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Race-Conscious Affirmative Action by Tax-Exempt 501(C)(3) Corporations after Grutter and Gratz

Posted: 14 Nov 2003  

David A. Brennen

University of Kentucky - College of Law

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The Equal Protection Clause of the Fourteenth Amendment generally acts as a legal limit on the permissible bounds of government action. Accordingly, public universities and other government entities are constitutionally prohibited from engaging in acts that violate equal protection of the laws. The Supreme Court recently reinforced this point when it ruled, in two related cases, that public universities may consider the race of applicants when making admissions decisions, so long as an applicant's race does not amount to a deciding factor when granting admission. By its very terms, the constitutional limitation imposed by the Equal Protection Clause only directly applies to government entities, not private ones. Private entities, however, are subject to other legal limits on the use of race as a factor that are not themselves constitutional limits but approximate to them. One of these pseudo-constitutional legal limits for private actors - at least those that are tax-exempt pursuant to section 501(c)(3) of the Internal Revenue Code - is the tax law's public policy limitation. Hence, the Supreme Court has ruled that a private university that discriminates against black people is not entitled to section 501(c)(3) tax-exempt status. This Essay examines the impact of the Supreme Court's recent decisions concerning the permissible use of race by public universities on the scope of the public policy prohibition against racial preferences by private tax-exempt entities.

The Essay concludes with the observation that the IRS has taken the position that the Supreme Court's constitutional law decisions have a significant bearing on whether race-conscious affirmative action policies violate tax law's public policy limitation. Accordingly, Grutter and Gratz provide a clear indication that the IRS will not soon deny or revoke the tax-exempt status of charities that engage in the type of race-conscious affirmative action engaged in by the University of Michigan Law School. So long as a tax-exempt charity, a private university for example, limits its use of race to being one of many factors in making affirmative action decisions, the IRS is unlikely to challenge the action as violative of "established public policy."

The Essay further concludes that the IRS is not necessarily bound to continue viewing constitutional law as determinative of what is, and is not, "established public policy." Indeed, the IRS may consider factors that do not stem from constitutional jurisprudence when determining if a particular charity's race-conscious affirmative action violates the public policy limitation. Conceptually, the public policy limitation does not need to be co-extensive with the totality of constitutional jurisprudence. Thus, the IRS might properly conclude that the type of affirmative action the Court invalidated in Gratz as unconstitutional might still be consistent with established public policy if engaged in by a non-governmental private tax-exempt actor. Based on such an approach, the IRS could determine that, even though public universities are prohibited from using race as a deciding factor of admission, private universities are not necessarily prohibited from using race in this way. Such an approach would be entirely consistent with Justice Powell's view of tax-exempt charities as contributing to a "vigorous, pluralistic society" and not acting on behalf of Government in carrying out governmentally approved policies.

Suggested Citation

Brennen, David A., Race-Conscious Affirmative Action by Tax-Exempt 501(C)(3) Corporations after Grutter and Gratz. Available at SSRN: or

David Brennen (Contact Author)

University of Kentucky - College of Law ( email )

620 S. Limestone Street
Lexington, KY 40506-0048
United States

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