House Bill Creates Educational Tax Exemption Jeopardy for Civil Rights Violations

From the Lawfare Project

In another markup session yesterday, Ways and Means considered a bill that creates tax exemption jeopardy for universities, public and private, found to have engaged in civil rights violations.  The bill imposes an “assessable penalty” for each such violation and mandates IRS “review” of a university’s tax exempt status for a third or subsequent violation:

Mandatory review of tax-exempt status upon third determination of a violation

Upon the determination of civil rights violation with respect to a specified tax-exempt educational institution, if it is not one of the first two such determinations made after the date of enactment, the Secretary shall conduct a review to determine whether the institution remains an organization that is described in section 501(c) and entitled to exemption from Federal income tax under section 501(a). For this purpose, any determination of civil rights violation that is vacated, overturned, or otherwise reversed is not taken into account, unless subsequently reinstated or otherwise redetermined.

Reporting requirements

The proposal requires a specified tax-exempt educational institution that is subject to the annual information return reporting requirements of section 6033(a) for the taxable year (that is, an organization that is required under present law to file a Form 990-series return) to include on the return the following information with respect to each determination of civil rights violation with respect to the institution:

1. 1. a description of the determination (including the date of the determination) and of the civil rights violation to which the determination relates;
   2. the number of determinations of civil rights violation made with respect to the institution after the date of enactment and before such determination (disregarding determinations that are vacated, overturned, or otherwise reversed, unless subsequently reinstated or otherwise redetermined); and
   3. such other information as the Secretary may require.

For each determination of civil rights violation that is vacated, overturned, or otherwise reversed during the taxable year, such institution must include the following information on its annual information return:

1. 1. a description of the order or judgment that reversed the determination, including the date of the order or judgment;
   2. a description of the determination so reversed (including the date of the determination) and of the civil rights violation to which the determination relates; and
   3. such other information as the Secretary may require.

Certain State colleges or universities may not, under present law, be required to file a Form 990-series annual information return under section 6033(a). Under the proposal, however, a specified tax-exempt educational institution that is described in section 511(a)(2)(B) (generally describing State colleges and universities) shall, for any taxable year in which there is a determination of civil rights violation (or reversal thereof) with respect to the institution, file an annual return that contains the above-described information relating to reporting of determinations and reversals. The penalties applicable to Form 990-series returns filed under section 6033(a) (such as the failure-to-file penalty under section 6652(c)) shall also apply to such a return.

It’s so comforting to know that House Republicans are concerned with social justice.

darryll k. jones