Gates Foundation Bends to Anti-DEI Threat to Tax Exemption
The people responsible for Students for Fair Admissions have turned their attention to charitable tax exemption. Everybody knew this was coming. They argue the Supreme Court concluded that admissions policies that consider race are unconstitutional and that the conclusion necessarily generates Bob Jones fundamental public policy. The proponents argue that SFFA and Bob Jones preclude tax exemption for nonprofits working to remediate the effects of 400 years (and counting, because it ain’t hardly over) of racial discrimination. I dispute that notion here. David and Roger do so better than me in forthcoming law review articles. I told you last week that the proponents filed complaints against Gates and other big foundations offering scholarships exclusively to people of color.
Here is the gist of the complaint as summarized in a WSJ opinion piece:
The Gates Foundation is one of the wealthiest charitable organizations in the world, with an endowment estimated at more than $75 billion in 2023. It runs race-based programs and has faced no resistance from the federal government or legal advocacy groups. But last week my organization, the American Alliance for Equal Rights, sent a formal complaint to the Internal Revenue Service urging an investigation into the Gates Foundation’s tax-exempt status under section 501(c)(3) of the tax code. We targeted two smaller foundations as well.
The complaint cites case law, federal regulations, IRS rulings and a Supreme Court precedent to make a simple legal argument: Racial discrimination, even under the guise of helping disadvantaged minorities, is still racial discrimination. When a nonprofit discriminates on the basis of race, it violates the core legal principles that justify its tax-exempt status.
I also told you that private foundations are the last best hope of defending efforts to remediate racial discrimination. That hope grew dimmer this week after the Gates Foundation reportedly announced that it changed its scholarship program from one that awarded scholarships to groups identified by race or heritage to one that awards scholarships based on economic status. Gates says it was already changing its policies before the IRS complaint. The SFFA proponents are crowing that the Gates Foundation “gave in.” And they say the IRS needs to follow-up by making it explicit that efforts to remediate racial discrimination do not a charitable purpose make:
The Gates Foundation, whose endowment exceeds $75 billion, didn’t wait for the IRS to bring an administrative action questioning its tax-exempt status. It blinked—and implicitly conceded a fundamental legal point: Race-based exclusions are incompatible with the privilege of federal tax exemption. That should serve as a clarion call not only to nonprofit organizations but to the IRS itself, which for years has tolerated these unfair and illegal programs.
The Gates Foundation’s abrupt pivot confirms what critics of discriminatory “equity” initiatives have argued all along. When placed under even modest legal scrutiny, programs that seek to achieve racial proportionality and divide people by race in the name of diversity or remediation—whether in colleges, workplaces or other institutions—can’t stand. That is especially true when those programs are sponsored by organizations that enjoy the privilege of exemption from taxes.
The IRS has the legal authority and the duty to act. It should immediately issue a nationwide advisory clarifying that any 501(c)(3) organization that engages in racial classifications and preferences risks losing its tax-exempt status.
This wouldn’t be a novel action. In Bob Jones University v. U.S. (1983), the Supreme Court upheld the IRS’s decision to revoke a university’s tax-exempt status because of its racially discriminatory policies. The court concluded that tax exemption is conditioned on serving the public good and that racial discrimination is flatly incompatible with that principle.