application and any letter or other document issued
by the Service with respect to such application and annual information returns).

10. See Bob Jones Univ., 461 U.S. at 586. �Such an examination reveals
unmistakable evidence that, underlying all relevant parts of the Code, 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.� Id.

created to serve public purposes.7 As private entities, charities � like all other
private entities � are not necessarily bound by constitutional law principles.8
Still, the many �public� aspects of charities seem to dictate allegiance to some
higher principle than merely being permitted to do what every other private
entity may do.9 Hence, the Supreme Court ruled that charities may not violate
a principle called �established public policy.�10 But what does this mean?
Surely it does not mean that charities, because of the public policy limitation,
are somehow transformed into government actors limited by constitutional law



2002] Charities and the Constitution 785

11. Indeed, while for-profit non-charitable entities may engage in any lawful
purpose and not-for-profit non-charitable entities may engage in non-charitable
activities, charities are uniquely restricted to engaging mostly charitable functions. See
IRC § 501(c)(3).

12. See Rice v. Cayetano, 528 U.S. 495 (2000).
13. See Boy Scouts of America v. Dale, 530 U.S. 640 (2000).
14. See Bob Jones Univ., 461 U.S. at 595-96. �Racially discriminatory

educational institutions cannot be viewed as conferring a public benefit within the
�charitable� concept discussed earlier, or within the congressional intent underlying §
170 and § 501(c)(3).� Id.

15. See David A. Brennen, The Power of The Treasury: Racial Discrimination,
Public Policy and �Charity� In Contemporary Society, 33 U.C. Davis L. Rev. 389, 403
(2000) (noting that Court in Bob Jones University based its conclusions about the
existence of a national public policy against racial discrimination on �such notable
events as Brown v. Bd. of Education, Congress�s passage of civil rights laws in the

principles. Nor does it mean that charities are completely �free� of societal
responsibility in the same sense that other private entities are �free.�11 Thus,
charities exist in an undefined space somewhere between government and
private in which constitutional law principles do not directly apply, but
something constitutional-like (i.e., the public policy limitation) surely does
apply. The question is: how is it applied?

I. INTRODUCTION

Recently the United States Supreme Court issued two opinions that
concern the constitutionality of racial preferences and sexual orientation
discrimination. In the first opinion, Rice v. Cayetano, the Court held that the
Fifteenth Amendment prevents Hawaii from using racial preferences for native
Hawaiians to determine the right to vote for trustees of a state fund benefitting
native Hawaiians.12 In the second opinion, Boy Scouts of America v. Dale, the
Court held that the First Amendment permits the Boy Scouts to exclude
homosexuals from adult membership in its charitable organization, even though
a state statute prohibits such discrimination.13 Ostensibly, these recent
constitutional law cases have nothing to do with tax law; however, because of
the Court�s holding in Bob Jones University v. United States, these decisions
may have everything to do with tax law as it relates to the public policy
limitation. In Bob Jones University, the Court, relying on the statutory-based
concept of �established public policy,� upheld the Service�s revocation of the
tax-exempt status of a private school that discriminated against black people.14

In concluding that there was an �established public policy� against such
discrimination, the Court analyzed decisions by various federal authorities
which concluded that discrimination against black people in public education
is unconstitutional and against public policy.15 Emboldened by the Court�s



786 Florida Tax Review [Vol5:9

1960s and 1970s, and various executive orders issued between the 1940s and early
1980s�).

16. See National Office Technical Advice Memorandum from the IRS to the
Kamehameha Schools/Bernice Pauahi Bishop Estate (Feb. 4, 1999) (on file with the
Florida Tax Review) [hereinafter �Bishop Estate TAM�]. The Service performed a
similar action in a 1977 private letter ruling issued to a tax-exempt scholarship fund. See
Priv. Ltr. Rul. 7744007 (July 28, 1977) (relying on constitutional distinction between
concepts of �inherently suspect� and �rationality,� Service concludes that, although
public policy requirement applied to foundation generally, requirement does not extend
to gender-based exclusions).

17. See Bishop Estate TAM, supra note.
18. See discussion infra notes 77-86 and accompanying text.
19. See Bishop Estate TAM, supra note.
20. See, e.g., Sugin, supra note, at 473. Professor Sugin writes:

The anti-discrimination approach in equal protection analysis
parallels the . . . approach in traditional tax policy. They are both

analysis in Bob Jones University, the Service recently intimated that it will rely
significantly on constitutional law principles to ascertain �established public
policy� on matters involving racial preferences by tax-exempt charities.16 In an
administrative decision issued in 1999 to a tax-exempt charitable trust that
operates a grade school in Hawaii, the Service approved the trust�s process of
using racial preferences for native Hawaiians when choosing beneficiaries.17

After referring to Bob Jones University and several cases concerning
permissible racial preferences under constitutional law, the Service concludes
in the administrative decision that the trust�s preference for Hawaiians does not
violate any �established public policy.�18 However, the Service also indicates
that its decision about the trust should be re-examined after the Supreme
Court�s ruling in Rice v. Cayetano, a then-pending constitutional law voting
rights case concerning racial preferences for Hawaiians.19 Notably, the entity
making the racial preference in Rice was a governmental entity � the state of
Hawaii�s Office of Hawaiian Affairs � and not a non-governmental tax-exempt
charity.

The apparent implication of the Service�s re-examination statement in
its administrative decision is that the Service makes its public policy
determinations about tax-exempt charities based on constitutional law
principles that concern the permissible bounds of government action. Should
private charities and government actors be subject to the same legal restrictions
in regard to preferences based on matters like race and sexual orientation? That
is, should constitutional law principles that limit government action also
necessarily limit, in the same way, the Service�s ability to determine
�established public policy� with respect to activities of non-governmental tax-
exempt charities?20 This Article contends that constitutional law doctrine



2002] Charities and the Constitution 787

concerned with the government treating like-situated people alike,
without inquiring into the historical, social and institutional questions
that surround what it means to be alike. While formal justice in this
sense may be all that the Constitution requires for equal protection.
. . , tax policy�s aspirations can be more expansive. Tax policy can be
about defining and achieving substantive equality, even if it is beyond
what the Constitution requires, and even though it requires explicitly
linking tax policy to ideas that are outside its traditional borders. 

Id.
21. See Brennen, The Power of The Treasury, supra note , at 431-445 (arguing

that public policy with respect to affirmative action, for example, should be based upon
various legal sources, including non-constitutional sources at both state and federal
levels). See also Francis R. Hill and Barbara L. Kirschten, Federal and State Taxation
of Exempt Organizations, Operational Issues: Public Policy Requirement, ¶2.03[6][c]
(1998) (explaining that Service�s reliance on constitutional law standards when making
public policy decisions is �flaw[ed]�).

cannot, and indeed should not, so limit or dictate the Service�s regulatory
activities with respect to private charities. True, no government agency can be
in the business of holding itself to be above and beyond constitutional strictures
and the Court that interprets that Constitution. However, the public policy
doctrine is a statutory principle applicable to private charities, not a
constitutional one. Accordingly, it is inappropriate for the Service to make its
public policy determinations about tax-exempt charities based almost
exclusively on constitutional law principles that concern limits on government
actors.21

Part II briefly recounts the origins and effects of tax law�s public policy
limitation, which requires that tax-exempt charities not violate �established
public policy.� Part II also examines those statements by the Service indicating
its view that constitutional law decisions should dictate when a public policy
is sufficiently �established� for purposes of the public policy limitation. Part
III begins a discussion of constitutional law by providing an overview of the
Supreme Court cases concerning constitutional equality as a general limitation
on the government�s use of racial preferences. Part III also discusses the extent
to which private groups may use the constitutional right of freedom of
expressive association as a shield to escape government restrictions imposed
by state anti-discrimination laws. Finally, Part III demonstrates how these
various constitutional law doctrines might impact the Service�s ability to
enforce the public policy limitation against tax-exempt charities. Part IV argues
that the Service�s primary reliance on constitutional law principles when
making its public policy determinations is inappropriate for theoretical reasons
as well. Reliance on constitutional law principles is inconsistent with the public
benefit subsidy theory, which holds, in part, that tax-exempt charities are
private actors intended to provide goods and services that government either



788 Florida Tax Review [Vol5:9

22. See Brennen, The Power of The Treasury, supra note ; David A. Brennen,
Tax Expenditures, Social Justice and Civil Rights: Expanding the Scope of Civil Rights
Laws to Apply to Private Charities, 2001 B.Y.U. L. Rev. 167 (2001), for background
discussion of this issue.

23. See, e.g., Calhoun Academy v. Commissioner, 94 T.C. 284, 305 (1990).
After a comprehensive review of the administrative record, we find
that petitioner has not carried its burden to show that it operates in
good faith in accordance with a racially nondiscriminatory policy as
to students. . . . [a]ccordingly, petitioner has not shown that [the
service] was erroneous in denying petitioner tax-exempt status under
§ 501(c)(3). 

Id. See also Va. Educ. Fund v. Commissioner, 85 T.C. 753 (1985) (discussing
acceptable standards of proof for a charity to show that it has not violated
nondiscrimination requirements).

cannot or will not, often for constitutional or political reasons, provide. Thus,
subjecting charities to the same standards as government actors necessarily
means that charities will be less likely to accomplish their intended tasks.

This Article concludes that the Service should await guidance from
Congress on the issue of how constitutional law principles should affect tax law
decisions about the charitable tax-exemption authorized by section 501(c)(3)
of the Internal Revenue Code. Alternatively, the Service could engage in a type
of analysis that considers a variety of sources � constitutional, non-
constitutional, federal and non-federal � in deciding if a particular charity is in
violation of �established public policy.� Thus, this Article examines the
relationship between constitutional law and tax law in an effort to continue the
discussion of how federal tax authorities should respond when a tax-exempt
charity engages in activities that would be unconstitutional if done by a
government actor.22 Additionally, this Article examines the matter of whether
a private charity should be permitted to use the Constitution as a shield in tax
cases, like the Boy Scouts did in a non-tax case, to prevent revocation, on
public policy grounds, of its 501(c)(3) tax exemption.

II. TAX LAW�S PUBLIC POLICY LIMITATION

In 1983, the United States Supreme Court announced in Bob Jones
University v. United States that the Service has authority to make certain tax
law decisions on public policy grounds. For example, if the Service determines
that a charity is discriminating against black people it can terminate that
charity�s tax-exempt status because the charity is violating an �established
public policy� against invidious racial discrimination.23 This Part demonstrates
that the effect on a charity�s continued existence of the Service�s power to
make public policy decisions is real and, often, substantial.



2002] Charities and the Constitution 789

24. 461 U.S. 574 (1983). See generally Brennen, The Power of The Treasury,
supra note, at 400-410 (explaining origins of tax law�s public policy limitation).

25. See Bob Jones Univ., 461 U.S. at 605.
26. See id. at 580-81. �To effectuate these views, Negroes were completely

excluded until 1971. From 1971 to May 1975, the University accepted no applications
from unmarried Negroes, but did accept applications from Negroes married within their
race.� Id.

27. See id. at 591. �A corollary to the public benefit principle is the
requirement, long recognized in the law of trusts, that the purpose of a charitable trust
may not be illegal or violate established public policy.� Id.

28. See id. at 593-95. �Over the past quarter of a century, every pronouncement
of this Court and myriad acts of Congress and Executive Orders attest a firm national
policy to prohibit racial segregation and discrimination in public education.� Id.

29. See Bob Jones Univ., 461 U.S. at 592-93 (citing Plessy v. Ferguson, 163
U.S. 537 (1896)).

30. See, e.g., McCabe v. Atchison, Topeka & Santa Fe Railway Co., 235 U.S.
151, 161-162 (1914). �It is the individual who is entitled to the equal protection of the
laws, and if he is denied by a common carrier, acting in the matter under the authority

A. The Origins of the Public Policy Limitation

The public policy limitation emanated from the Court�s analysis in Bob
Jones University v. United States.24 In Bob Jones University, the Supreme Court
held that the Service properly revoked the tax-exempt charitable status of a
private university that discriminated against black people in its admissions
process.25 Bob Jones University discriminated against black people by denying
them admission to the university and, later, by denying them admission to the
university if they were engaged in an interracial romantic relationship.26 In
sustaining the Service�s revocation of Bob Jones University�s tax-exempt
status, the Supreme Court reasoned that it is inconsistent with charitable trust
law principles for an entity that provides a �public benefit� to also engage in
behavior that violates �established public policy.�27 In explaining the reasoning
for its decision that the public policy denouncing discrimination against black
people was �established,� the Court in Bob Jones University referred to
judicial, legislative and executive statements of anti-discrimination law.28

Though some of these statements were constitutional in nature, some were not.
Regarding judicial statements of the public policy against invidious

racial discrimination, the Court notes that prior to 1954, public education was
racially segregated under authority of the �separate but equal� constitutional
principle of Plessy v. Ferguson.29 The �separate but equal� principle provided
that racially segregated educational facilities are permissible under the
Constitution if the separate facilities are substantially equal to each other.30 The



790 Florida Tax Review [Vol5:9

of a state law, a facility or convenience in the course of his journey which under
substantially the same circumstances is furnished to another traveler, he may properly
complain that his constitutional privilege has been invaded.�

31. See Bob Jones Univ., 461 U.S. at 592-93. �Prior to 1954, public education
in many places still was conducted under the pall of Plessy v. Ferguson, 163 U.S. 537
(1896) � This Court�s decision in Brown v. Bd. of Education, 347 U.S. 483 (1954),
signaled an end to that era.� Id.

32. 347 U.S. 483 (1954).
33. See Bob Jones Univ., 461 U.S. at 593.
34. See, e.g., Cooper v. Aaron, 358 U.S. 1, 19 (1958). �The right of a student

not to be segregated on racial grounds in schools . . . is indeed so fundamental and
pervasive that it is embraced in the concept of due process of law.� Id.

35. Bob Jones Univ., 461 U.S. at 593-94 (quoting Norwood v. Harrison, 413
U.S. 455, 468-69 (1973)).

36. See, e.g., Titles IV and VI of the Civil Rights Act of 1964, 42 U.S.C. §§
2000c, 2000c-6, 2000d (1994) (providing that members of class of persons similarly
situated are entitled to equal protection of laws and may not be denied admission to or
prohibited from continuing attendance at public college by reason of race, color,
religion, sex or national origin; prohibition agains exclusion from participation in, denial
of benefits of, and discrimination under federally assisted programs on ground of race,
color, or national origin); Voting Rights Act of 1965, 42 U.S.C. § 1971 (1994) (stating
that race, color, or previous condition not permitted to affect right to vote); Title VIII
of the Civil Rights Act of 1968, 42 U.S.C. § 3601 (1994) (providing fair housing within
constitutional limitations).

Court in Bob Jones University explains that, beginning in 1954, it began to
eradicate the �separate but equal� doctrine from constitutional law.31 That year,
the Court declared in Brown v. Board of Education32 that the �separate but
equal� doctrine was an unconstitutional violation of the Equal Protection
Clause of the Fourteenth Amendment.33 Later, in 1958, the Court explained in
Cooper v. Aaron that racial segregation laws also violate constitutional due
process principles.34 The Bob Jones University Court did not end its analysis
with references to these constitutional judicial statements of the anti-
discrimination public policy. Indeed, the Court remarks that the non-
discrimination policy was also reflected in laws applicable to private schools,
noting that the �legitimate educational function [of private schools] cannot be
isolated from [racially] discriminatory practices.�35

In its analysis of legislative statements about the public policy against
racial discrimination, the Court in Bob Jones University did not directly rely on
any constitutional law principles. Indeed, the Bob Jones University Court
highlights the Civil Rights Act of 1964�s prohibition of racial discrimination
in education, voting and housing as a premier legislative statement of the
federal government�s anti-discrimination public policy.36 These civil rights
statutes impose limitations on private non-governmental actors that often



2002] Charities and the Constitution 791

37. Regents of the Univ. of Cal. v. Bakke, 438 U.S. 265, 287 (1978). �In view
of the clear legislative intent, Title VI must be held to proscribe only those racial
classifications that would violate the Equal Protection Clause or the Fifth Amendment.�
Id.

38. Rodney A. Smolla, Federal Civil Rights Act, § 1.01[2] (3d ed., 2000).
39. See, e.g., The Education of the Handicapped Act, 20 U.S.C. §§ 1401-20;

The American With Disabilities Act of 1990, 42 U.S.C. §§ 12101-213; The Age
Discrimination in Employment Act, 29 U.S.C. § 621.

40. Smolla, supra note, at § 1.01[2].
41. See, e.g., Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d

(providing remedies for discrimination based on race on showing of discriminatory
impact); Guardians Ass�n v. Civil Serv. Comm�n, 463 U.S. 582, 584 (1983) (indicating
that five Justices of Supreme Court interpret Title VI as not requiring proof of
discriminatory intent, as is case with the Equal Protection Clause); Title VII of the Civil
Rights Act of 1964, 42 U.S.C. § 2000e (providing remedies for employment
discrimination on a showing of disparate impact); Compare Griggs v. Duke Power Co.,
401 U.S. 424, 431 (1971) (concluding that Title VII outlaws employment �practices that
are fair in form, but discriminatory in operation�). With McCleskey v. Kemp, 481 U.S.
279 (1987) (requiring proof of �discriminatory intent� for showing of Equal Protection
violation by governmental actor); Washington v. Davis, 426 U.S. 229, 238-48 (1976)
(the Equal Protection Clause prohibits only intentional discrimination). The requirement
of proof of discriminatory impact only, and not discriminatory intent, for civil rights
statutory purposes is limited to situations in which the requested relief is declaratory or
injunctive in nature, not compensatory. See Smolla, supra note, at § 8.02[3]; Guardians
Ass�n, 463 U.S. at 584, 597-606 (White, J.) (concluding that �unless discriminatory
intent is shown, declaratory and limited injunctive relief should be the only available
private remedies for Title VI violations�).

42. See Brennen, Tax Expenditures, supra note 22, at 181-182. Professor
Brennen writes:

parallel constitutional limitations imposed on government actors.37 However,
civil rights statutory limits on private actors are not necessarily the same as
constitutional limits on government. Civil rights statutes may impose greater
or lesser limits on private actors than the Constitution imposes on government
actors. For example, certain civil rights statutes extend constitutional-like
protections to �forms of discrimination not covered in any meaningful way by
the Constitution,�38 such as discrimination based on age or disability.39 Also,
civil rights statutes may broaden the �substantive principles governing
discrimination,�40 such as by allowing claims to be based upon disparate
impact, rather than proof of discriminatory intent.41

Finally, civil rights statutes permit private actors to be more proactive
than government in advancing social justice objectives via methods like race
based affirmative action.42



792 Florida Tax Review [Vol5:9

[P]rivate employers have long enjoyed greater freedom under Title
VII of the Civil Rights Act of 1964, [sic] than government employers
under the Constitution to engage in aggressive voluntary affirmative
action programs aimed at recruiting, hiring and promoting race and
gender minorities. When properly structured, an employer�s voluntary
affirmative action plan will not be invalidated under Title VII so long
as the plan is consistent with Congress� goal of eliminating
discrimination against traditional minorities. However, if a
government employer were to implement a similar voluntary
affirmative action plan (such as one based on race) and that plan were
evaluated under the Constitution, a court would more likely invalidate
the plan as unconstitutional.

Id. (citations omitted).
43. See Bob Jones Univ. v. United States, 461 U.S. 574, 594 (1983). �Several

years before this Court�s decision in Brown v. Bd. of Education, supra, President
Truman issued Executive Orders prohibiting racial discrimination in federal employment
decisions, Exec. Order No. 9980, 3 CFR 720 (1943-1948 Comp.), and in classifications
for the Selective Service, Exec. Order No. 9988, 3 CFR 726, 729 (1943-1948 Comp.)�
Id.

44. Id. at 594-95 (quoting Exec. Order No. 11,063, 3 C.F.R. 652 (1959-1963))
(prohibiting racial discrimination in housing).

45. See, e.g., The Civil Rights Cases, 109 U.S. 3, 11 (1883). �It is state action
of a particular character that is prohibited. Individual invasion of individual rights is not
the subject-matter of the [Fourteenth] Amendment.� Id.

Regarding executive statements of the government�s anti-
discrimination public policy, the Court in Bob Jones University referenced
executive orders since President Truman that prohibited racial discrimination
in federal employment decisions and in classifications for the Selective
Service.43 The Court also highlighted President Eisenhower�s use in 1957 of
military force to ensure compliance with federal school desegregation
requirements and President Kennedy�s statement in 1962 that providing federal
assistance for racially discriminatory housing facilities �is . . . inconsistent with
. . . public policy.�44 These executive statements of anti-discrimination public
policy reflect enforcement of the constitutional principle that governmental
discrimination based on race is highly suspect, especially in areas such as
education, housing and employment. However, while these statements are
premised on constitutional law principles like those contained in the Equal
Protection Clause, they are not synonymous with these constitutional provisions
which only apply to government actors.45 Indeed, these statements were made
as a result of the political will of various presidents and, even though
constitutionally permitted, were not constitutionally required.

In essence, the Court�s analysis in Bob Jones University demonstrates
that �established public policy� is not synonymous with that which is



2002] Charities and the Constitution 793

46. See discussion infra Part III.
47. Reportedly, Bob Jones University is now trying to change its image as a

�racist� institution. See �Bob Jones University Seeks Black Students In Bid To Improve
Its Image,� Jet (March 4, 2002). �In trying to eradicate its racist image, Bob Jones
University, the fundamentalist Christian college in Greenville, SC, that banned
interracial dating until two years ago, recently began to recruit minorities.� Id.

48. IRC § 501(a).
49. IRC § 170.
50. See IRC §§ 511-514 (discussing income tax imposed on unrelated business

taxable income of organizations otherwise exempt from federal income tax by § 501(a)).
51. IRC § 501(a) provides: �An organization described in subsection (c) or (d)

or section 401(a) shall be exempt from taxation under this subtitle unless such
exemption is denied under section 502 or 503.�

constitutional. Thus, while constitutional law principles may be relevant in
making determinations about when a particular public policy is clearly
established, such principles alone do not dictate public policy. Further analysis
of constitutional law doctrine will show how inappropriate it is for the Service
to rely almost exclusively on constitutional law principles when making
specific public policy determinations.46 But first, the remaining sections of this
Part explain the effect on tax-exempt charities of losing that exemption and the
nature of the Service�s statements that a public policy violation is virtually
synonymous with a constitutional law violation.

B. The Consequences of Violating the Public Policy Limitation

As the Bob Jones University case demonstrates, the necessary
consequence of a finding that a tax-exempt charity violates �established public
policy� is that the charity loses its 501(c)(3) tax-exemption. While the Service�s
revocation of Bob Jones University�s tax-exempt status did not result in the end
of that school,47 the denial or revocation of tax-exempt charitable status may be,
and often is, devastating to the affected organization. Tax-exempt charitable
status often opens the door for many organizations to thrive at doing whatever
it is they are purposed to do. Thus, when this prized status is lost or denied, the
affected organization may be forced to cease its public benefit activities.

Among the many advantages of tax-exempt charitable status that are
lost upon revocation is entitlement to a variety of federal tax benefits. The most
visible of these federal tax benefits are the federal income tax exemption48 and
the right to receive tax-deductible contributions from the public.49 The
advantage of the federal income tax exemption is readily apparent: with certain
exceptions not relevant here,50 tax-exempt charities do not pay federal income
taxes on income earned during the year.51 The advantage gained by being able
to receive tax-deductible contributions is not as direct as the federal income tax
exemption, but may be just as vital, if not more vital. Because contributors are



794 Florida Tax Review [Vol5:9

52. See IRC § 170 (authorizing an income tax deduction for charitable
contributions). Even though Congress authorizes a charitable deduction in § 170, not all
such deductions are in fact deductible. In order to actually receive the full benefit of the
charitable contribution deduction, one must itemize deductions and not be adversely
impacted by the § 68 overall limitation on itemized deductions. See IRC §§ 63 (defining
itemized deductions); 68 (imposing overall limitation on itemized deductions).

53. Actually, the cost to the contributor of a one dollar contribution to a
tax-exempt charity is one dollar minus the amount of the the tax deduction available to
that contributor. Thus, if the contributor has a marginal tax rate of 30%, the cost of a one
dollar contribution to a tax-exempt charity is $0.70, computed as follows: $1.00
contribution - ($1.00 x  0.30) = $1.00- $0.30 = $0.70.

54. There are a number of other federal tax benefits associated with tax-exempt
charitable status. For example, qualifying charities are exempt from the requirement to
pay federal unemployment taxes. IRC § 3306(c)(8). Under the present system, charities
only have to pay the equivalent of the former employee�s unemployment compensation.
Bazil Facchina, Evan A. Showell & Jan E. Stone, Privileges & Exemptions Enjoyed by
Nonprofit Organizations, 28 U.S.F. L. Rev. 85, 102 (1993). Also, tax-exempt charities
have access to tax-exempt government bonds as provided for under § 145(a)(1), which
allows state and local governments to issue bonds paying interest, exempt from federal
income tax, to organizations described in§ 501(c)(3). IRC § 145(a)(1). However, 95
percent of the net proceeds from these bonds must be used by the charity and all
property purchased with the bond proceeds has to be owned exclusively by the charity.
IRC § 145.

In addition to the many federal tax benefits that are lost as a result of a charity
losing its tax-exempt status, one very important non-tax federal benefit vanishes along
with the tax-exemption: preferred postal rates. The current postal regulations give
religious, educational, scientific, philanthropic, agricultural, labor, veterans�, and
fraternal organizations second and third class nonprofit rates. Facchina, supra, at 112.
The only requirement is that the nonprofit mailers must be organized and operated for
the primary purpose of the organization. Id. at 113.

permitted to take a deduction for federal income tax or estate tax purposes for
contributions made to charities during the year, individuals and corporations are
arguably more willing to contribute money to a tax-exempt charity than to an
organization that is not a recognized charity.52 Eligibility to receive these tax-
deductible contributions clearly gives charities an advantage over non-charities
when it comes to fund-raising because it costs contributors less than one dollar
to give one dollar to charity.53 Thus, in terms of maximizing financial profit and
in terms of raising funds through charitable contributions, charities clearly have
an advantage over non-charities.54

In addition to the many federal benefits of tax-exempt charitable status,
state and local governments also offer benefits to charities that often hinge on
the charity maintaining its tax-exempt charitable status at the federal level. For
example, many states exempt tax-exempt charities from the requirement to pay



2002] Charities and the Constitution 795

55. For example, under the Georgia Code a 501(c)(3) organization is exempt
from state income taxes �in the same manner and to the same extent as for federal
purposes.� Ga. Code Ann. § 48-7-25 (2001)..

56. See, e.g., Fla. Stat. Ann. § 212.08(7)(p) (2001). Section 212.08(7)(p)
provides:

(p) Section 501(c)(3) organizations.�Also exempt from the tax imposed by
this chapter are sales or leases to organizations determined by the Internal
Revenue Service to be currently exempt from federal income tax pursuant to
s. 501(c)(3) of the Internal Revenue Code of 1986, as amended, when such
leases or purchases are used in carrying on their customary nonprofit activities.

Id.
57. Facchina, et al., supra note 54, at 103-04.
58. See, e.g., Tex. Tax Code § 11.18 (1992). Section 11.18 provides:
(a) An organization that qualifies as a charitable organization as
provided by this section is entitled to an exemption from taxation of:
(1) the buildings and tangible personal property that:

(A) are owned by the charitable organization; and
(B) except as permitted by Subsection (b), are used
exclusively by qualified charitable organizations; and

(2) the real property owned by the charitable organization consisting
of:

(A) an incomplete improvement that:
(i) is under active construction or other physical
preparation; and
(ii) is designed and intended to be used
exclusively by qualified charitable
organizations; and

(B) the land on which the incomplete improvement is
located that will be reasonably necessary for the use of the
improvement by qualified charitable organizations.

Id.

state and local income taxes.55 A number of states also exempt charities from
both collecting and paying sales or use taxes on goods and services.56 Sales and
use tax exemptions for charities are usually limited to transactions related to the
charity�s exempt purposes.57 Finally, many states exempt charities from the
requirement to pay real property taxes.58

This brief listing of benefits of tax-exempt charitable status provides
a rather clear picture of the enormity of the financial impact of a charity losing
its tax exemption. Thus, while some charities, like Bob Jones University, may
continue to operate after loss of exemption, many other charities would likely
have to cease operations altogether without these benefits. Therefore, any
mechanism, like the Service�s authority to revoke a charity�s tax-exempt status



796 Florida Tax Review [Vol5:9

59. See Bishop Estate TAM, supra note 16.
60. See, e.g., Bishop Estate TAM, supra note 16 (Service relying �upon several

Supreme Court opinions addressing the constitutional challenges to governmental
actions under the Equal Protection clauses�); Calhoun Academy v. Commissioner, 94
T.C. 284 (1990) (Service relying on a Supreme Court position that private schools
which discriminate on the basis of race violate public policy).

61. For a discussion of various issues, both tax and non-tax, concerning the
Bishop Estate, see generally Symposium Issue on the Bishop Estate Controversy, 21 U.
Haw. L. Rev. 353 (1999). See also John Tehranian, A New Segregation? Race, Rice v.
Cayetano, and the Constitutionality of Hawaiian-Only Education and the Kemehameha
Schools, 23 U. Haw. L. Rev. 109 (2000); Judge Robert Mahealani M. Seto and Lynn
Marie Kohm, Of Princesses, Charities, Trustees, and Fairytales: A Lesson of the Simple
Wishes of Princess Bernice Pauahi Bishop, 21 U. Haw. L. Rev. 393 (1999); Evelyn
Brody, A Taxing Time for the Bishop Estate: What Is the I.R.S. Role in Charity
Governance?, 21 U. Haw. L. Rev. 537 (1999).

62. See Bishop Estate TAM, supra note 16.

if it violates �established public policy,� that enables the Service to effectively
end a charity�s operations is certainly worth close examination.

C. Service Statements That the Constitution Dictates When a
Public Policy Is Sufficiently �Established�

1. Introduction

The Service has issued various decisions concerning the public policy
limitation and its applicability in particular contexts. For example, the Service
has held that tax-exempt charities that favor Indians over non-Indians do not
violate �established public policy� because of the history of special treatment
of Native Americans by the federal government.59 However, in many of these
situations involving the Service�s determinations about particular public
policies, the Service has relied almost exclusively on the Supreme Court�s
positionregarding certain constitutional issues that relate directly to the public
policy at issue.60 A recent example of this strong reliance by the Service on the
Court�sconstitutional jurisprudence to determine �established public policy�
involves the Service�s administrative decisions concerning the Bishop Estate.61

The Service issued at least two technical advice memorandums
�TAM�s� to the Bishop Estate on the issue of that trust�s denial of admission
of non-Hawaiians to the trust�s grade school. The first TAM, issued in 1975,
concluded that Bishop Estate�s policy of restricting admissions to children of
Hawaiian ancestry was �consistent with Federal policy� and, therefore,
charitable.62 The second TAM, issued 24 years later in 1999, similarly
concluded that �the Estate�s admission policy is consistent with the
requirements for recognition of exemption as an organization described in



2002] Charities and the Constitution 797

63. See id.
64. See id.
65. See Will of Bernice Pauahi Bishop, Thirteenth Article, at

http://www.ksbe.edu/endowment/bpbishop/will/will.html (Jan. 15, 2002).
66. Id. The entire residuary clause of the will provided:

I GIVE, DEVISE AND BEQUEATH all the rest, residue and
remainder of my estate real and personal, wherever situated unto the
trustees below named, their heirs and assigns forever, to hold upon
the following trusts, namely:

to erect and maintain in the Hawaiian Islands two
schools, each for boarding and day scholars, one
for boys and one for girls, to be known as, and
called the Kamehameha Schools.

I direct my trustees to expend such amount as they may deem best,
not to exceed however one-half of the funds which may come into
their hands, in the purchase of suitable premises, the erection of
school buildings and in furnishing the same with necessary and
appropriate fixtures, furniture and apparatus. Id.
67. In 1883, a seal was affixed to Bernice Bishop�s will, which formally

established the Bishop Estate to carry out Bernice Bishop�s desire to build a school for
boys and a school for girls. The school for boys opened in 1887 and the school for girls
opened in 1894. See id.

68. See Bishop Estate TAM, supra note 16.
69. Http://www.ksbe.edu/campus/campus.html (Feb. 29, 2000).

section 501(c)(3) of the Code.�63 However, in this second TAM the Service
suggested that the Supreme Court�s decision in a then-pending constitutional
law case, Rice v. Cayetano, might cause the Service to re-think its position on
the acceptability of the Bishop Estate�s admission practice.64

2. The Bishop Estate Schools

The Bishop Estate is a tax-exempt charitable trust created by the will
of Bernice Pauahi Bishop, last direct descendant of Ali`i nui Kamehameha I.65

The purpose of the trust is �to erect and maintain in the Hawaiian Islands two
schools, each for boarding and day scholars, one for boys and one for girls, to
be known as, and called the Kamehameha Schools.�66 The single-sex schools
referenced in the will were formally created in 1883,67 have been continuously
maintained since that time and are now combined into one co-educational
school enrolling both boys and girls.68 The trustees of the Bishop Estate believe
that Bernice Bishop created the schools out of her deep concern for �the decline
of the Hawaiian people following Western contact.�69 The trustees assert that
Bernice Bishop �believed that a sound, formal education was the key to



798 Florida Tax Review [Vol5:9

70. Id.
71. Bishop Estate TAM, supra note 16.
72. See id. �The Schools process between 5,000 and 6,000 applications per

year. Because there are more applicants than available seats at the School, competition
for entrance is keen . . . .� Id.

73. See id. �The selection process includes a �first screening� based on
development skills and an �observation phase.�� Id.

74. See id. �For the 1997/98 school year 78.3 percent of the students were of
Caucasian ancestry, 73.7 percent Chinese ancestry, 30.9 percent Filipino ancestry, 27.7
percent Japanese ancestry, and 23.4 percent were of other ancestries . . . [including]
African American . . . .� Id.

75. See id. �Hawaiian children who are orphaned and/or living in indigent
circumstances are given special consideration for kindergarten.� Id.

76. It is not at all clear whether the Bishop Estate�s Hawaiian lineage
requirement is the same type of racial preference that was contemplated by the Supreme
Court when it concluded that discrimination against black people violates established
public policy. See Bob Jones Univ. v. United States, 461 U.S. 574, 595 (1983).
�Whatever may be the rationale for such private schools� policies, and however sincere
the rationale may be, racial discrimination in education is contrary to public policy.� Id.
First, Hawaiian people are not black people and do not share a unique characteristic of
black people in that they do not have a history of being taken away from their homeland
and forced into slavery in a foreign land. Second, ancestry is not necessarily the same
as race. Thus, the Bishop Estate�s requirement that one have Hawaiian ancestry in order
to be admitted to the Kamehameha schools, could be something other than a preference
based on race such as a political classification. See Robert J. Deichert, Note: Rice V.
Cayetano: the Fifteenth Amendment at a Crossroads, 32 Conn. L. Rev. 1075, 1098

survival [of the Hawaiian people].�70 Accordingly, the school operated by the
Bishop Estate requires that all admitted students have �at least one Hawaiian
ancestor.�71

The Hawaiian lineage requirement is only one of many factors
considered by the Bishop Estate when making admissions decisions for the
Kamehameha schools. Indeed, the admissions process is quite competitive.
Because each school receives more applications per year from potential
students than it can accommodate, it has to turn away many persons who are
interested in attending.72 In order to decide who is admitted and who is not,
each school has special admissions screening criteria.73 Even with these special
criteria, however, the admitted students have a variety of racial and ethnic
backgrounds.74 Further, despite the competition for admission into the
Kamehameha schools, the schools are able to reserve space for orphans and
indigent children.75 However, the orphans and indigents, like all other students,
must have at least one Hawaiian ancestor. This aspect of the Kamehameha
schools (i.e., limiting admission to students with some Hawaiian lineage)
prompted the Service to consider whether the Bishop Estate�s admissions
policy violated an established public policy against racial discrimination.76



2002] Charities and the Constitution 799

(2000). �This relationship, and the special treatment afforded Native Hawaiians, is
similar to that between the United States government and Native Americans and
therefore should be looked upon as a political rather than racial classification, or at least
be given a greater level of deference.� Id. Finally, even if the preference for persons with
Hawaiian lineage is a racial classification for some purposes, it may not necessarily be
a racial classification for all purposes. For example, the Hawaiian lineage requirement
might be a racial classification for Fifteenth Amendment purposes, but might not be a
racial classification for Fourteenth Amendment purposes. Also, the Hawaiian lineage
requirement might be a racial classification for constitutional law purposes, but not for
purposes of the public policy doctrine. Thus, the Service�s conclusion in the Bishop
Estate TAM that the Bishop Estate�s preference for persons having Hawaiian lineage is
a racial preference, is not necessarily a valid one. Nonetheless, this Article assumes that
such a conclusion is valid, but only for purposes of demonstrating the inappropriateness
of the Service�s reliance on constitutional law doctrine to determine when an
�established public policy� is violated.

77. See discussion infra notes 123-66 and accompanying text.
78. See Bishop Estate TAM, supra note 16.
79. Id.
80. See Rice v. Cayetano, 146 F.3d 1075 (9th Cir. 1998), cert. granted, 526

U.S. 1016 (1999).
81. See Rice v. Cayetano, 528 U.S. 495 (2000). It remains to be seen whether

the Bishop Estate will, pursuant to the Service�s advice, request a private letter ruling
in light of the Supreme Court�s decision in Rice. See id. See also Milton Cerny, Federal
Public Policy: The IRS Historic Challenge to Racially Discriminatory Private Schools,
American Bar Association Section of Taxation, 2000 Midyear Meeting Materials,
January 21, 2000, available in LEXIS, ABA Library, ABA Tax File (stating that �[i]n

3. The Service�s Public Policy Findings with Respect to
the Bishop Estate Schools

The Service issued the Bishop Estate TAM in 1999, shortly after the
Supreme Court decided a series of cases concerning the constitutional
permissibility of race-based affirmative action.77 In the Bishop Estate TAM, the
Service advised the Bishop Estate that its policy of only admitting children with
Hawaiian ancestry to the trust�s schools is consistent with established public
policy.78 Accordingly, the Service concluded that in denying admission to non-
Hawaiians, the Bishop Estate, a private tax-exempt charity, does not violate tax
law�s public policy limitation. The Service continued, however, that the Bishop
Estate �should consider requesting a private letter ruling on whether the [then-
pending Supreme Court�s] decision [in Rice v. Cayetano] has any effect on the
[Service�s] analysis.�79 Rice v. Cayetano concerns the constitutionality of
Hawaii�s practice of denying non-native Hawaiians the fundamental right to
vote for trustees of the Office of Hawaiian Affairs.80 One year later, the United
States Supreme Court held in Rice v. Cayetano that Hawaii�s denial of voting
rights to non-Hawaiians is unconstitutional.81



800 Florida Tax Review [Vol5:9

light of this [TAM] and the United States Supreme Court review of Rice v. Cayetano,
it would be well to revisit the application of the public policy doctrine as it applies to
the exemption of organizations described in section 501(c)(3))� (citations omitted).

82. See Bishop Estate TAM, supra note 16 (citing Green v. Connally, 330 F.
Supp. 1150 (D.D.C. 1971), aff�d sub nom., Coit v. Green, 404 U.S. 997 (1971);
Norwood v. Harrison, 382 F. Supp. 921 (N.D. Ms. 1974), on remand from the Supreme
Court, 413 U.S. 455 (1973); Brumfield v. Dodd, 425 F. Supp. 528 (E.D. La. 1976);
Prince Edward School Foundation v. United States, 478 F. Supp. 107 (D.D.C. 1979),
aff�d (D.C. Cir. 6/30/80), cert. denied, 450 U.S. 944 (1981); Bob Jones University v.
United States, 461 U.S. 574 (1983); Calhoun Academy v. Commissioner, 94 T.C. 284
(1990).

83. See Bob Jones Univ., 461 U.S. at 592. "[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." Id.

The Bishop Estate TAM clearly demonstrates the Service's abject
reliance on constitutional law standards as its means of determining whether the
Bishop Estate�s preference for Native Hawaiians violates an established public
policy against racial discrimination. The rationale section of the Bishop Estate
TAM begins by reciting a brief history of how the public policy limitation came
into being �  that is, how the Service arrived at the conclusion that tax-exempt
charities could not violate established public policy. This historical discussion
highlights various situations in which private tax-exempt educational
institutions discriminated against black people. Indeed, each of the Service's
�specific and prominent [case law] examples� of the public policy against
discrimination involves invidious racial discrimination against black people82.
Granted, there is nothing in the Bob Jones University opinion that necessarily
limits the public policy limitation to situations involving discrimination against
black people. In fact, the Supreme Court so much as indicated an expansive
view of the universe of possible public policy arenas when it announced a
broad rule prohibiting violation of any clear established public policy83. The
point here, though, is that these �specific and prominent [case law] examples�
highlighted by the Service do not, by themselves, make the case that a
preference for Native Hawaiians violates any public policy with respect to
racial discrimination. Thus, the Service had to extend the Bob Jones University
public policy rationale so that it could apply, not only to invidious
discrimination against non-blacks, but also to benign preferences in favor of
non-blacks.

By far, the most telling indication that the Service relied almost
exclusively on constitutional law as its basis for deciding if the public policy
rationale could be extended to apply to the Bishop Estate situation is its explicit
statement concerning the cases upon which it relies. These cases include
�several Supreme Court opinions addressing the constitutional challenges to
governmental actions under the Equal Protection clauses of the Fourteenth



2002] Charities and the Constitution 801

84. Bishop estate TAM, supra note 16 (emphasis supplied).
85. In regard to Regents of the University of California v. Bakke and Adarand

Constructors, Inc. v. Pena, the Service states that "The Court in both cases, however,
recognized that there would be situations in which benefits to ethnic minorities would
be appropriate to further compelling governmental interests."  See Bishop Estate TAM,
supra note 16.

Amendment and the Fifth Amendment.�84  Based on this statement, one can
easily � and quite reasonably � conclude that the Service accepts as a given that
the constitutional law standards for equality and, arguably, due process, define
that which is consistent (or inconsistent) with public policy. Indeed, the Service
explains in the Bishop Estate TAM that remedial affirmative action for racial
and ethnic minorities may at times further compelling government interests and,
thus, be constitutionally permissible85. Because such remedial efforts are
constitutionally permitted to be done by government, then such efforts are,
according to the Service, also consistent with established public policy. As a
result of this implicit (if not explicit) assumption about the equivalency of
constitutional standards with  public policy standards, the Service evaluated the
Bishop Estate's remedial activity with respect to Native Hawaiians in light of
constitutional law principles concerning remedial activity by government
concerning racial minorities.

Consistent with this constitutional equivalency approach, the Service
looked to how the Supreme Court would likely determine the constitutional
permissibility of Hawaiian preference rules imposed by government, as
opposed to those imposed by non-governmental entities such as charities.
Relying on the Court of Appeal�s decision in Rice v. Cayetano that Hawaiian
preferences by government are political (rather than racial) classifications
subject to mere rational constitutional scrutiny for Equal Protection Clause
purposes, the Service concluded that the Bishop Estate�s preference for Native
Hawaiians is likewise not the type of preference that requires close scrutiny. As
such, according to the Service, because the Native Hawaiian preference would
not be unconstitutional if performed by government, it is not contrary to
established public policy.

Recognizing that the Rice v. Cayetano case was to be appealed to the
Supreme Court, the Service advised the Bishop Estate that its conclusion that
Hawaiian preference policies do not violate public policy might change after
the Supreme Court's decision in the case. This hesitancy to rely on an
intermediate court decision as support for its �political classification�
conclusion was a good idea given the procedural posture of the Rice v.
Cayetano case. However, this hesitancy also supports this Article�s claim that
the Service relies quite heavily on the direction of constitutional jurisprudence
when making its decisions about the parameters of �established� public policy.
Presumably, the reason for the hesitancy was the Service�s assumption that if



802 Florida Tax Review [Vol5:9

86. Newspapers recently reported that the Bishop Estate schools �recently
admitted a student not of Hawaiian ancestry,� allegedly as a means of avoided additional
government scrutiny.  See generally �School Set Aside for Hawaiians Ends Exclusion
to Cries of Protest,� New York Times (July 27, 2002); �Decision viewed as peasement
to IRS,� HonoluluAdvertiser.com (July 16, 2002); �Hawaiians� concerns go beyond
school issues,� HonoluluAdvertiser.com (July 21, 2002).

the Supreme Court reversed the Court of Appeal and concluded that Hawaiian
preferences are unconstitutional (which it did), then the Service would likewise
have to �reverse� its position and conclude that such preferences are
inconsistent with established public policy. Though the Service has yet to
revisit this matter since the Supreme Court�s ruling in Rice v. Cayetano, the
Bishop Estate TAM has given every indication that it is indeed well aware of
this eventuality.86

Implicit in the Service�s analysis in the Bishop Estate TAM is that, to
the extent the Constitution permits government to engage in a particular
activity, the activity is consistent with established public policy. As a corollary,
the Service�s analysis also means that if an act would violate the Constitution
if performed by government, then that act is necessarily inconsistent with
established public policy. Thus, the Service has essentially equated public
policy standards with constitutional standards. Indeed, the Service has given no
indication of when, if ever, it would deviate from constitutional law standards
when making public policy decisions. This Article�s view is that such strong
reliance on constitutional law standards to determine public policy in any
particular context is, quite simply, too extreme. This is not to say that the
Service should ignore constitutional law principles when it makes its public
policy determinations. For if the Service were to turn a blind eye to
constitutional principles that would be too extreme in the other direction.
Instead, the Service should use constitutional law standards only as a starting
point for determining whether or not a tax-exempt charity�s particular activity
is consistent or inconsistent with established public policy.

Parts III and IV of this Article explain in greater detail how
inappropriate it is for the Service to rely so much on constitutional law
standards when determining public policy.



2002] Charities and the Constitution 803

87. See Bob Jones Univ., 461 U.S. at 574.
88. See Brennen, The Power of The Treasury, supra note 15, at 403 (describing

analysis used by United States Supreme Court to conclude that Treasury has authority
to determine the public purpose of a charity).

89. See Bob Jones Univ., 461 U.S. at 591. The Treasury has indicated that
other matters besides discrimination against blacks are areas contemplated by the public
policy power. See 1994 Service Exempt Organization CPE Technical Instruction
Program Textbook, Chapter L: Illegality and Public Policy Considerations: Section 4.b.,
94 TNT 71-47 [hereinafter IRS Exempt Organization Textbook]. �Just as the Service
responded to public outrage over racial discrimination in education in Bob Jones and
to possible kickbacks in GCM 39862, the Service can be expected to re-evaluate
positions in other areas as the public policy considerations become more clearly focused
because of Congressional action, decisions of the Executive Branch, or court actions.�
Id.

90. Although the Service indicates a willingness, under the current the
constitutional law climate, to permit affirmative action by charities, it does not view
absence of affirmative action policies as proof of discrimination by a charitable entity.
See, e.g., Calhoun Academy v. Commissioner, 94 TC 284 (1990):

III. INTERPRETATIONAL CONCERNS WITH USING CONSTITUTIONAL LAW
PRINCIPLES TO DEFINE THE SCOPE OF THE PUBLIC POLICY
LIMITATION

A. Introduction

The scope of the public policy limitation, as announced by the Court
in Bob Jones University v. United States, is unclear.87 This lack of clarity stems
in large part from the Court�s failure clearly to delineate how the Service might
use various sources of public policy to determine �established public policy�
on particular matters.88 In other words, the Court did not address the limits of
the Service�s authority to determine when or if a public policy is sufficiently
�established� in any context other than an historically advantaged group
discriminating against members of an historically disadvantaged group. For
example, the Court did not discuss whether affirmative action programs aimed
at attracting racial minorities, which might require denying benefits to non-
minorities, are consistent or inconsistent with �established public policy.�89 Is
it not conceivable that a Service official might view these programs as contrary
to �established public policy� because they involve racial preferences, albeit for
minorities instead of against them?

To its credit, the Service has not interpreted the Bob Jones University
case as prohibiting all racial preferences by charities. Accordingly, the Service
permits charities to have some race-based policies, like affirmative action, even
though such policies may involve racial preferences.90 However, this



804 Florida Tax Review [Vol5:9

Granted, the facts before the Supreme Court [in Bob Jones
University] did not raise an affirmative action issue because both
subject schools discriminated within the Rev. Rul. 71-447 definition.
The Supreme Court emphasized, however, that an institution should
be deemed not charitable under its analysis only when there can be
�no doubt� that the activity involved is contrary to a fundamental
public policy. Declining to take affirmative steps to seek out black
students and teachers does not fall within this standard.

Id. at 304 (citations omitted).
91. See discussion supra Part II.
92. See, e.g., Johnson v. Bd. of Regents of Univ. of Ga., 263 F.3d 1234, 1245

(11th Cir. 2001) (�[A] majority of the Supreme Court may eventually adopt Justice
Powell�s opinion as binding precedent, and even now the opinion has persuasive value
. . . .�); Corinne E. Anderson, A Current Perspective: The Erosion of Affirmative Action
in University Admission, 32 Akron L. Rev 181, 228 (1999) (noting that, even though
the Supreme Court has not explicitly acted to outlaw the use of race to achieve diversity,
universities should begin to implement race neutral programs because of the many
appellate decisions that invalidated programs that use race to achieve diversity). See also
Robert Westley, Many Billions Gone: Is It Time to Reconsider the Case for Black
Reparations?, 40 B.C. L. Rev. 429 (1998). Professor Westley notes:

Affirmative action for Black Americans as a form of remediation for
perpetuation of past injustice is almost dead. Due to a string of
Supreme Court decisions beginning with Bakke and leading up to
Adarand, the future possibility of using affirmative action to redress
the perpetuation of past wrongs against Blacks is now in serious
doubt. Whereas some believe that the arguments supporting
affirmative action as a remedy or even a tool of social policy are still
sound, affirmative action programs continue to encounter strong
political headwinds and judicial disapprobation.

Id. at 429 (footnotes omitted).

willingness only seems to exist when the affirmative action at issue would be
Constitutional if done by the government, as is the case when the affirmative
action policy is not inconsistent with the Equal Protection Clause of the
Fourteenth Amendment.91 But courts and commentators predict that the
Supreme Court may soon decide that race-based affirmative action is never
consistent with the Equal Protection Clause, and therefore, never
Constitutional.92 If this prediction comes true, and if the Service continues to
rely on constitutional law principles to determine public policy, the Service
would likely no longer consider affirmative action by private charities to be
consistent with �established public policy.� This strong reliance by the Service
on constitutional law principles in its public policy decision-making only exists
because of the lack of specific guidance on how to determine public policy in
particular contexts. Thus, the Court�s failure in Bob Jones University to clarify



2002] Charities and the Constitution 805

93. Without such guidance, the Court�s failure also means that tax advisors to
charities cannot state with any degree of certainty whether a policy on any subject, other
than white people discriminating against black people, is violated or not. See Hill &
Kirschten, supra note 21, at ¶2.03[6][c]. �In the absence of specific guidance. . . it is
neither possible nor prudent to state with certainty what �clear public policies� other than
racial discrimination might lead to nonrecognition or revocation of exempt status.� Id.

94. See Gerald Gunther, Forward: In Search of Evolving Doctrine On a
Changing Court: A Model For A Newer Equal Protection, 86 Harv. L. Rev. 1 (1971)
(explaining how the standard of review often determines whether a particular
classification is constitutional or not).

the scope of the public policy limitation requires the Service to both determine
and enforce law in this area without appropriate statutory or judicial guidance.93

This Part focuses more specifically on the role constitutional law
principles might play in the Service�s task of delineating the scope of the public
policy limitation. As primary examples, this Part considers legal doctrine
regarding constitutionally permissible preferences based on race and sexual
orientation by examining two constitutional law principles: equality and
freedom of expressive association. Close examination of these constitutional
law principles reveals various interpretational concerns the Service faces if it
chooses to continue to rely significantly on constitutional jurisprudence as its
guide-star for defining public policy.

B. Equality: a Sword Against Charitable Status

1. Introduction

The linchpin of equality under the Constitution is the standard of
review (or level of scrutiny) with which a court will evaluate whether an
admitted case of unequal treatment by government is fair or unfair.94 This
section focuses on the appropriate standard of review for racial preferences by
government under two constitutional equality provisions: the Fourteenth
Amendment�s Equal Protection Clause and section one of the Fifteenth
Amendment. The purpose of this two-fold examination is to evaluate the
appropriateness of the Service�s use of Equal Protection Clause strict scrutiny
standards, as it seems to do in the Bishop Estate TAM, to determine if a
charity�s racial preference violates �established public policy.�

This Article�s use of Fourteenth Amendment Equal Protection analysis
in order to demonstrate principles of equality under the Constitution is made in
light of a similar analysis applicable for purposes of the equal protection
component of the Due Process Clause of the Fifth Amendment. Technically, the
Fourteenth Amendment�s Equal Protection Clause only applies to states and the
equal protection component of the Due Process Clause of the Fifth Amendment



806 Florida Tax Review [Vol5:9

95. See Bolling v. Sharpe, 347 U.S. 497 (1954).
96. In Bolling, 347 U.S. at 497, the Supreme Court held that the equal

protection standards announced in Brown v. Bd. of Education, would apply to the
District of Columbia public schools:

The Fifth Amendment, which is applicable in the District of
Columbia, does not contain an Equal Protection Clause as does the
Fourteenth Amendment which applies only to the states. But the
concepts of equal protection and due process, both stemming from
our American ideal of fairness, are not mutually exclusive. The
�equal protection of the laws� is a more explicit safeguard of
prohibited unfairness than �due process of law,� and, therefore, we do
not imply that the two are always interchangeable phrases. But, as this
Court has recognized, discrimination may be so unjustifiable as to be
violative of due process.

Id. at 499.
97. Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 217 (1995).
98. See, e.g., Rice v. Cayetano, 528 U.S. 495, 512 (2000). �Enacted in the

wake of the Civil War, the immediate concern of the [Fifteenth] Amendment was to
guarantee to the emancipated slaves the right to vote, lest they be denied the civil and
political capacity to protect their new freedom.� Id.

99. The Equal Protection Clause of the Fourteenth Amendment provides that
�[n]o State shall . . . deny to any person within its jurisdiction the equal protection of the

only applies to the federal government.95 Nevertheless, despite the fact that the
Fifth Amendment was adopted almost one hundred years before the Fourteenth
Amendment and the Fifth Amendment has no Equal Protection Clause,96 the
Supreme Court recognizes that �equal protection analysis in the Fifth
Amendment area is the same as that under the Fourteenth Amendment.�97

Thus, except as otherwise indicated, analysis throughout this Article
of the Equal Protection Clause of the Fourteenth Amendment applies equally
as well to the equal protection component of the Due Process Clause of the
Fifth Amendment.

2. Equality principles concerning discrimination and
minority preferences

Equality, for constitutional law purposes, is significantly defined by the
Equal Protection Clause of the Fourteenth Amendment and section one of the
Fifteenth Amendment. These constitutional amendments were adopted around
the same time in American history to alleviate state-sanctioned discrimination
against former slaves and other people of color.98 The Fourteenth Amendment
prohibits discrimination generally, no matter the basis or the subject.99



2002] Charities and the Constitution 807

laws.� U.S. Const. amend. XIV. See also, The Slaughterhouse Cases, 83 U.S. 36 (first
case to analyze the Fourteenth Amendment).

100. Section 1 of the Fifteenth Amendment provides that �[t]he right of citizens
of the United States to vote shall not be denied or abridged by the United States or by
any State on account of race, color, or previous condition of servitude.� U.S. Const.
amend. XV, § 1.

101. See Rice, 528 U.S. at 495. �The Fifteenth Amendment has independent
meaning and force.� Id.

102. See discussion infra notes 178-95 and accompanying text.
103. See discussion infra notes 123-66 and notes 178-200, and accompanying

text.
104. See discussion infra notes 123-66 and accompanying text. While, in form,

the Equal Protection Clause applies to any type of unequal treatment, the standard of
review often dictates whether such application will have a substantive effect. Thus, even
though the Equal Protection Clause applies to discrimination based on sexual
orientation, because sexual orientation is not a suspect class, it does not receive strict
scrutiny. The result is that statutes that discriminate based on sexual orientation are
rarely stricken as an unconstitutional violation of the Equal Protection Clause.

105. See discussion infra notes 178-200 and accompanying text.

However, the Fifteenth Amendment only prohibits discrimination based on race
or color in voting.100 Thus, while both Amendments are intended to guarantee
a certain level of equal treatment by government, the Fifteenth Amendment has
a quite different (and much narrower) scope of applicability than the Fourteenth
Amendment.101 As a result of this difference, certain discriminatory acts that
violate the Equal Protection Clause do not necessarily violate the Fifteenth
Amendment. Further, and more importantly for purposes of this Article, certain
discriminatory acts that violate the Fifteenth Amendment do not necessarily
violate the Equal Protection Clause. Thus, the Service�s reliance on Rice v.
Cayetano, a case potentially implicating both the Equal Protection Clause and
the Fifteenth Amendment,102 is at best confusing and at worst inappropriate.103

The Fourteenth and Fifteenth Amendments are directed at preventing
unequal treatment by government that is constitutionally �unfair.� Fairness for
these purposes is principally determined by two factors: (1) the subject about
which the government discriminates and (2) the basis upon which the
government discriminates. The Fourteenth Amendment concerns unequal
treatment by government on any basis (e.g., race, gender, sexual orientation,
etc.) no matter what the subject (e.g., voting, college admissions, awarding of
government contracts, etc.).104 The Fifteenth Amendment, on the other hand,
concerns unequal treatment by government that is based on race and concerns
the subject of voting.105 Historically, these constitutional equality provisions
have been used as legal tools to thwart discrimination by government against
traditionally disadvantaged groups like black people and other persons of



808 Florida Tax Review [Vol5:9

106. See Rice, 528 U.S. at 512. �Enacted in the wake of the Civil War, the
immediate concern of the [Fifteenth] Amendment was to guarantee to the emancipated
slaves the right to vote, lest they be denied the civil and political capacity to protect their
new freedom.� Id.

107. See id. at 512. �The [Fifteenth] Amendment grants protection to all
persons, not just members of a particular race.� Id.

108. See discussion infra notes 123-66 and notes 178-200 and accompanying
text.

109. See Miller v. Johnson, 515 U.S. 900, 904 (1995) (citation omitted)
(�[T]he basic principle is straightforward: �Racial and ethnic distinctions of any sort are
inherently suspect and thus call for the most exacting judicial examination.��); City of
Richmond v. J.A. Croson Constr. Co., 488 U.S. 469 (1989) (the Court used strict
scrutiny analysis to invalidate a race preference program that benefitted under-
represented minority contractors, the program was challenged by a non-minority

color.106 However, the Supreme Court has repeatedly stated that the protections
available under the Fourteenth and Fifteenth Amendments are not available
only to traditionally disadvantaged groups. Instead, these equality protections
are available to all people without regard to their societal status as
disadvantaged or not.107

3. Use of equality principles as a sword to invalidate
affirmative action remedial efforts

Simply asserting that members of both disadvantaged and advantaged
groups are entitled to equal treatment by government does not necessarily mean
that equality for members of each group is judged by the same standard. For
instance, one might claim that a particular type of unequal treatment by
government that advantages members of an historically disadvantaged group
is beneficial to society overall. In fact, it might be so beneficial, the claim might
go, that the government�s unequal treatment need not be judged as critically as
it would be if the unequal treatment disadvantaged (instead of advantaged)
members of that historically disadvantaged group. On the other hand, one might
also claim that all unequal treatment that disadvantages any person, whether
that person is a member of an historically disadvantaged group or not, should
be judged by the same standard. In essence, one�s membership in a particular
group, the claim might go, should not dictate the level of scrutiny applied to the
government�s unequal treatment of that person. Constitutional jurisprudence
with respect to racial equality has clearly addressed this matter in a series of
Fourteenth and Fifteenth Amendment cases.108

The standard of review under the Fourteenth and Fifteenth
Amendments for determining whether government distinctions based on race
are �fair� is generally rather high. Under current law, the high standard applies
whether or not the claimant is a member of a disadvantaged race.109 Thus,



2002] Charities and the Constitution 809

contractor); Wygant v. Jackson Bd. of Educ., 476 U.S. 267 (1986) (white teacher
challenged the school board�s policy of extending preferential protection against layoffs
to some employees because of their race; the Court, using strict scrutiny analysis, held
that the policy violated the Fourteenth Amendment.)

110. See, e.g., Smith v. Univ. of Wash., 233 F.3d 1188 (9th Cir. 2000)
(involving claims by white law school applicants that they were discriminated against
when they were denied admission to law school, but some black applicants were not.)

111. See Rice, 528 U.S. at 513.
112. For example, the federal Circuits are currently split on the issue of

whether preferences for racial minorities that stem from affirmative action efforts are
constitutionally �fair� under the Fourteenth Amendment. See, e.g., Smith, 233 F.3d at
1188 (concluding that, in the Ninth Circuit, Bakke permits government to consider race
as one of many factors when making decisions about public law school admissions). But
see Hopwood v. Tex., 78 F.3d 932 (5th Cir. 1996), cert. denied, 518 U.S. 1033 (1996)
(concluding that, in the Fifth Circuit, government can never use race as a factor when
making decisions about public law school admissions).

113. See discussion infra notes 123-27 and accompanying text.

claims of discrimination by members of a traditionally advantaged race are
ordinarily judged by the same high standard as claims by members of a
traditionally disadvantaged race. Indeed, white people have successfully
claimed that they are unconstitutionally discriminated against when they are
denied a government benefit, like admission to a state school, because of
government affirmative action efforts to attract racial minorities.110 Similar
claims of discrimination with respect to voting have been raised under the
Fifteenth Amendment.111 As a result of these atypical claims of racial
discrimination, the constitutional �fairness� of affirmative action by
government has been challenged, often resulting in the constitutional invalidity
of the government�s affirmative action efforts.112 For example, the UC Davis
medical school�s affirmative action plan, which considered the race of
applicants in its aim to increase diversity in the student body, was invalidated
because it impermissibly discriminated against white applicants.113 It is in this
way that constitutional equality principles are used by some as a sword to
invalidate government affirmative action efforts aimed principally at repairing
harm caused by past government discrimination.

4. Problems with using constitutional equality principles
as a sword against tax-exempt charities that engage
in affirmative action

The Service has indicated its inclination to rely on constitutional law
principles when fulfilling its legal obligation to determine in the �first



810 Florida Tax Review [Vol5:9

114. See Bob Jones Univ. v. United States, 461 U.S. 574, 597-98 (1983).
�[T]he IRS has the responsibility, in the first instance, to determine whether a particular
entity is charitable for purposes of . . . § 501(c)(3). . . We emphasize, however, that
these sensitive determinations should be made only where there is no doubt that the
organization�s activities violate fundamental public policy.� Id.

115. See discussion supra notes 59-81 and accompanying text.
116. See Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995) (holding that

all racial classifications will be subject to strict scrutiny).

instance�114 whether a particular public policy is sufficiently �established� for
purposes of the public policy limitation.115 This subpart outlines several aspects
of the constitutional principle of equality as espoused through the Fourteenth
Amendment�s Equal Protection Clause and section one of the Fifteenth
Amendment. As a method of demonstrating how the Service might rely on
constitutional equality principles when making its public policy decisions, it is
useful to re-visit the matter of the appropriateness of the Bishop Estate trust�s
native Hawaiian preference policies. For example, what if the Service were to
re-examine, in light of the Supreme Court�s interpretation of constitutional
equality in Rice v. Cayetano, the trust�s policy of admitting only Hawaiian
children to the trust�s school. Such re-examination would necessarily require
the Service to answer two related, yet very different, questions. First, if denying
non-native Hawaiians admission to the trust�s school would violate the Equal
Protection Clause if the school were a state actor, does this necessarily mean
that the school�s racial preference is contrary to �established public policy?�
Second, does the Supreme Court�s conclusion in Rice that denying non-
Hawaiians the right to vote for trustees of the OHA violates Fifteenth
Amendment equality principles necessarily mean that denying non-Hawaiians
admission to the trust�s school violates �established public policy?� The
following analysis demonstrates how problematic it would be for the Service
to rely significantly on either of these constitutional equality provisions to make
its public policy determinations about tax-exempt charities.

a. Differences between Fourteenth Amendment
equality and Fifteenth Amendment equality

The parameters of what constitutes a violation of �established public
policy� are much different if viewed through the lens of the Fourteenth
Amendment�s Equal Protection Clause rather than section one of the Fifteenth
Amendment. Under current Equal Protection Clause standards, racial
distinctions by government are subject to strict scrutiny review.116 This means
that unequal treatment based on race violates the Equal Protection Clause
unless the unequal treatment is necessary to accomplish a compelling



2002] Charities and the Constitution 811

117. See id. at 235. �[R]acial classifications . . . must serve a compelling
governmental interest, and must be narrowly tailored to further that interest.� Id.
(quoting Fullilove v. Klutznick, 448 U.S. 448, 496 (1980)).

118. This assumption that strict scrutiny analysis would apply assumes that
preferences based on Hawaiian lineage are a type of racial classification for Equal
Protection Clause purposes.

119. See Rice v. Cayetano, 528 U.S. 495, 512 (2000). �Fundamental in purpose
and effect and self-executing in operation, the [Fifteenth] Amendment prohibits all
provisions denying or abridging the voting franchise of any citizen or class of citizens
on the basis of race.� Id.

120. See generally Deichert, supra note 76, at 1078, arguing that the Fifteenth
Amendment is broad in its reach and �mandates that racial discrimination in voting is
not permissible under any circumstances.�

governmental interest.117 The Service, using this Equal Protection Clause
standard for equality, would likely focus on whether the trust�s denial of
admission to non-Hawaiians passes Equal Protection Clause strict scrutiny.118

Service analysis would thus center on the issues of whether the trust has a
�compelling� interest to exclude non-Hawaiians and, if so, whether exclusion
of non-Hawaiians from the school is �necessary� to accomplishing that
compelling interest.

If the Service were to rely on Fifteenth Amendment standards, the
parameters of what constitutes a violation of �established public policy� would
involve no discussion of compelling interests or the necessity of a racial
distinction to accomplishing those interests. Instead, because racial distinctions
in voting are absolutely prohibited under the Fifteenth Amendment,119 the
necessary result under a Fifteenth Amendment analysis is that exclusion of non-
Hawaiians, for whatever reason, violates �established public policy.�120 Thus,
the first major problem with the Service relying on constitutional standards of
equality to decide if a particular charity is violating �established public policy�
is that no guidance exists as to which constitutional equality standards apply �
 those of the Equal Protection Clause or those of the Fifteenth Amendment.
That is, is it enough that the Service determines that a charity makes racial
distinctions; or should the Service also determine that the racial distinction is
not �necessary� to accomplish a �compelling� governmental interest?

The absence of either legislative or judicial guidance on this issue of
which equality standard applies might have devastating consequences. For
example, assume that the Service took a Fifteenth Amendment type approach
to racial discrimination. Pursuant to such an approach, the Service might
conclude that a particular instance of racial preference that might be
appropriate for Equal Protection Clause purposes is inappropriate for Fifteenth
Amendment purposes and, thus, violates �established public policy.� The
particular instance of racial preference might be appropriate under the Equal
Protection Clause because the purpose of the racial preference is to remedy



812 Florida Tax Review [Vol5:9

121. Although the Service appears to look to Equal Protection Clause
jurisprudence to determine �establish public policies� on race, the Service�s reference
in the Bishop Estate TAM to a case potentially implicating both the Fourteenth
Amendment and the Fifteenth Amendment indicates that the Service might also look to
Fifteenth Amendment standards.

122. See, e.g., see Grutter v. Bollinger, 288 F.3d 732 (6th Cir. 2002) (holding
that student diversity may be a compelling rationale for use of race as a factor in
admission decisions).

�specific acts of prior discrimination� (a compelling interest) and the
preference might be the �only practical� way of instituting a remedy for the
prior discriminatory acts. If the Service had, instead, taken an Equal Protection
Clause-type view of equality, its conclusion would be that the particular racial
preference is appropriate and, thus, does not violate �established public policy.�
In the end, the Service�s determination about which type of constitutional
equality standard to apply would have a definite impact on its conclusions
about whether affirmative action like racial preferences are consistent or
inconsistent with �established public policy.�121 Aside from the concern over
the essential differences between Equal Protection Clause equality and
Fifteenth Amendment equality, additional concerns exist with respect to using
either equality standard. The next section discusses these concerns.

b. Fourteenth Amendment equality

Should the Service necessarily equate a violation of the Equal
Protection Clause by a charity, if that charity were a government actor, with a
violation of tax law�s public policy limitation? The following analysis suggests
not. Although the type of invidious discrimination at issue in Bob Jones
University is necessarily unconstitutional, benign affirmative action policies
may not be unconstitutional because courts sometimes recognize that
affirmative action is necessary to achieve compelling interests.122

Several aspects of Fourteenth Amendment jurisprudence relating to
affirmative action make it problematic for the Service to rely on Fourteenth
Amendment Equal Protection Clause principles to determine �established
public policy.� First, because it has changed several times in the past 20 years,
the Supreme Court�s standard of review for determining whether race-based
affirmative action violates the Equal Protection Clause is anything but
�clear[ly] established.� Second, because the Court in Bakke failed to reach a
majority consensus on the proper role race should play in government
affirmative action, circuit courts are split on the issue of whether race can ever
be considered by government. Finally, the Service, by its very nature, is not a
government agency with sufficient expertise to make proper determinations
about racial discrimination. These three aspects of Fourteenth Amendment



2002] Charities and the Constitution 813

123. 438 U.S. 265 (1978).
124. Bakke involved the Court�s review of a state medical school�s special

admissions program that considered the applicant�s economic background and race. See
id. at 272-75. Under the regular admissions program applicants with undergraduate
grade point averages below 2.5 on a scale of 4.0 were automatically rejected. Several
of the non-rejected applicants were evaluated for admissions purposes based on various
criteria, none of which included race of the applicant. The criteria included interview
performance, overall grade point average, science grades, medical school admissions
test scores, letters of recommendation, extracurricular activities, and other biographical
data. Under the special admissions program, applicants did not have to meet the 2.5
grade point cutoff and were not ranked against candidates in the regular admissions
process. Among the factors used to determine an applicant�s eligibility for the special
admissions program was the applicant�s disadvantaged economic status and the
applicant�s membership in one of several racial minority groups. See id. Under this
special admission program, the school did not admit any white and economically
disadvantaged applicants. See id. at 276. A rejected white male applicant sued the
school alleging that the special admissions program operated to exclude him on the basis
of his race in violation of federal and state constitutional provisions and federal civil
rights laws. See id. at 276-78. Bakke, the plaintiff, alleged that the �special admissions
program operated to exclude him from the school on the basis of his race, in violation
of his rights under the Equal Protection Clause of the Fourteenth Amendment, Art. I, §

jurisprudence demonstrate the inappropriateness of Service�s primary reliance
on Equal Protection Clause principles to determine if race based affirmative
action by charities violates �established public policy.�

1) Fluctuating standard of review

Though currently stabilized at strict scrutiny, the standard of review
under the Fourteenth Amendment for government-sponsored race-based
affirmative action has been in flux in recent years. Between 1978 (in Bakke)
and 1995 (in Adarand), the Supreme Court has outlined various frameworks
within which it will evaluate whether government affirmative action plans
comply with the Equal Protection Clause. In each framework the consensus of
the Court has fluctuated between various standards of review for benign racial
preferences. These standards have included intermediate level scrutiny and
differing types of strict scrutiny. Though the current stance is that strict scrutiny
applies to even benign racial preferences, it is far from �clear[ly] established�
that this standard either applies in the same manner for all circumstances or will
continue to apply in the future.

In the first of the modern era cases to address the issue of what standard
of review applies, the Supreme Court, in Regents of the University of California
v. Bakke,123 held that government affirmative action programs are subject to
strict scrutiny review.124 In a plurality opinion, Justice Powell emphasized that



814 Florida Tax Review [Vol5:9

21, of the California Constitution, and § 601 of Title VI of the Civil Rights Act of 1964,
78 Stat. 252, 42 U.S.C. § 2000d.� Id. at 277-78. The California Supreme Court held that
the special admissions program violated the Equal Protection Clause and ordered the
medical school to admit the white applicant. See Regents of the Univ. of Cal. v. Bakke,
553 P.2d 1152, 1166 (1976) (holding that Equal Protection Clause required that �no
applicant may be rejected because of his race, in favor of another who is less qualified,
as measured by standards applied without regard to race�). The Supreme Court, agreeing
with California�s highest court, held that the medical school�s special admissions
program impermissibly discriminated against the white applicant in violation the Equal
Protection Clause. See Bakke, 438 U.S. at 320. Nevertheless, the Court concluded that
race could be taken into account in future admissions. See id. (concluding that so much
of the California court�s judgment as enjoins petitioner from any consideration of the
race of any applicant must be reversed.)

125. Id. at 289-90.
126. See id. at 290.
127. Id. at 291.
128. 448 U.S. 448 (1980).
129. Id. at 472. At issue in Fullilove was the constitutionality of a Minority

Business Enterprise (MBE) provision of federal law which generally required that at
least 10% of federal funds granted for public works projects be used to obtain services

the appropriate standard of review under the Equal Protection Clause for
governmental preferences for racial minorities is the same as it is for invidious
discrimination against such minorities: strict scrutiny. Though both parties in
Bakke agreed that all racial preferences by government are subject to the
equality restrictions of the Equal Protection Clause, the parties disagreed on the
level of scrutiny to be applied by a reviewing court. The medical school argued
that intermediate scrutiny was appropriate because strict scrutiny should be
applied only to classifications that disadvantage �discrete and insular
minorities.� The rejected white applicant argued that strict scrutiny is
appropriate because rights protected under the Equal Protection Clause are
personal rights and, thus, are not contingent upon the race of the person
claiming protection. Justice Powell agreed with the white applicant, concluding
that �[t]he guarantee of equal protection cannot mean one thing when applied
to one individual and something else when applied to a person of another
color.�125 Powell rejected the �discrete and insular minorities� rationale because
the Court had never before required that rationale as a �prerequisite to
subjecting racial . . . distinctions to strict scrutiny.�126 Powell further noted that
�[t]his perception of racial . . . distinctions is rooted in our Nation�s
constitutional and demographic history.�127

Two years after Bakke, in 1980, the Court in Fullilove v. Klutznick128

applied a different type of strict scrutiny when it upheld a federal minority set-
aside statute, reasoning that a court must give �appropriate deference to
Congress� when assessing the constitutionality of a federal statute.129 Although



2002] Charities and the Constitution 815

or supplies from minority-owned businesses. Several private construction contractors
and others claimed that the MBE provision, both on its face and as applied, violated the
Equal Protection Clause. The District Court and the Court of Appeals upheld the validity
MBE program, and the Supreme Court affirmed.

130. See id. at 492. (This opinion does not adopt, either expressly or implicitly,
the formulas of analysis articulated in such cases as Bakke.)

131. Id. at 472. �A program that employs racial or ethnic criteria, even in a
remedial context, calls for close examination; yet we are bound to approach our task
with appropriate deference to the Congress, a co-equal branch charged by the
Constitution with the power to �provide for the . . . general Welfare of the United States�
and �to enforce, by appropriate legislation,� the equal protection guarantees of the
Fourteenth Amendment.� Id. (citations omitted).

132. See id. at 480. The Court in Fullilove found that Congress had done
extensive research into how past discrimination had hurt the development of minority
business and how companies involved in public works projects continued to act in
discriminatory fashions. Id. at 465.

133. See id. at 473. �Here, we pass, not on a choice made by a single judge or
a school board, but on a considered decision of the Congress and the President.� Id.

134. City of Richmond v. J.A.Croson Co., 488 U.S. 469 (1989). The City of
Richmond passed a Minority Business Utilization Plan (The Plan). The Plan called for
prime contractors working on City funded building project to subcontract at least 30%
with one or more Minority Business Enterprises (MBE). The City Council stated that
the ordinance was passed a responds to the barriers MBE faced due to past and present
racial discrimination. The Plan allowed contractor to use subcontractor within the local
communities and outside of the local communities as long those subcontractor was with
the definition of MBE. An MBE was defined as an enterprise which is controlled and
owned by a member of a minority group. A member of a minority group was defined as
a �citizens of the United States who are Black, Spanish-speaking , Orientals, Indians,
Eskimos or Aleuts.� A contractor could receive a waiver where it was shown that the
contractor was unable to find suitable MBE for the job. The program was challenged by
J.A Croson Company (Croson), a mechanical plumbing and Heating contractor. Croson

the Court in Fullilove recognized that racial preferences by government �must
necessarily receive a most searching examination,� it refused to adopt the
Bakke approach to strict scrutiny when analyzing benign racial preferences
articulated by Congress.130 Instead, the Court in Fullilove applied traditional
strict scrutiny analysis, but gave �appropriate deference to the Congress�131 in
its exercise of legislative authority to craft a statute that was narrowly tailored
to remedy present effects of past discrimination.132 The Court in Fullilove
emphasized that this �appropriate deference� strict scrutiny standard applies
only to Congress in its creation of statutes. The special deference standard does
not apply to either judicial decrees or to judicial reviews of application of
remedial statutes.133

In 1989, nine years after Fullilove, the Court, in Richmond v. J. A.
Croson Co.,134 concluded that, under the Equal Protection Clause, state and



816 Florida Tax Review [Vol5:9

had been awarded a contract to install plumbing fixture for the city jail. Croson
attempted to subcontract with a MBE to supply the fixture need for the job. Croson was
only able to find one MBE that expressed interest in participating in the project but after
receiving it bid that would increase the price of the project by 7% the company
determined that the MBE was not suitable. Croson�s request for a waiver was denied and
the City informed the company that the project was to be rebid. Croson filed suit in the
Federal District Court for the Eastern District of Virginia, maintaining that the program
was unconstitutional. The District Court upheld the plan. The Fourth Circuit Court of
Appeals affirmed the District Court, hold that under the Supreme Court�s Fullilove
opinion the plan was constitutional. The Supreme Court vacated the decision and
remanded the case back to the Court of Appeals for further consideration in like of the
Court opinion in Wygant v Jackson Bd. of Educ., 476 U.S. 267 (1986). After further
review the Court of Appeals held that the plan violated the Fourteenth Amendment
Equal Protection Clause. The Supreme Court affirmed.

135. Fullilove, 448 U.S. at 448.
136. See Croson, 488 U.S. at 476. Justice O�Connor delivered the opinion with

respect to Parts I, III-B and IV. With respect to Part II, Justice O�Connor was joined by
Chief Justice Renquist, Justice White, and on Parts III-A and V she was joined by the
Chief Justice, Justices White and Justice Kennedy.

137. Wygant, 476 U.S. at 267. In Wygant, the Court had to determine if the
school board had violated the Equal Protection Clause when it fired a white teacher so
that it could keep a black teacher in order to provide a �role model� for Black students.
The Court held that schools could not use �societal discrimination� as a compelling
interest in order to justify the use of race as a determining factor. The Court held that
only by showing evidence that the school board was engaged in discrimination could the
school board action be a constitutional use of race.

138. See Croson, 488 U.S. at 491. �Thus, our treatment of an exercise of
congressional power in Fullilove cannot be dispositive here.� Id.

local government race-based set-aside programs were subject to strict scrutiny,
notwithstanding the program�s remedial or benign purpose. In Croson, the
Court reviewed a remedial racial program enacted by the City of Richmond that
was similar to the program reviewed by the Court in Fullilove.135 The Court
held that that the City of Richmond�s affirmative action program for minorities
violated the Equal Protection Clause of the Fourteenth Amendment.

Writing the opinion for the plurality,136 Justice O�Connor stated that the
Court would not follow the Fullilove opinion, but would instead follow the
Court�s opinion in Wygant.137 Justice O�Connor reasoned that standards used
in Fullilove were not applicable here because there the question was whether
a congressionally enacted program violated equal protection of the Fifth
Amendment Due Process Clause.138 According to Justice O�Connor, while
States are limited in how they can deal with race, the federal government is



2002] Charities and the Constitution 817

139. See id. at 490. �Congress, unlike any State or political subdivision, has a
specific constitutional mandate to enforce the dictates of the Fourteenth Amendment.�
Id.

140. See id. at 492.
141. See id. at 493. �Indeed the purpose of strict scrutiny is to �smoke out�

illegitimate use of race by assuring that the legislative body is pursuing a goal important
enough to warrant use of a highly suspect tool. The test also ensures that the means
chosen �fit� this compelling goal so closely that there is little or no possibility that the
motive for the classification was illegitimate racial prejudice or stereotype.� Id.

142. Id.
143. Id. at 494.
144. See id. at 495.
145. See id. at 505. �[N]one of the evidence presented by the city points to any

identified discrimination in the Richmond construction industry.� Id.
146. Id. at 498.
147. See id. at 505. �We, therefore, hold that the city failed to demonstrate a

compelling interest . . . .�
148. See id. at 506. �The gross overinclusiveness of Richmond�s racial

preference strongly impugns the city claim of remedial motivation.� Id.

given much broader power to combat racial problems.139 States could enact
programs that were designed to remedy discrimination but those programs had
to be within the �constraints of section one of the Fourteenth Amendment�.140

That meant that any remedial racial program promulgated by a state would be
subject to strict scrutiny to ensure that race was not used improperly.141 The
plan could be held constitutional only if it served a compelling government
interest and was narrowly tailored to achieve that interest.142

Justice O�Connor rejected Justice Marshal�s position which called for
a lesser standard when reviewing programs that seek to benefit racial
minorities. Justice O�Connor maintained that it �bears little resemblance to the
close examination of legislative purpose we have engaged in when reviewing
classification based on race or gender�.143 Only by employing a heightened
judicial standard will the Court fulfill its role to protect minorities from
discrimination.144 Justice O�Connor found that the city had not produced any
evidence of discrimination in the local construction business to justify a
remedial program.145 Under Wygant, the city could not depend on showing a
pattern of past discrimination because it �provides no guidance for a legislative
body to determine the precise scope of the injury it seeks to remedy.�146 Absent
any proof of discrimination, Justice O�Connor held that the plan failed to meet
the compelling interest prong of the test.147 The Court also found that the plan
was �overinclusive� because it provided relief to racial minorities that were not
present in the City and had not suffered past discrimination.148

Under Croson, the Court ruled that states must show evidence of
discriminatory practice before they can enact remedial racial programs. The



818 Florida Tax Review [Vol5:9

149. Metro Broad. v. Fed. Communication Comm�n, 497 U.S. 547 (1990). At
issue in Metro was a program instituted to improve the number of minority owned media
outlet. The program give minority applicant enhancements when awarding new licenses
and set up a �distress sale� program that were limited transfer of existing television and
radio station to minorities . The program was challenged by Shurberg Broadcasting
claiming that the awarding enhancement and the distress sale program violated the equal
protection component of the Fifth Amendment Due Process Clause. The Court of
Appeals for the District of Columbia affirmed the award enhancement but held that the
distress sale violated the equal protection right of non-minorities. The Supreme Court
reversed, holding that the program did not violate the equal protection component of the
Fifth Amendment. 

150. See id. at 552. �The issue in these cases . . . is whether certain minority
preference policies of the Federal Communication Commission violate the equal
protection component of the Fifth Amendment.� Id.

151. Id. at 565.
152. Id. at 565. Quoting Justice O�Connor in Croson, the court stated,

�Congress may identify and redress the effect of society-wide discrimination.� Id.
(quoting Croson, 488 U.S. at 490).

153. See id. at 565-66. Citing Justice Scalia�s concurring opinion in Croson,
the court discussed the difference between State remedial programs and those passed by
Congress. Id. (citing Croson, 488 U.S. at 522-23).

154. Id. at 566.

Court held that only a showing of present discrimination will satisfy the
compelling interest requirement under the strict scrutiny test. This standard
appears to only apply to states because the Court stated that Congress possessed
powers that were excluded from the state. However, as later Supreme Court
cases would demonstrate, even Congress� power under the Fourteenth
Amendment is not plenary.

In 1990, one year after Croson, the Court returned to its pre-Croson
stance when it held in Metro Broadcasting,149 that a minority preference policy
instituted by the Federal Communication Commission (FCC) did not violate the
Equal Protection Clause.150 The Court employed the same reasoning in Metro
Broadcasting that it used in Fullilove in holding that Congressional programs
should be given deference.151 The Court even held that Croson had �reaffirmed
the lesson of Fullilove� that remedial programs created by Congress to address
racial discrimination are subject to a different level of scrutiny than those
passed by state and local governments.152 The Court held that because Congress
is unlikely to be controlled by a racial or minority group there was no need to
use strict scrutiny which had been employed in Croson.153 The Court held that
because the �struggle� for racial justice has been a fight between �individual
States� and �the national society,� the threat which strict scrutiny desired to
eliminate was not present.154 The Court used an intermediate level of scrutiny
and held that the program was permissible if it met an �important objective�



2002] Charities and the Constitution 819

155. Id. �We hold that the FCC minority ownership policies pass muster under
the test we announce today. First, we find that they serve the important governmental
objective of broadcast diversity. Second, we conclude that they are substantially related
to the achievement of that objective.� Id.

156. Id. at 569. The Court in Metro found that the FCC was merely effectuating
the wishes of Congress when it promulgated the minority ownership program. The Court
held that Congress had determined that minority ownership benefitted the public by
creating more diversity over the public air ways. The Court also found that Congress had
hearings and passed numerous pieces of legislation to increase minority ownership. Id.
at 572-579.

157. 515 U.S. 200 (1995).
158. Id. Adarand involved an equal protection challenge to �subcontractor

compensation clauses� in federal agency contracts, which provided that general
contractors would receive additional compensation for hiring minority subcontractors.
Id. at 205. A white contractor challenged the use of compensation clauses under the
Equal Protection Clause, claiming that the government improperly used race as a factor
in selecting a contractor. Id. at 210. Relying on Fullilove and Metro Broadcasting, the
federal district court granted the government�s motion for summary judgment and the
Tenth Circuit affirmed. Adarand Constructors, Inc. v. Skinner, 790 F. Supp. 240 (D.
Colo. 1992), aff�d by, Adarand Constructors, Inc. v. Pena, 16 F.3d 1537, 1547 (10th
Cir.). On appeal, the Supreme Court vacated the Tenth Circuit�s judgment and remanded
the case for further proceedings. Adarand, 515 U.S. at 239.

159. Adarand, 515 U.S. at 235.
160. Id. at 227, 232-34. �By refusing to follow Metro Broadcasting, then, we

do not depart from the fabric of the law; we restore it.� Id. at 234 (emphasis added).
161. Id. at 227. �[S]uch classifications are constitutional only if they are

narrowly tailored measures that further compelling governmental interests. To the extent
that Metro Broadcasting is inconsistent with that holding, it is overruled.� Id.

and was �substantially related to achievement of those goals.�155 In Metro
Broadcasting, the Court again stated that deference should be given to �the
factfinding of Congress� when determining whether a program is related to an
important governmental interest.156

Finally, in 1995, five years after Croson, the Court, in Adarand
Constructors, Inc. v. Pena,157 returned to strict scrutiny review of government
affirmative action programs.158 In Adarand, the Court held that all government
racial classifications, even remedial classifications, must be analyzed under a
strict scrutiny standard, requiring their invalidation unless they are necessary
to further compelling government interests.159 The Court thus overruled Metro
Broadcasting to the extent that it was inconsistent with this strict scrutiny
requirement.160

Writing the opinion for the Court, Justice O�Connor rejected the
standard used in Metro Broadcasting, holding that any use of race as a
determining factor will receive the highest level of scrutiny.161 Justice
O�Connor also made it clear that the Court had departed from the standard used



820 Florida Tax Review [Vol5:9

162. Id. at 235. �[I]t follows that to the extent (if any) that Fullilove held
federal racial classifications to be subject to a less rigorous standard, it is no longer
controlling.� Id.

163. Id. at 215-18. Justice O�Connor cited Bolling v. Sharpe, 347 U.S. 497
(1954), holding for the first time that the Fifth Amendment Due Process Clause contains
a equal protection component that prohibits federally segregated schools.

164. Adarand, 515 U.S. at 226.
165. Id. �Indeed, the purpose strict scrutiny is to �smoke out� illegitimate uses

of race by assuring that the legislative body is pursuing a goal important enough to
warrant us of a highly suspect tool.� Id.

166. Id. at 227.

in Fullilove that subjected federal programs to a more deferential standard.162

Justice O�Connor reasoned that the Constitution held the federal government
to the same standard as the states.163 Thus, by subjecting federal programs to a
lesser standard there was no way of determining whether the programs were
�motivated by illegitimate notions of racial inferiority or simple racial
politics.�164 The use of a strict scrutiny test would guard against any
�illegitimate� use of race in any government program.165 Justice O�Connor
stated that the standard used in Metro Broadcasting, threatens to �undermine�
the protection offered by the Constitution to protect individuals and not
�groups.�166 In the final analysis, the Court in Adarand made it clear that any
program that used racial classifications would be subject to strict scrutiny.

The Court�s various positions on the correct standard of review for
government affirmative action illustrate how dangerous it is for the Service to
rely primarily on Equal Protection Clause standards in making its own
�established public policy� determinations about affirmative action by charities.
For one thing, the standard for determining if benign racial preferences by
government violate the Equal Protection Clause has changed repeatedly over
the years. If a public policy upon which the Service acts must be �clear[ly]
established,� it is not clear at all whether the Court�s current strict scrutiny
standard will apply to benign racial preferences in the not-to-distant future.
Second, the Court�s various discussions about why a particular review standard
is chosen center around the governmental nature of the preference decisions
(e.g., state decisions versus federal decisions). Since charities are not
governmental bodies, nor are they generally subject to governmental
restrictions, it seems inappropriate to apply a standard that emanates from
discussions of governmental qualities.

2) Circuit spilt: race as a factor

In addition to the fluctuating nature of the standard of review, the
current split in the federal circuits courts about whether race can ever be a



2002] Charities and the Constitution 821

167. 78 F.3d 932, 934 (5th Cir. 1996), cert. denied, 518 U.S. 1033 (1996).
168. 2002 U.S. App. LEXIS 9126 (6th Cir. 2002).
169. 233 F.3d 1188 (9th Cir. 2000), cert denied, 532 U.S. 1051 (2001).
170. 263 F.3d 1234 (11th Cir. 2001).
171. Hopwood, 78 F.3d at 962. Similarly, the Fourth Circuit, in Podberesky v.

Kirwan, 38 F.3d 147, 161-62 (4th Cir. 1994), cert. denied, 514 U.S. 1128 (1995), held
that a race-exclusive scholarship program offered by a state university violated the Equal
Protection Clause of Fourteenth Amendment.

172. Smith, 233 F.3d at 1201.

factor in government affirmative action is also problematic for the Service. The
circuits in which this split is most apparent are the Fifth Circuit, in Hopwood
v. Texas,167 and in the Sixth, Ninth and Eleventh Circuits in Grutter v.
Bollinger,168 Smith v. University of Washington Law School169 and Johnson v.
Board of Regents of the University of Georgia.170 In Hopwood, the Fifth Circuit
held that it was a violation of the Equal Protection Clause for a state to use race
as a factor when making decisions about public law school admissions.171

However, in Bollinger, Smith and Johnson, the Sixth, Ninth and Eleventh
Circuits held that race may be used as a factor by a state when making
university admissions decisions. The Ninth Circuit majority in Smith described
the Fifth Circuit�s opinion in Hopwood as �flawed� to the extent that it held
otherwise.172

This circuit split demonstrates that, while it is clear that government
discrimination against black people always violates the Equal Protection
Clause, it is unclear whether race-based affirmative action is necessarily
unconstitutional. Circuit courts uniformly interpret Bakke to hold that strict
scrutiny applies to both invidious discrimination and benign affirmative action
for racial minorities. Accordingly, both types of racial preferences will be
upheld if the government can show that the preference is necessary to
accomplish a compelling interest. This standard effectively means that any
racial preference by government in favor of members of a racial majority that
disadvantage members of a racial minority necessarily violates the Equal
Protection Clause. Indeed, no modern day federal court has ever concluded that
it was necessary to discriminate against racial minorities in order to accomplish
a compelling government interest. On the other hand, Equal Protection Clause
strict scrutiny does not mean that racial preferences in favor of racial minorities
that disadvantage racial majorities necessarily violate the Equal Protection
Clause. The Fifth Circuit�s view is that it is never necessary to favor a racial
minority over a racial majority in order to accomplish a compelling government
interest. The Sixth, Ninth and Eleventh Circuits� views are that it may be
necessary to make such racial preferences in order to accomplish compelling
government interests. This aspect of Equal Protection Clause strict scrutiny is
the central  ever be a factor in government affirmative action efforts.



822 Florida Tax Review [Vol5:9

173. 438 U.S. 265 (1978).
174. See id. at 309. See also Brian K. Landsberg, Balanced Scholarship and

Racial Balance, 30 Wake Forest L. Rev. 819, 822 (1995) (discussing Justice Powell�s
opinion in Bakke).

175. See, e.g., Brennen, The Power of the Treasury, supra note 54, at 424-25.
Professor Brennen writes:

In a plurality opinion, Justice Powell emphasized that the medical
school established its special admissions program to remedy specific
acts of prior discrimination, not general societal discrimination.
While recognizing the importance of the state�s interest in
�ameliorating . . . the disabling effects of identified discrimination,�
Justice Powell noted that �remedying of the effects of �societal
discrimination� [is] an amorphous concept of injury that may be
ageless in its reach into the past.� Thus, a governmental entity seeking
to justify �a classification that aids persons perceived as members of
relatively victimized groups at the expense of other innocent
individuals� must make �judicial, legislative, or administrative
findings of constitutional or statutory violations.� Absent such
findings, it cannot be said that �the government has any greater
interest in helping one individual than in refraining from harming
another.� 

Id.

3) Service lacks expertise on racial
matters

The Service, by its very nature, is not a government agency with
sufficient expertise to make proper constitutional law determinations about
racial discrimination. This lack of expertise means that the Service is not an
appropriate governmental body to decide if a particular racial preference by a
tax-exempt charity is consistent or inconsistent with Equal Protection Clause
strict scrutiny and, hence, �established public policy.� The Supreme Court has
emphasized this aspect of Equal Protection Clause decision-making authority
in Regents of the University of California v. Bakke.173 In Bakke, Justice Powell
refused to consider the Board of Regents� asserted justification for its
affirmative action plan for  the medical school, in part, because that
governmental entity lacked sufficient authority and expertise to make
appropriate racial findings.174 

After emphasizing that constitutional affirmative action plans are
designed to remedy specific acts of prior discrimination (as opposed to general
societal discrimination),175 Justice Powell refused to even consider the Board
of Regent�s asserted findings of such discrimination because of the Board�s
lack of expertise on racial matters:



2002] Charities and the Constitution 823

176. Bakke, 438 U.S. at 309-10 (footnote omitted) (citations omitted).

Petitioner does not purport to have made, and
is in no position to make, such findings. Its
broad mission is education, not the
formulation of any legislative policy or the
adjudication of particular claims of illegality.
. . . [I]solated segments of our vast
governmental structures are not competent to
make those decisions, at least in the absence
of legislative mandates and legislatively
determined criteria. Before relying upon these
sorts of findings in establishing a racial
classification, a governmental body must have
the authority and capability to establish, in the
record, that the classification is responsive to
identified discrimination. Lacking this
capability, petitioner has not carried its
burden of justification on this issue.176

Powell�s opinion in Bakke demonstrates that agencies that are not
authorized to make racial findings cannot properly decide if an asserted
compelling interest for discrimination is sufficiently �compelling� to satisfy
Equal Protection Clause strict scrutiny. Thus, absent proper judicial or
legislative guidance, an administrative agency like the Service, whose expertise
is in taxation, cannot decide if a specific act of discrimination by a tax-exempt
charity would be permitted or prohibited by the Equal Protection Clause if the
charity were a state actor. It stands to reason that it would likewise be
inappropriate for the Service to use that same constitutional standard as a proxy
for �established public policy.�

4) Conclusions

The standard of review regarding government affirmative action and
the circuit split regarding whether race may be used as a factor demonstrates
the danger of the Service relying on Equal Protection Clause standards to
determine �established public policy.� Equal Protection Clause principles do
not indicate whether race based affirmative action is necessarily
unconstitutional. While the state of Texas may not prefer racial minorities when
deciding on university admissions, the state of Washington may prefer racial
minorities when making such decisions. Neither state, however, may
discriminate against racial minorities in making admission decisions. Relying
on this aspect of Equal Protection Clause jurisprudence, one can draw two



824 Florida Tax Review [Vol5:9

177. See Bob Jones Univ. v. United States, 461 U.S. 574, 592 (1983). �[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.�
Id.

178. Miller v. Johnson, 515 U.S. 900, 915 (1996).

conclusions regarding the Service�s enforcement of the public policy limitation.
First, it would be appropriate for the Service to determine that a charity�s
invidious discrimination against racial minorities violates �established public
policy� because the Supreme Court has never held that this type of racial
preference is necessary to accomplish a compelling interest. Second, it would
not be appropriate for the Service to determine that a charity�s preference of
racial minorities over racial majorities necessarily violates �established public
policy� because the Supreme Court has held that this type of racial preference
may, at times, be necessary to accomplish a compelling interest. Further, the
Service has no authority or special capacity to determine when a particular
interest of a charity is compelling or not. Thus, it would be inappropriate for the
Service to look solely to Equal Protection Clause standards to determine if a
tax-exempt charity that engages in race-based affirmative action violates
�established public policy� regarding racial preferences.

c. Fifteenth Amendment equality

Should the Service equate violation of the Fifteenth Amendment by a
charity, if that charity were a state actor and if the suspect charitable act
concerned voting in a state election, with a violation of the public policy
limitation? As with the Fourteenth Amendment, the following analysis suggests
not. Indeed, the Bob Jones University principle that charities cannot violate
established public policy is only implicated when the public policy violation is
�clear.�177

The Court in Bob Jones University surely contemplated that the Service
would make some evaluation of the societal acceptability of the charity�s
challenged action. The Fifteenth Amendment does not permit such evaluation.
Thus, a hypothetical Fifteenth Amendment violation should not be used as the
sole determinant of whether a private charity has violated �established public
policy.�

While the Fourteenth Amendment (at least under current law) permits
the government to make racial preferences that satisfy strict scrutiny, the
Fifteenth Amendment does not employ the same strict scrutiny standard.178

Equal Protection Clause strict scrutiny under the Fourteenth Amendment
requires a reviewing court to initially determine whether the state has used race
as a basis for treating otherwise similarly situated people differently. If it finds
that the state has made such a racial classification, the Fourteenth Amendment



2002] Charities and the Constitution 825

179. 528 U.S. 495 (2000). Rice represents the first time since reconstruction
that the Court relied exclusively on the Fifteenth Amendment, not the Fourteenth
Amendment, to invalidate a voting scheme. This was also the first time the Court used
the Fifteenth Amendment to invalidate a voting scheme that denied historically
advantaged groups, instead of historically disadvantaged groups, the right to vote. See
Deichert, supra note 76, at 1084 n.59. �Rice was the first case decided under the
Fifteenth Amendment dealing with the outright denial of the franchise to a non-minority
racial group on the basis of race.� Id. Thus, Rice is an important case on many levels.

180. Rice, 528 U.S. at 524. The controversy in Rice began when Harold Rice,
a white citizen of Hawaii, sued the governor of Hawaii to invalidate Hawaii�s law that
granted only certain long-time native Hawaiians the right to vote for trustees of the
Office of Hawaiian Affairs (OHA). OHA, a state agency created by a 1978 amendment
to the Hawaiian Constitution, is charged with effectuating �the betterment of conditions
of native Hawaiians . . . [and] Hawaiians.� OHA accomplishes its betterment goal by
representing descendants of Hawaiians and native Hawaiians on issues concerning
government control of valuable land stolen from Hawaiians and native Hawaiians by
westerners. Although Mr. Rice could trace his Hawaiian genealogy back to the mid-
1800's, he was not considered to be either Hawaiian or native Hawaiian under the law
because he could not trace his ancestry back to 1778  the year westerners invaded the
Hawaiian islands. Rice alleged that this voting rights limitation was in fact a proxy for
race. Accordingly, Rice asserted that the Hawaiian only limitation is a classification
based on race that is subject to strict scrutiny review under the Fourteenth and Fifteenth
Amendments. Rice further claimed that the limitation of the class of eligible voters to
certain long-time Hawaiians and native Hawaiians does not satisfy the strict scrutiny
standard. Both Rice and the state of Hawaii moved for summary judgment. The federal
district court in Hawaii granted summary judgment for the state of Hawaii. The district
court concluded that Congress and Hawaii recognize a guardian-ward relationship with

permits the reviewing court to uphold the admitted racial distinction if the
classification is necessary to accomplish a compelling government interest.
This aspect of Fourteenth Amendment Equal Protection Clause strict scrutiny
differs drastically from the standard of review of racial preferences by
government in voting under the Fifteenth Amendment. Even though the
Fourteenth Amendment permits states to make racial distinctions in some
circumstances, the Fifteenth Amendment absolutely bars racial preferences no
matter what justification is proffered by the state.

Thus, even if a state denies the right to vote to an historically
advantaged race as a type of recompense to an historically disadvantaged race
(i.e., an affirmative action-like denial), the state�s denial of the right to vote
always violates the Fifteenth Amendment. The Supreme Court recently made
this point clear in Rice v. Cayetano.179

In Rice v. Cayetano, the Supreme Court held that Hawaii�s denial to
non-native Hawaiians of the right to vote in a statewide election violated the
Fifteenth Amendment�s prohibition against discrimination based on
race.180Afterreciting a detailed history of Hawaiian civilization and the



826 Florida Tax Review [Vol5:9

native Hawaiians which is analogous to the relationship between the United States and
Indian tribes. Thus, the voting restriction, according to the district court, was not subject
to strict scrutiny review; rather it was subject to rational basis review. Accordingly, the
district court held the voting restriction did not violate either the Fourteenth or the
Fifteenth Amendment because the restriction was rationally related to Hawaii�s
�responsibility under [the law]� to provide �for the betterment of native Hawaiians.�
Rice v. Cayetano 963 F. Supp. 1547, (Haw. 1997).

The Court of Appeals for the Ninth Circuit affirmed. The Court of Appeals for
the Ninth Circuit noted that Rice only challenged the voting limitation and not the
underlying programs of OHA or OHA itself. Thus, that court concluded that it was
�bound to �accept the trusts and their administrative structure as [it found] them, and
assume that both are lawful.�� Even though the laws containing the Hawaiian-only
limitations �contain racial classifications on their face,� the Court of Appeals held that
Hawaii �may rationally conclude that Hawaiians, being the group to whom trust
obligations run and to whom OHA trustees owe a duty of loyalty, should be the group
to decide who the trustees ought to be.� Rice then sought review by the United States
Supreme Court, which granted certiorari in Rice v. Cayetano and reversed the Ninth
Circuit, holding that Hawaii�s denial of Rice�s right to vote was �a clear violation of the
Fifteenth Amendment.� Rice, 528 U.S. at 521.

181. Because it was able to resolve the case based solely on Fifteenth
Amendment grounds, the Court never reached the Fourteenth Amendment issues. Id. at
524.

182. Id. at 512. �Fundamental in purpose and effect and self-executing in
operation, the Amendment prohibits all provisions denying or abridging the voting
franchise of any citizen or class of citizens on the basis of race.� Id.

183. In examining how to determine if a particular state law makes a racial
distinction � even if that law does not explicitly mention race, the Court noted that
sometimes circumstantial evidence concerning the intent of the lawmakers may show
that a particular law makes a racial classification. Id. For example, in Guinn v. United
States, 238 U.S. 347 (1915), the Court concluded that Oklahoma�s vote restriction
scheme � which was similar to Hawaii�s in that it did not mention race but instead used
ancestry to exclude at least one race from voting � violated the Fifteenth Amendment.
In 1910, Oklahoma enacted a literacy requirement for voting eligibility. However,
�lineal descendants� of persons previously �entitled to vote� were exempted from the
literacy requirement. Id. at 357. The Court invalidated the Oklahoma scheme because
it was a transparent racial exclusion that tended to perpetuate laws that excluded black
people from the voting franchise. Id. at 364-65. The majority in Rice concluded that
Hawaii�s distinction based on ancestry clearly demonstrated an intent by Hawaii to make
a racial distinction. In essence, according to the Court, Hawaii�s use of ancestry as a
proxy for race is the same as if the statute explicitly mentioned race. Rice, 528 U.S. at

challenged Hawaiian voting law, the Court�s analysis focused on the principles
underlying the Fifteenth Amendment.181 The Court concluded that the Fifteenth
Amendment applies to all denials or abridgments, based on race, of the right to
vote no matter the race of the complaining individual.182 After the Court
determined that Hawaii�s voting law indeed made a distinction based on race,183



2002] Charities and the Constitution 827

514. �Ancestry can be a proxy for race. It is that proxy here.� Id.
Many commentators have criticized this aspect of Rice. See discussion supra

note 77. The commentators argue that distinctions based on Hawaiian lineage are not
racial distinctions because Hawaiian ancestry is not race.

184. Id. at 518.
185. Id. at 518-19. The Indian tribe analogy involved Hawaii�s comparison of

the quasi-sovereign legal status of various Indian tribes to that of Hawaiians and native
Hawaiians. The Court noted that judicial decisions interpreting the effect of federal
legislation and federal treaties have held that Indian tribes often retain elements of so-
called �quasi-sovereign authority� relating to self-governance after United States
invasion or take-over. Id. Thus, the Court, beginning primarily with Morton v. Mancari,
417 U.S. 535, 553-55 (1974), has sustained federal enactments that give employment
preferences to members of these tribes giving employment preferences to persons of
tribal ancestry. Since the OHA trustees are charged with protecting the interests of
native Hawaiians, as Indian tribes are charged with protecting the interests of Native
Americans, the state in Rice relied on this analogy to justify its preferences to persons
of Hawaiian ansestry. The Court rejected the state�s tribal analogy because the Court
was unwilling to conclude that Congress has made the determination that native
Hawaiians have a status like that of Native Americans in organized Indian tribes.
Further, the Court was unwilling to conclude that this congressional determination has
delegated to the State of Hawaii plenary authority to protect that status.

186. Rice, 528 U.S. at 520-21. �Even were we to take the substantial step of
finding authority in Congress, delegated to the State, to treat Hawaiians or native
Hawaiians as tribes, Congress may not authorize a State to create a voting scheme of this
sort.� Id.

187. See, e.g., United States v. Antelope, 430 U.S. 641 (1977); Delaware
Tribal Bus. Comm. v. Weeks, 430 U.S. 73 (1977).

188. Rice, 528 U.S. at 521. �Although the [Indian] classification had a racial
component, . . .  the preference was �not directed towards a racial group consisting of
Indians,� but rather �only to members of federally recognized tribes.�� Id.

the Court went on to show that no justification proffered by the state could
justify the racial distinction.

The first justification offered by the state to justify the racial
classification was that �exclusion of non-Hawaiians from voting is permitted
under our cases allowing the differential treatment of certain members of Indian
tribes.�184 After rejecting the validity of the state�s Indian tribe analogy,185 the
Court noted that even if the analogy applied Hawaii�s law would still violate the
Fifteenth Amendment because of the racial classification for voting.186 The
Indian tribe cases involve Congress� special treatment of Indians who are
members of federally recognized tribes.187 Those cases do not involve, as does
the instant case, denial of the right to vote based solely on race.188 The second
justification offered by the state was that �the limited voting franchise is
sustainable under a series of cases holding that the rule of one person, one vote
does not pertain to certain special purpose districts such as water or irrigation



828 Florida Tax Review [Vol5:9

189. Id. at 522.
190. Id.
191. Id. at 523.
192. Id.
193. Id.
194. Id.
195. Id.

districts.�189 The Court rejected this justification for two reasons. First, unlike
special purpose district elections which are excepted from the one person one
vote requirement, the OHA trustee elections are statewide elections. Thus, the
Court would have to justify extending the one person one vote exception to
statewide elections � something that the Court was unwilling to do.190 Second,
even if the Court were to extend the one person one vote exception to apply to
the OHA statewide election, Hawaii�s argument still fails, according to the
Court, because that exception applies for Fourteenth Amendment purposes
only. The concern with the OHA election eligibility rule is whether it violates
the race-neutrality command of the Fifteenth Amendment. Because the
Fifteenth Amendment has �independent meaning and force,� the Court was not
convinced that �compliance with the one-person. . . one-vote rule of the
Fourteenth Amendment somehow excuses compliance with the Fifteenth
Amendment.�191 Thus, the Court refused to find any exception to the race-
neutrality command of the Fifteenth Amendment.

The third justification proffered by the State for its racial classification
was that �the voting restriction does no more than ensure an alignment of
interests between the fiduciaries and the beneficiaries of a trust.�192 The Court
rejected this justification for two reasons. First, the fiduciary and beneficiary
interests are not in fact aligned under the challenged scheme. Indeed, while the
benefits of the trust are intended primarily for �native Hawaiians,� the state
permits �native Hawaiians� and �Hawaiians� to vote for trustees. Thus, instead
of creating an alignment of interests, the challenged scheme actually �creates
a differential alignment� between trustees and beneficiaries.193 Second, even if
the interests were aligned, the Court concluded that the state�s argument still
fails because the essence of the alignment is to allow race to �qualify some and
disqualify others from full participation in our democracy.�194 This race
qualification requirement, according to the Court, is inconsistent with the
principle of race-neutrality, which underlies the Fifteenth Amendment.195

This analysis of the Rice decision demonstrates that it would be
inappropriate for the Service to rely significantly on Fifteenth Amendment
jurisprudence when making its public policy decisions about tax-exempt
charities. The sole purpose of the Fifteenth Amendment is to eradicate racial
preferences by government with respect to voting in governmental elections.
Thus, in order for the Service to properly rely on Fifteenth Amendment



2002] Charities and the Constitution 829

196. See U.S. Const. amend. XV.
197. Id.
198. Rice, 528 U.S. at 512. �The design of the Amendment is to reaffirm the

equality of races at the most basic level of the democratic process, the exercise of the
voting franchise.� Id.

199. See discussion supra notes 77-86 and accompanying text.
200. Another conclusion the Service might have to make in order to apply

Fifteenth Amendment standards to tax-exempt charities is that the standards apply to
citizens and non-citizens alike. On its face, the Fifteenth Amendment only applies to
rights of �citizens of the United States.� It is not clear whether or not those denied
admission to the Kamehemeha schools were United States citizens. However, given the

standards, it would have to make at least two preliminary conclusions regarding
the relationship of Fifteenth Amendment equality standards to the public policy
limitation. The first conclusion the Service would have to make is that Fifteenth
Amendment equality applies even to circumstances in which neither the
�United States� nor �any State� has acted.196 This conclusion is necessary
because, by its very terms, the Fifteenth Amendment only applies to denials or
abridgments of voting rights by one of these governmental units. No court has
extended application of this constitutional prohibition to any non-governmental
actor. With some exceptions not relevant here, tax-exempt charities are not
government actors. Thus, the Service must conclude that, for some reason yet
unexplained by the judiciary, the Fifteenth Amendment applies to both
government actors and to non-government actors. Such a conclusion would be
baseless.

Another conclusion the Service would have to make in order to apply
Fifteenth Amendment standards to tax-exempt charities is that the standards
were intended to apply, not just to �the right . . . to vote,� but also to rights
other than voting, such as the right to attend school.197 Again, by its very terms,
the Fifteenth Amendment only applies in the context of voting. No court has
ever found otherwise. Indeed, the Supreme Court, in Rice v. Cayetano,
specifically noted that the only concern of the Fifteenth Amendment is denials
or abridgements of the right to vote.198 The Service intimated in the Bishop
Estate TAM that it would apply these Fifteenth Amendment equality-in-voting
standards to a tax-exempt trust that denied those lacking sufficient Hawaiian
lineage admission to the trust�s schools.199 The Service made no mention in the
Bishop Estate TAM of �the right . . . to vote� ever being an issue. Thus, once
again, in order for the Service to rely almost exclusively on holdings in cases
like Rice v. Cayetano to define the parameters of the public policy limitation,
it must  conclude that the Fifteenth Amendment applies to circumstances that
do not involve issues of voting. Reaching such a conclusion would be
inconsistent with constitutional jurisprudence concerning the Fifteenth
Amendment.200



830 Florida Tax Review [Vol5:9

Hawaii is a popular destination for foreign visitors, it is not entirely improbable that at
least some who were denied admission to the school were non-United States citizens.

201. See, e.g., Roberts v. United States Jaycees, 468 U.S. 609 (1984):

Our decisions have referred to constitutionally protected �freedom of
association� in two distinct senses. In one line of decisions, the Court
has concluded that choices to enter into and maintain certain intimate
human relationships must be secured against undue intrusion by the
State because of the role of such relationships in safeguarding the
individual freedom that is central to our constitutional scheme. In this

The Service�s reliance on constitutional law equality standards to
determine when and if a particular tax-exempt charity has violated �established
public policy� is inappropriate. Equality principles concerning racial
preferences, for example, are not readily applicable in non-constitutional
settings. Two of the most significant constitutional equality provisions � the
Equal Protection Clauses of the Fourteenth Amendment and the Fifteenth
Amendment � have various characteristics that make direct application of these
provisions to tax-exempt charities problematic. Although both equality
standards apply in situations involving racial preferences, one standard requires
judgment by an arbiter as to the acceptability of the racial preferences
(Fourteenth Amendment) whereas the other standard is not concerned at all
with acceptability just with whether a racial preference exists (Fifteenth
Amendment). Who�s to say which of these standards applies for �established
public policy� purposes? Additionally, concerns exist regarding level of
scrutiny, the capacity of the Service to make appropriate determinations about
race and the appropriateness of extending constitutional provisions to
non-constitutional settings without judicial guidance. Thus, the Service�s
apparent reliance on equality aspects of the Constitution as the guide-star to
determine equality for purposes of the public policy limitation is inappropriate;
that is, the Service cannot use the Constitution as a proverbial sword to revoke
the tax-exempt status of a charity. But what about the other way around? That
is, might a tax-exempt charity use the Constitution as a shield to prevent the
Service from revoking the charity�s tax-exemption?

C. Freedom of Expressive Association: a Shield to Protect
Charitable Status

1. Introduction

The United States Constitution protects two types of associational
freedoms: freedom of intimate association and freedom of expressive
association.201 This subpart will focus exclusively on the constitutional right to



2002] Charities and the Constitution 831

respect, freedom of association receives protection as a fundamental
element of personal liberty. In another set of decisions, the Court has
recognized a right to associate for the purpose of engaging in those
activities protected by the First Amendment -- speech, assembly,
petition for the redress of grievances, and the exercise of religion.
The Constitution guarantees freedom of association of this kind as an
indispensable means of preserving other individual liberties.

Id. at 617-618. See also Evelyn Brody, Entrance, Voice, and Exit: The Constitutional
Bounds of the Right of Association, 35 U.C. Davis L. Rev. 821, 829-30 (2002),
explaining the origins of freedom of association in the 1950's.

202. See U.S. Const. amend. I.
203. Roberts, 468 U.S. at 622.
204. Id. at 623.
205. Id.

freedom of expressive association and its use by private groups as a shield
against anti-discrimination laws aimed at preventing discrimination against
homosexuals. The purpose of this examination is to evaluate whether a private
charity that discriminates against homosexuals in violation of state law may use
freedom of expressive association as a shield to protect it from the Service�s
attempts to revoke its tax-exempt status on public policy grounds. More
broadly, the ultimate issue is whether and how the Service should consider a
charity�s constitutional defenses, such as a claim of freedom of expressive
association, in ascertaining whether the charity violates �established public
policy.�

2. Freedom of expressive association

Subject to certain constraints, the First Amendment guarantees citizens
the right to free speech.202 The Supreme Court has recognized that �implicit in
[this right]� is �a corresponding right to associate with others in pursuit of a
wide variety of political, social, economic, educational, religious, and cultural
ends.�203 The right to associate in this way is critical when it comes to
preventing the tyranny of the views of the majority over those of the minority.
Thus, protecting a group�s right to freedom of expressive association aids in
preserving political and cultural diversity in society and in shielding unpopular
expression from repression by the majority.

Among the many government actions that might violate a group�s
freedom of expressive association is �intrusion into the internal structure or
affairs� of the group.204 One type of intrusion might be a regulation or other law
that �forces the group to accept members it does not desire.�205 Such force
might significantly impair the group�s ability to express its often unpopular



832 Florida Tax Review [Vol5:9

206. See Boy Scouts of America v. Dale, 530 U.S. 640 (2000).
207. Id. at 648.
208. New York State Club Ass�n, Inc. v. City of New York, 487 U.S. 1, 13

(1988).
209. Roberts, 468 U.S. at 623. �Infringements on [the right to freedom of

expressive association] may be justified by regulations adopted to serve compelling state
interests, unrelated to the suppression of ideas, that cannot be achieved through means
significantly less restrictive of associational freedoms.� Id.

210. The Service defines a �membership organization� (or membership charity)
as �an organization that is composed of individuals or organizations who (1) share in the
common goal for which the organization was created; (2) actively participate in
achieving the organization�s purposes; and (3) pay dues.� See IRS Form 990
(instructions for Part II, Line 11).

views.206 Accordingly, freedom of expressive association �plainly presupposes
a freedom not to associate.�207 The standard utilized by the Court to determine
if forced inclusion of a person in a group infringes that group�s freedom of
expressive association is to determine whether the person�s presence
significantly impairs the group�s ability to advocate its viewpoints.208

Like many constitutionally protected rights, however, freedom of
expressive association is not an absolute freedom. The freedom must yield if
a particular law or regulation is adopted to serve a compelling governmental
interest that is unrelated to the suppression of ideas and cannot be achieved in
a significantly less intrusive manner.209 Thus, a private group�s constitutional
right to freedom of expressive association may yield to a state�s often
compelling interest in eliminating many types of discrimination in society,
including discrimination based on race, gender and age.

3. Use of freedom of expressive association as a shield
against violation of state anti-discrimination law

The Supreme Court recently decided a freedom of expressive
association case, Boy Scouts of America v. Dale, that implicitly raises questions
about the extent to which the Service may use �established public policy� to
revoke (or deny) tax-exempt charitable status. Boy Scouts of America does not
actually involve a denial of tax-exempt status; instead, the case involves the
First Amendment right of one of the country�s largest membership charities,210

the Boy Scouts of America (the Boy Scouts), to violate state law by excluding
a person from its organization based on the person�s sexual orientation. Though
not explicitly recognized in federal civil rights laws, many people would argue
that it is nearly universally accepted in society that discrimination based on
sexual orientation is wrong. Indeed, this is one of the many arguments raised
by Justice Stevens in his dissent in Boy Scouts of America when he explains
that old negative opinions about homosexuality have been replaced by more



2002] Charities and the Constitution 833

211. See Boy Scouts of America, 530 U.S. at 669 (Stevens dissent). �Over the
years, however, interaction with real people, rather than mere adherence to traditional
ways of thinking about members of unfamiliar classes, have modified those [negative]
opinions.� Id.

212. Thirteen states currently have statutory laws that explicitly prohibit
discrimination based on sexual orientation. See Cal. Gov�t. Code § 12940 (West Supp.
2001); Conn. Gen. Stat. Ann. §§ 46(a)-81(c) (West Supp. 2001); D.C. Code Ann. § 2-
1402.11 (2001); Haw. Rev. Stat. §§ 368-1, 378-2 (Supp. 2000); MD. Ann. Code art.
49B, §§ 5, 16, 14, 8 (Supp. 2001); Mass. Ann. Laws ch. 151, §§ B1, B3, B4 (Law.
Co-op. Supp. 2001); Minn. Stat. Ann. §§ 363.03, 363.12 (West Supp. 2001); Nev. Rev.
Stat. Ann. §§ 610.020, 613.340 (Michie 2000); N.H. Rev. Stat. Ann. §§ 354-A:7, :8
(Supp. 2001); N.J. Stat. Ann. §§ 10:2-1, :5-4, :5-12 (West Supp. 2001); R.I. Gen. Laws
§§ 28-5-2, 28-5-7 (Supp. 2001); Vt. Stat. Ann. Tit. 21, § 495 (Supp. 2001-2002); Wis.
Stat. Ann. § 111.36 (West Supp. 2001). Also, there are 42 out of 3,097 U.S. counties
that to some extent prohibit discrimination based on sexual orientation. See Lambda
L e g a l  D e f e n s e  a n d  E d u c a t i o n  F u n d ,  a t
www.lambdalegal.org/cgi-bin/iowa/states/antidiscrimi-map (Jan. 7, 2002). See also
Brody, Entrance, Voice and Exit, fns 70-72 and accompanying text �While federal law
bars discrimination on the basis of race, color, religion, or national origin in �places of
public accommodation,� many States and municipalities have gone further, both in their
enumeration of protected classifications, and in their definition of �public
accommodation.� The U.S. Constitution, however, provides an outer limit to the reach
of these statutes and ordinances.� (footnotes omitted).

213. Boy Scouts of America, 530 U.S. at 647-48.
214. One author has noted that �Boy Scouts of America v. Dale represents the

first defeat for the application of a State anti-discrimination law; time will tell
howbroadly it will apply.� See Brody, Entrance, Voice, and Exit, supra note 201.

215. Boy Scouts of America, 530 U.S. at 640.
216. The opinion simply describes the Boy Scouts as a �private, not-for-profit

organization engaged in instilling its system of values in young people�. See id. at 643.
However, the Service identifies the Boy Scouts as an organization exempt from taxation
by section 501(c)(3) of the Code and entitled to receive tax deductible contributions
from the public.

enlightened and informed views.211 Additionally, an overwhelming majority of
states now have statutory laws that explicitly prohibit discrimination based on
sexual orientation.212 Nevertheless, the Court�s conclusion in Boy Scouts of
America is that freedom of expressive association permits private non-
governmental organizations, like the Boy Scouts, to exclude homosexuals if
forced inclusion would significantly impair the organization�s message.213 In
essence, Boy Scouts of America stands for the proposition that private non-
governmental groups may use freedom of expressive association as a shield
against forced compliance with state anti-discrimination laws.214

In Boy Scouts of America v. Dale,215 James Dale an openly gay former
Eagle Scout sued the Boy Scouts, a private membership charity,216 after that
organization revoked Dale�s adult membership based solely on his sexual



834 Florida Tax Review [Vol5:9

217. Dale applied for and was granted adult membership in the Boy Scouts in
1989. Shortly thereafter, Dale, for the first time, acknowledged to himself and to others
that he is gay. Dale then became president of his college lesbian/gay organization. A
newspaper later published an article about Dale and his advocacy of gay issues,
including the need for youths to have gay role models. The article included a picture of
Dale with a caption identifying him as president of his college lesbian/gay organization.
During that same month, in 1990, Dale received a letter from his local Boy Scouts
council revoking his membership because the Boy Scouts �specifically forbid[s]
membership to homosexuals.� See Boy Scouts of America, 530 U.S. at 665.

218. See Boy Scouts of America, 530 U.S. at 661-662 (citing N. J. Stat. Ann.
§ § 10:5-4 and 10:5-5 (West Supp. 2000)). New Jersey�s anti-discrimination law
provides:

All persons shall have the opportunity to obtain employment, and to
obtain all the accommodations, advantages, facilities, and privileges
of any place of public accommodation . . . without discrimination
because of race, creed, color, national origin, ancestry, age, marital

status, affectional or sexual orientation, familial
status, or sex, subject only to conditions and
limitations applicable alike to all persons.

N. J. Stat. Ann. § 10:5-4 (West Supp. 2000). New Jersey�s anti-discrimination law
defines �place of public accommodation� as including:

any tavern, roadhouse, hotel, motel, trailer camp, summer camp, day
camp, or resort camp, whether for entertainment of transient guests
or accommodation of those seeking health, recreation or rest; any
producer, manufacturer, wholesaler, distributor, retail shop, store,
establishment, or concession dealing with goods or services of any
kind; any restaurant, eating house, or place where food is sold for
consumption on the premises; any place maintained for the sale of ice
cream, ice and fruit preparations or their derivatives, soda water or
confections, or where any beverages of any kind are retailed for
consumption on the premises; any garage, any public conveyance
operated on land or water, or in the air, any stations and terminals
thereof; any bathhouse, boardwalk, or seashore accommodation; any
auditorium, meeting place, or hall; any theatre, motion-picture house,
music hall, roof garden, skating rink, swimming pool, amusement and
recreation park, fair, bowling alley, gymnasium, shooting gallery,
billiard and pool parlor, or other place of amusement; any comfort
station; any dispensary, clinic or hospital; any public library; any
kindergarten, primary and secondary school, trade or business school,

orientation.217 Dale�s primary claim against the Boy Scouts was that his
exclusion violated a New Jersey law that prohibits discrimination based on
sexual orientation by places of public accommodation.218 The Boy Scouts



2002] Charities and the Constitution 835

high school, academy, college and university, or any educational
institution under the supervision of the State Board of Education, or
the Commissioner of Education of the State of New Jersey. Nothing
herein contained shall be construed to include or to apply to any
institution, bona fide club, or place of accommodation, which is in its
nature distinctly private; nor shall anything herein contained apply to
any educational facility operated or maintained by a bona fide
religious or sectarian institution, and the right of a natural parent or
one in loco parentis to direct the education and upbringing of a child
under his control is hereby affirmed; nor shall anything herein
contained be construed to bar any private secondary or post
secondary school from using in good faith criteria other than race,
creed, color, national origin, ancestry or affectional or sexual
orientation in the admission of students.

N. J. Stat. Ann. § 10:5-5 (West Supp. 2000). 
219. See Boy Scouts of America, 530 U.S. at 651-52 (The Boy Scouts asserts

that homosexual conduct is inconsistent with the values embodied in the Scout Oath and
Law, particularly with the values represented by the terms �morally straight� and
�clean.�).

220. See id. at 645. The New Jersey Superior Court�s Chancery Division held
that New Jersey�s anti-discrimination law does not apply because the Boy Scouts is �not
a place of public accommodation� and, further, is exempt from coverage under the law
because the Boy Scouts is a private group. The court also held that the First Amendment
right to freedom of expressive association prevented New Jersey from forcing the Boy
Scouts to accept Dale as a member.

221. See id. at 646. The New Jersey Superior Court�s Appellate Division
affirmed reversed and remanded for further proceedings, holding that the anti-
discrimination law applied to the Boy Scouts, that the Boy Scouts violated that law and
that the Boy Scouts was not entitled to insulation from liability by the First Amendment
right of freedom of expressive association. Dale v. Boy Scouts of America, 706 A.2d
270 (1998). The New Jersey Supreme Court affirmed the judgment of the Appellate
Division. Dale v. Boy Scouts of America, 734 A.2d 1196 (1999).

responded that the anti-discrimination law is unconstitutionalas applied to its
exclusion of Dale because of the Boy Scouts� First Amendment right not to
associate with homosexuals, which the Boy Scouts considers inconsistent with
its core values.219 A New Jersey trial court rejected Dale�s discrimination claim
and granted summary judgment to the Boy Scouts.220 However, the state
appellate and supreme courts sided with Dale.221 The New Jersey Supreme
Court held that the Boy Scouts is a place of public accommodation covered by
the state�s anti-discrimination law; it violated this law by revoking Dale�s
membership based solely on his sexual orientation; and it is not shielded from



836 Florida Tax Review [Vol5:9

222. See Boy Scouts of America, 530 U.S. at 646-47. The New Jersey Supreme
Court �agree[d] that [the Boy Scouts] expresses a belief in moral values and uses its
activities to encourage the moral development of its members.� Dale v. Boy Scouts of
America, 734 A.2d at 1223. However, the court noted that it was �not persuaded . . . that
a shared goal of Boy Scout members is to associate in order to preserve the view that
homosexuality is immoral.� Dale v. Boy Scouts of America, 734 A.2d at 1224 (internal
quotation marks omitted). Further, the court determined that the state has a compelling
interest to eliminate �the destructive consequences of discrimination from our society,�
and that this anti-discrimination law infringes no more speech than is necessary to
accomplish this purpose. Dale v. Boy Scouts of America, 734 A.2d at 1227-28.

The Boy Scouts also claimed that New Jersey�s law violated its right to
intimate association. See Boy Scouts of America, 530 U.S. at 646-47. However, the New
Jersey Supreme Court concluded that the Boy Scouts� �large size, nonselectivity,
inclusive rather than exclusive purpose, and practice of inviting or allowing nonmembers
to attend meetings, establish that the organization is not �sufficiently personal or private
to warrant constitutional protection� under the freedom of intimate association.� Dale
v. Boy Scouts of America, 734 A.2d at 1221 (quoting Duarte, supra at 546).

223. See Boy Scouts of America, 530 U.S. at 649-56.
224. See id. at 650-56.
225. See id. at 648.
226. See id. at 649-50.
227. See id. at 650.

coverage of this law by the First Amendment right to freedom of expressive
association.222

On appeal, the United States Supreme Court reversed the New Jersey
Supreme Court, concluding that New Jersey�s interpretation of its anti-
discrimination law violated the Boy Scouts� freedom of expressive association
by forcing the organization to grant adult membership to Dale.223 In reaching
this conclusion, the Supreme Court determined that the Boy Scouts is engaged
in expressive activity, that the nature of that expression is that homosexuality
is immoral, and that the forced inclusion of Dale would significantly impair the
Boy Scouts� ability to advocate its views against homosexuality.224 In
determining that the Boy Scouts engages in protected First Amendment
expression, the Court reviewed the Boy Scouts� mission, which includes
�helping to instill values in young people.�225 Adult scout leaders, as Dale once
was, are charged with instructing young members in various outdoor activities
while also inculcating the young boys with the Boy Scouts values. The
communication of such values, per the Court, is clearly a type of expression.226

After determining that the Boy Scouts engaged in expressive activity,
the Court evaluated the nature of that expression and the impact on that
expression of forcing the Boy Scouts to keep Dale as a member.227 The Court
notes that the Boy Scouts� core values include those contained in the Scout
Oath and Law, especially those represented by the terms �morally straight� and



2002] Charities and the Constitution 837

228. See id. at 648-50.
229. See id. at 652-53.
230. As an example, the Court states that �some people may believe that

engaging in homosexual conduct is not at odds with being �morally straight� and �clean.�
And others may believe that engaging in homosexual conduct is contrary to being
�morally straight� and �clean.�� Id. at 651.

231. In fact, the Court flatly refused to adopt the New Jersey Supreme Court�s
analysis of the Boy Scouts� beliefs that the �exclusion of members solely on the basis
of their sexual orientation is inconsistent with [the Boy Scouts�] commitment to a
diverse and �representative� membership . . . [and] contradicts [the Boy Scouts�]
overarching objective to reach �all eligible youth.�� Id. at 651 (quoting Dale v. Boy
Scouts of America, 734 A.2d at 1226). The Supreme Court notes that �it is not the role
of the courts to reject a group�s expressed values because they disagree with those
values or find them internally inconsistent.� See id. at 686. See also Democratic Party
of United States v. Wis. ex rel. La Follette, 450 U.S. 107, 124 (1981) (�[A]s is true of
all expressions of First Amendment freedoms, the courts may not interfere on the ground
that they view a particular expression as unwise or irrational.�); Thomas v. Review Bd.
of Ind. Employment Sec. Div., 450 U.S. 707, 714 (1981) (�Religious beliefs need not
be acceptable, logical, consistent, or comprehensible to others to merit First Amendment
protection.�).

232. See Boy Scouts of America, 530 U.S. at 655-56. �As we give deference
to an association�s assertions regarding the nature of its expression, we must also give
deference to an association�s view of what would impair its expression.� (citations
omitted). See also La Follette, 450 U.S. at 123-24 (considering whether Wisconsin law
burdened the National Party�s associational rights and stating that �a State, or a court,
may not constitutionally substitute its own judgment for that of the Party�). However,
the Court cautions that an expressive association may not shield against anti-
discrimination laws by nakedly asserting that mere acceptance of a particular member
will impair its message. Apparently, something more is required.

233. Boy Scouts of America, 536 U.S. at 659. It is unclear from the majority
opinion whether the Court would have reached the same conclusion about significant
impairment had Dale not been a �leader� in his community and �open and honest� about
his sexual orientation. That is, the Court�s explanation does not indicate whether the Boy
Scouts� refusal to admit Dale would have been upheld as freedom of expressive

�clean.�228 The Boy Scouts asserted that homosexual behavior is inconsistent
with these core values.229 Though the Court recognized that these terms may be
subject to multiple interpretations,230 it gave great weight to the Boy Scouts�
statement of its view that engaging in homosexual conduct is contrary to being
�morally straight� and �clean.�231 The Court also gave great weight to the Boy
Scouts� view that Dale�s continued adult membership as assistant scoutmaster
would significantly impair the Boy Scouts� expression.232 According to the
Court, because Dale was a �leader[ ]� in his community and �open and honest�
about his sexual orientation, his mere presence forces the Boy Scouts �to send
a message . . . that [it] accepts homosexual conduct as a legitimate form of
behavior.�233 The Supreme Court concluded that this intrusion upon the Boy



838 Florida Tax Review [Vol5:9

association if Dale was either not a �leader� or not �open and honest.� This issue is
made even more relevant by the Court�s discussion of its earlier decision in Hurley v.
Irish-American Gay, Lesbian and Bisexual Group of Boston, Inc., 515 U.S. 557 (1995).
See Boy Scouts of America, 530 U.S. at 653-54. In Hurley, the Court considered
whether a Massachusetts law interpreted as requiring private organizers of a St. Patrick�s
Day parade to include an Irish-American gay, lesbian and bisexual group violated the
organizers� freedom of expressive association. In concluding that the exclusion was
protected by the First Amendment, the Court in Hurley noted that the private parade
organizers did not exclude the gay, lesbian and bisexual group because of the members�
sexual orientation. Rather, the group was excluded because they wanted to march behind
a banner announcing its members� sexual orientation. The Court in Hurley concluded
that the private parade organizers have the right to choose not to propound the view that
homosexuality is socially acceptable by having members of a gay, lesbian and bisexual
organization marching behind a banner. See Hurley, 515 U.S. at 574-75.

234. Boy Scouts of America, 530 U.S. at 658. Originally, state public
accommodation laws were adopted to prevent discrimination in traditional places of
public accommodation, such as inns and trains. See, e.g., Hurley, 515 U.S. at 571-72
(explaining the history of Massachusetts� public accommodations law); Romer v. Evans,
517 U.S. 620, 627-29 (1996) (describing the evolution of public accommodations laws).
Today, however, public accommodation laws have expanded to cover places not usually
thought of as places of public accommodation, like summer camps and roof gardens.
See, e.g., Boy Scouts of America, 530 U.S. at 658 (citing N. J. Stat. Ann. § 10:5-5(l)
(West Supp. 2000)) (noting that New Jersey�s definition of place of public
accommodation is so broad as to include a list of over 50 types of places). New Jersey
is the only state that has gone so far as to interpret its public accommodation statute as
not requiring that a place of public accommodation be a physical location, thus
encompassing membership organizations like the Boy Scouts. Compare Welsh v. Boy
Scouts of America, 993 F.2d 1267 (7th Cir. 1993); cert. denied, 510 U.S. 1012 (1993);
Curran v. Mount Diablo Council of the Boy Scouts of America, 952 P.2d 218 (1998);
Seabourn v. Coronado Area Council, Boy Scouts of America, 891 P.2d 385 (1995);
Quinnipiac Council, Boy Scouts of America, Inc. v. Comm�n on Human Rights &
Opportunities, 528 A.2d 352 (1987); Schwenk v. Boy Scouts of America, 551 P.2d 465
(1976).

Scouts� First Amendment right is not outweighed by New Jersey�s  interest  in
preventing discrimination against homosexuals by places of public
accommodation.234

The thrust of the Court�s opinion in Boy Scouts of America v. Dale is
that private groups may use freedom of expressive association as a shield
against a state�s enforcement of its anti-discrimination laws. It is ironic,
however, that a state�s attempt to curb the tyranny of the majority by enacting
laws to protect the minority may be thwarted by a constitutional law provision
also aimed at preventing the tyranny of the majority. This conflict, between
government attempts to lessen discrimination and private claims of a
Constitutional right to free expression, presents a paradox that is not
insignificant. Indeed, the juxtaposition of these two societal goals � lessening



2002] Charities and the Constitution 839

235. See Boy Scouts of America, 530 U.S. at 661. See also discussion supra
notes 210-34 and accompanying text.

discrimination against allowing free expression � implicates fundamental
aspects of true democracy. Thus, good or bad, the Court in Boy Scouts of
America resolves the anti-discrimination / free expression conflict in favor of
free expression, at least where the anti-discrimination law protects homosexuals
and the free expression violates anti-discrimination law by denouncing
homosexuality. Query: What does this decision mean with respect to Service
enforcement of the public policy limitation? Must a public policy prohibiting
discrimination against homosexuals, like an anti-discrimination law prohibiting
such discrimination, also yield to an appropriate private claim of a
Constitutional right to free expression?

4. Problems with using freedom of expressive
association as a shield to protect tax-exempt charities
that discriminate

In deciding whether a particular charity violates �established public
policy,� the Service could confront a constitutional law claim that, for lack of
a better term, justifies the charity�s clearly discriminatory action or policy. How
should the Service consider such a claim? Should constitutional law claims
such as freedom of expressive association be considered proverbial shields that
prevent the Service from revoking the charity�s tax-exempt status? What should
be the relevance of the fact that the charity, though acting within its federal
First Amendment rights, violates a state law that might embody �established
public policy� regarding discrimination? This Article is not focused on the
issue of whether a state may enforce its sexual orientation anti-discrimination
laws against a private charity that has a valid freedom of expressive association
basis for its discrimination. Clearly, the Court in Boy Scouts of America v. Dale
concludes that such state laws are unconstitutional and, therefore,
unenforceable.235 But what about the federal tax laws that attempt to
accomplish a goal similar to that strived for by state anti-discrimination laws?
Is the Service, like states, also barred by valid freedom of expressive
association claims from enforcing its version of federal anti-discrimination law
for charities (i.e., the public policy doctrine) against private charities that
discriminate?

In order to demonstrate how a possible freedom of expressive
association shield claim might be raised to fend off Service enforcement of the
public policy limitation, consider the following hypothetical:



840 Florida Tax Review [Vol5:9

236. Just as the prior �prediction� about the future of constitutional law, this
prediction about the future of anti-discrimination law is mere speculation, based
somewhat on current trends in law.

237. See Boy Scouts of America, 530 U.S. at 640.
238. See Bob Jones Univ. v. United States, 461 U.S. 574, 586 (1983).

The public is outraged over the discovery that the Male Scouts
of America (Male Scouts) excludes homosexuals from
membership. While state law prohibits such exclusion by
places of public accommodation like Male Scouts, a competent
court determines that forcing the Male Scouts to comply with
the state law would violate the Male Scouts� freedom of
expressive association. In the wake of discovering that the
Male Scouts is a tax-exempt charity, the Service audits the
Male Scouts for compliance with section 501(c)(3). Pursuant
to its audit, the Service properly determines that discrimination
against homosexuals like discrimination against black people
violates �clear established public policy.� Accordingly, the
Service issues appropriate notice to the Male Scouts that the
Service intends to revoke the Male Scouts� tax-exempt status
because of this public policy violation. The Male Scouts then
responds to the Service that it cannot revoke its tax-exemption
on this ground because a competent court previously
determined that the �no homosexuals� policy is protected
expression. How should the Service respond?

The primary focus of this hypothetical is not the Service�s
determination that discrimination against homosexuals violates �established
public policy.�Indeed, for purposes of the hypothetical, this determination is
assumed to be correct.236 Rather, the primary focus of the hypothetical is the
issue of how the Service should contend with an alleged constitutional law
justification for this clear violation of public policy. Stated differently, the
concern is whether the First Amendment�s prohibition against government
infringing on a private group�s freedom of expressive association would be
violated if the Service revoked the Male Scouts� tax-exempt status.

The Service could respond to the Male Scouts� justification for its
discrimination by arguing that no First Amendment right is violated because
revoking their tax exempt status does not prevent the Male Scouts from
associating to express anti-homosexual views. Unlike New Jersey�s law in Boy
Scouts of America v. Dale, which outright prohibited discrimination by
organizations like the Male Scouts,237 the public policy limitation only prohibits
violations of �established public policy� while the organization maintains tax-
exempt status pursuant to section 501(c)(3).238 Thus, whereas the Boy Scouts



2002] Charities and the Constitution 841

239. See discussion supra notes 46-58 and accompanying text.
240. Boy Scouts of America, 530 U.S. at 650.
241. See Id.

would not be able to operate at all if the state�s anti-discrimination violation
finding were upheld, the Male Scouts could continue to operate (albeit in a
taxable, as opposed to tax-exempt, form) even if the Service�s public policy
violation finding is upheld.

The Service�s public policy violation claim against the hypothetical
Male Scouts under this scenario is arguably a stronger case than New Jersey�s
anti-discrimination claim against the Boy Scouts. While the Boy Scouts must
cease operations as a result of a successful anti-discrimination claim, the Male
Scouts can continue to operate both with and without its 501(c)(3) tax-
exemption. This analysis, of course, ignores the reality that many entities
actually fail without the 501(c)(3) tax-exemption.239 Nevertheless, the pivotal
question is: what is the relevance of the nature of the punishment here (loss of
exemption instead of loss of existence) to resolving the constitutional law issue
of whether the Boy Scouts� right to freedom of expressive association is
implicated by the Service�s revocation action?

The Supreme Court�s opinion in Boy Scouts of America is, at least,
partially instructive on the issue of the proper focus of a court in deciding a
freedom of expressive association case. In its analysis of whether New Jersey�s
law unconstitutionally infringed the Boy Scouts� freedom of expressive
association, the Court had to �determine whether the forced inclusion of Dale
. . . would significantly affect the Boy Scouts� ability to advocate public or
private viewpoints.�240 Thus, the Court�s focus was on the nature of the Boy
Scouts� expression and the effect on that expression of keeping Dale as a
member.241 Similarly, the focus with regard to the Service�s proposed action
against the Male Scouts would likely be the nature of the Male Scouts�
expression. However, even assuming that the nature of the Male Scouts�
expression is the same as the Boy Scouts� and, assuming further, that keeping
a homosexual as a member might significantly impair the Male Scouts�
expression, the Male Scouts hypothetical raises another issue that was not
addressed in Boy Scouts of America. That non-addressed issue is: what
significance is attached to the distinction between necessarily preventing a
private group from operating at all if it excludes homosexuals (Boy Scouts of
America) versus preventing the group from operating with the special tax status
afforded by section 501(c)(3) if it excludes homosexuals (Male Scouts
hypothetical)? On this point, Boy Scouts of America is not very helpful.

The Supreme Court has never addressed the specific issue of whether
it is constitutional to require an organization to forego its constitutionally
protected freedom of expressive association in order for the organization to
obtain or maintain a 501(c)(3) tax-exemption. However, the Court has



842 Florida Tax Review [Vol5:9

242. See Regan v. Taxation With Representation, 461 U.S. 540 (1983).
243. See id. The Court explains:

TWR is certainly correct when it states that we have held
that the government may not deny a benefit to a person
because he exercises a constitutional right. But TWR is just
as certainly incorrect when it claims that this case fits the
Speiser-Perry model. The Code does not deny TWR the
right to receive deductible contributions to support its
nonlobbying activity, nor does it deny TWR any
independent benefit on account of its intention to lobby.
Congress has merely refused to pay for the lobbying out of
public moneys. This Court has never held that Congress
must grant a benefit such as TWR claims here to a person
who wishes to exercise a constitutional right.

Id. at 545.
244. See id. at 546. �Congress has not infringed any First Amendment rights

or regulated any First Amendment activity. Congress has simply chosen not to pay for
TWR�s lobbying. We again reject the �notion that First Amendment rights are somehow
not fully realized unless they are subsidized by the State.�� Id.

245. See, e.g., Connick v. Meyers, 461 U.S. 138 (1983).  In Connick, the Court
recognizes the authority of governmental employers to discharge employees because of
inappropriate speech when it writes:

addressed the closely related issue of whether it is constitutional to force a
charity to give up certain First Amendment rights (lobbying Congress for
example) in order to obtain or maintain 501(c)(3) tax-exempt status.242 In Regan
v. Taxation With Representation, the Supreme Court held that Congress�
requirement that charities agree not to lobby Congress in order to satisfy
requirements for 501(c)(3) tax-exempt status is not a violation of the First
Amendment because Congress is not required to effectively fund lobbying by
way of a tax-exemption.243 Although lobbying Congress is a First Amendment
free speech right, the Court in Taxation With Representation held that the right
is not violated by the government�s withdrawal of 501(c)(3) tax exemption
pursuant to statutory law.244 Similarly, even if the Male Scouts� exclusion of
homosexuals is made in furtherance of its right to freedom of expressive
association, that right is not necessarily violated by denying or revoking
501(c)(3) tax-exemption.

This conclusion that the Males Scouts could not successfully claim, on
public policy grounds, that freedom of expressive association would shield it
against the Service�s revocation of tax-exemption is also in line with other
aspects of federal law. For example, in the labor law area, federal employees
are often required to give up certain First Amendment rights in order to keep
their federal jobs.245 Again, as in Taxation With Representation, the federal



2002] Charities and the Constitution 843

We hold only that when a public employee speaks not as a citizen
upon matters of public concern, but instead as an employee upon
matters only of personal interest, absent the most unusual
circumstances, a federal court is not the appropriate forum in which
to review the wisdom of a personnel decision taken by a public
agency allegedly in reaction to the employee�s behavior.

Id. at 147.  See also 5USCS § 7324(a) (2002) �The Hatch Act� (generally prohibiting
federal employees from taking an active part inpolitical campaigns).

246. The charitable tax-exemption has been described as more �intuitive� than
anything else. Presumably, this means that Congress just felt it �right� to exempt entities
such as schools, churches and the like from the income tax.

247. Some other theories that espouse an explanation for the existence of tax-
exempt charities include: 1) the income measurement theory; 2) the capital subsidy
theory and 3) the donative theory.

government is not required to fund a private actor�s free speech right. Thus, the
Service�s public policy power, as currently conceived and even in the face of
a proper freedom of expressive association claim, could be applied to revoke
or deny the tax-exempt status of the hypothetical Male Scouts of America.

IV. THEORETICAL CONCERNS WITH USING CONSTITUTIONAL LAW
PRINCIPLES TO DEFINE THE SCOPE OF THE PUBLIC POLICY
LIMITATION

A. The Public Benefit Subsidy Theory

Part II showed how the Service is guided by constitutional law
decisions in developing its tax policy with respect to the tax-exempt status of
private charities. Part III highlighted the many interpretation problems
associated with the Service relying significantly on constitutional law principles
when making its public policy determinations. In Part IV, this Article argues
that, for theoretical reasons, the Service�s significant reliance on constitutional
law decisions is inappropriate. Reliance on constitutional law norms is
inconsistent with the theory that tax-exempt charities are private actors who
provide goods and services that government either cannot or will not provide.

Legislative history concerning �the reason for being� of tax-exempt
charities is non-existent. It is as though Congress was more concerned,
historically at least, with the constitutionality of imposition of an income tax,
than with rationales for exemptions from that tax.246 Thus, courts and
commentators have had to take it upon themselves to explain the basis for the
charitable tax-exemption. Although many such theories have been developed
over the years,247 the most widely-accepted is the public benefit or traditional



844 Florida Tax Review [Vol5:9

248. See generally, Rob Atkinson, Altruism in Nonprofit Organizations, 31
B.C. L. Rev. 501, 606 n.292 (1990); Brody, Of Sovereignty and Subsidy, supra note 6.

249. James J. Fishman et al., Nonprofit Organizations: Cases and Materials,
316 (1995) (citing Chauncey Belknap, The Federal Income Tax Exemption of
Charitable Organizations: Its History and Underlying Policy, IV Research Papers
Sponsored by the [Filer] Commission on Private Philanthropy and Public Needs, 2025,
2039 (1977)).

250. May L. Heen, Reinventing Tax Expenditure Reform: Improving Program
Oversight Under the Government Performance and Results Act, 35 Wake Forest L. Rev.
751, 759 (2000).  �[T]he funding of tax expenditures by foregone revenues tends to be
less publicly visible than the funding of discretionary spending programs.  Tax
expenditures, like entitlements, are not subject to the appropriations process.�  Id.

251. See National Law Journal, July 31, 1995.
252. See discussion supra notes 48-58 and accompanying text.

subsidy theory.248 The public benefit subsidy theory holds that charities are
exempt from taxation because they serve public purposes that are government-
like, but government either cannot (or will not) satisfy the public need in the
particular area. Concisely put, the theory states that the tax-exemption is a
government subsidy provided to organizations so as to encourage activities that
are �recognized as inherently meritorious and conducive to the general
welfare.�249 In essence, the charitable tax-exemption, per the public benefit
subsidy theory, is a subsidy for certain activities favored by significant
segments of the society, whether government supports the activity or not.

Congress� grant of the subsidy indirectly by way of a tax-exemption,
instead of having the government provide direct subsidies to deserving entities
and meritorious activities, supports the notion that the charitable tax-exemption
is intended to support activities that do not necessarily have governmental or
majority appeal. An indirect subsidy by way of a tax-exemption lessens the
involvement of government in the affairs of charities. Indeed, since a tax-
exemption is by its very nature �automatic,� its grant is not readily subject to
the annual whims of government concerning budget balancing matters and the
like.250 Take the example of Congress� attempt in the mid-nineteen nineties to
lessen government financial support for death penalty relief organizations by
threatening decreased direct funding of said organizations unless the
organizations agreed to curtail activities with respect to certain types of
cases.251 The death penalty groups refused and, accordingly, Congress reduced
their funding. Despite this unfortunate circumstance, these death penalty
groups, because of their tax-exempt status, were able to continue to operate
even without direct government subsidies because of their tax-exempt
charitable status. The tax-exemption enabled these private organizations to
operate without the burden of income tax payment obligations and the tax-
deduction enabled the organizations to raise funds in the form of increased
charitable contributions.252



2002] Charities and the Constitution 845

253. The preamble to the Elizabethan Statute of Charitable Uses outlines some
of the various types of charitable purposes that were recognized at that time in the
seventeenth century. However, these purposes were only indicators, or typical, of the
various charitable purposes that would be recognized by the Crown. They were not
exclusive. The preamble provides:

whereas lands. . . have been heretofore given . . .
by the queen . . . her most noble progenitors [and]
other well [intentioned] persons, some for the
relief of [the] aged, . . . some for maintenance of
[the] sick, . . . [some for schools, bridges, and
highways and some for the benefit of the poor]. . .

See Statute of Charitable Uses (preamble) (1601).

The two major goals of the Statue of Uses were to 1) establish commissions
throughout England so that misapplication of charitable trusts could be investigated and
2) define �charitable purposes� so that the various commissions would know what trusts
to investigate and protect. These common law beginnings of organized philanthropy
have had a tremendous influence on our modern day charitable framework, especially
concerning tax-exempt charities.

254. See, e.g., Treas. Reg. § 1.501(c)(3)-1(d)(2) (1990). Section 1.501(c)(3)-
1(d)(2) provides in part that:

[Charity] includes: Relief of the poor and
distressed or of the underprivileged; advancement
of religion; advancement of education or science;
erection or maintenance of public buildings,
monuments, or works; lessening of the burdens of
Government; and promotion of social welfare. . .

Id.
255. See, e.g., Bob Jones Univ. v. United States, 461 U.S. 574 (1983).

B. The Inconsistency of Reliance on Constitutional Principles
with the Public Benefit Subsidy Theory

Of all theories that attempt to justify the tax-exemption for charities,
the public benefit subsidy theory seems to be the most intuitive and widely-
accepted. The public benefit subsidy theory is supported by historical notions
of charity dating back to the Statute of Charitable Uses in 1601.253 An aspect
of this theory, that charities lessen the burdens of government, has been
enshrined in the regulations pertaining to 501(c)(3) tax-exemption.254

Additionally, the Supreme Court has espoused a version of this theory in its
decisions concerning the propriety of the Service�s regulatory activities
respecting charities.255 For example, in Bob Jones University v. United States,
the Court notes that: �[I]n enacting . . . § 501(c)(3), Congress sought to provide



846 Florida Tax Review [Vol5:9

256. Id. at 587-88.

tax benefits to charitable organizations, to encourage the development of
private institutions that serve a useful public purpose or supplement or take the
place of public institutions of the same kind.�256

Given that the public benefit subsidy theory espouses a separate-from-
government role for tax-exempt charities, it would be highly inconsistent with
this theory to suggest that charities are subject to constitutional law restrictions
that constrain government activity. If we ever reach the day when the Supreme
Court invalidates race-based affirmative action by government, this might
inevitably mean that state colleges and universities could not use the race of an
applicant as a factor when making its admissions decisions. While this might
mean the end to one type of social justice action by government (race-based
affirmative action that is), it should not mean the end to that type of action by
tax-exempt charities, at least not if the public benefit subsidy theory is an
accurate reflection of charitable existence. Indeed, pursuant to the public
benefit subsidy theory, the fact that government is constitutionally prohibited
from doing that which many in society see as remedying the lingering effects
of slavery is a more than adequate justification for tax-exempt charities to act.
Thus, the Service�s efforts in using constitutional law principles to decide
issues of �established public policy� is inconsistent with the entire
underpinnings for why tax-exempt charities exist.

V. CONCLUSION

When the Supreme Court decided in Bob Jones University that charities
cannot violate established public policy, it failed to provide the Service with
sufficient guidance on how to use various sources of public policy to determine
�established public policy� on particular matters. As a result, the Service has
taken upon itself to define public policy by looking almost exclusively to
constitutional law principles. The Bishop Estate TAM is a prime example of
this strong reliance by the Service on constitutional law principles. In
evaluating whether the Bishop Estate�s exclusion of persons having no
Hawaiian ancestry was consistent with �established public policy,� the Service
relied on a line of Fourteenth Amendment cases. These cases hold that state
actors cannot make distinctions based on race unless those distinctions are
�necessary� to accomplish �compelling� government interests. None of these
cases involve scrutiny of actions by private actors, only state actors. To make
matters worse, the Service apparently relied on a Fifteenth Amendment case,
Rice v. Cayetano, in deciding whether the Bishop Estate�s �no non-Hawaiian�
policy is consistent with Fourteenth Amendment principles and, hence, with
established public policy.



2002] Charities and the Constitution 847

It is entirely inappropriate for the Service to look almost exclusively to
constitutional law principles to decide when a charity violates established
public policy. The public policy doctrine is a statutory principle, not a
constitutional one, emanating from section 501(c)(3) of the Internal Revenue
Code. As such, the public policy doctrine defines acceptable conduct for those
entities subject to the statute - charities. While some charities may be state
actors and, thus also subject to separate restrictions imposed by constitutional
law, most charities are not state actors. The Supreme Court has been very clear
to point out that, absent special statutory enactments like the 1964 Civil Rights
Act, private actors such as charities are not directly subject to constitutional law
provisions like the Equal Protection Clause of the Fourteenth Amendment.

The Service�s significant reliance on Equal Protection Clause
principles to decide whether a charity violates established public policy
presents some interpretational concerns in regards to race-based affirmative
action that are not insignificant. For one, it is not at all clear what standard of
review the Service should use to determine if a particular charity�s race policies
violate public policy. Over the years, the Supreme Court has fluctuated between
strict scrutiny and intermediate level scrutiny for benign, as opposed to
invidious, racial preferences. What standard should the Service use for benign
affirmative action policies by charities? Even if the Service chooses the correct
standard, how should it use a standard that requires consideration of compelling
government interests in circumstances where the actor is not governmental? A
second concern with applying Equal Protection Clause standards to charities
relates to the current circuit split on the issue of whether race can ever
constitutionally be used as a factor in making government decisions. If some
circuits say considering race is acceptable, some circuits say considering race
is not acceptable, and the Supreme Court has not addressed the issue, how is
the Service to decide which circuit to follow? A third concern relates to the
nature of the Service as a tax agency � it lacks the necessary expertise to decide
either whether a particular use of race is necessary or whether the reason for its
use is compelling.

The Service should await guidance from Congress on the issue of how
constitutional law principles should affect tax law decisions about the
tax-exemption for charities authorized by section 501(c)(3) of the Internal
Revenue Code. Alternatively, the Service could engage in a type of analysis
that considers a variety of sources constitutional, non-constitutional, federal
and non-federal � in deciding if a particular charity is in violation of
�established public policy.� Thus, this Article examines the relationship
between constitutional law and tax law in an effort to continue discussion of
how federal tax authorities should respond when a tax-exempt charity engages
in activities that would be unconstitutional if done by a government actor.
Additionally, this Article examines the matter of whether a private charity
should be permitted to use the Constitution as a shield in tax cases, like the Boy



848 Florida Tax Review [Vol5:9

Scouts did in a non-tax case, to prevent revocation, on public policy grounds,
of its 501(c)(3) tax exemption.