ReaganAn Orthodox legal aid agency official said today it appeared likely that a significant gain for Jewish interests will emerge from the flurry of developments triggered by President Reagan’s surprise decision to strip the Internal Revenue Service of authority to deny tax exempt status to private schools found guilty of racially discriminatory policies.

The controversy began when the Treasury and Justice Departments announced on January 8, with the President’s approval, that the IRS would no longer deny tax exemption to racially segregated private schools. A storm of criticism prompted the President to declare on January 13 that he was sending legislation to the Congress to outlaw such tax exemptions.

The National Jewish Commission on Law and Public Affairs (COLPA) said it welcomed the fact that the President’s proposal for legislation specified racial discrimination as the governing criterion for denying tax exemption.

Dennis Rapps, COLPA executive director, said COLPA officials had met with Administration and Congressional officials to discuss the terminology of the proposed law. He told the Jewish Telegraphic Agency that the proposed legislation had been transmitted to the House Ways and Means Committee, which originates all tax law changes, and to the Senate Finance Committee.

Rapps noted that the Internal Revenue Code provides tax exemption for “charitable, educational, religious and scientific” non-profit organizations and institutions. He said that during the II years the IRS has been acting on such cases, in accordance with a ruling by President Nixon, subsequently upheld in a number of lower federal court rulings, the IRS has construed that language as implying that the policies of the tax exempt institution must be in accord with “public policy.” That general policy is that government rejects discriminations based on race, creed or sex.

Problem For Jewish Institutions

Rapps said the problem for Jewish institutions arose from the fact that, in the absence of specific guidelines embodied in a federal law, the IRS, in specific situations, applied its criteria occasionally in arbitrary fashion.

He cited, as an example, an IRS challenge several years ago to the tax exempt status of Jewish day schools on alleged grounds they practiced racial discrimination by not admitting Blacks, Chicanos and children of other racial minority groups.

Rapps said that problem was essentially resolved when the IRS accepted the contention of COLPA and Torah Umesorah, the Society for Hebrew Day Schools, that while there were few Black children who were Jews and no known Hispanic Jewish children, the policy of all Jewish day schools was to admit all qualified Jewish children, regardless of race.

Rapps added that while the IRS interpretation of what constituted conformity with “public policy” in acting on claims for tax exempt status has generally been applied, during the 11 years, in the context of racially discriminatory schools and related institutions, Jewish leaders have felt concern that the IRS might soon broaden its definition of public policy to include as discriminatory differing treatment of men and women in synagogues and boys and girls in Orthodox day schools.

Rapps said that concern had been heightened by efforts at passage of the Equal Rights Amendment, as well as federal and state laws aimed at elimination of discrimination by sex, which the Jewish leaders felt had raised the possibility that the IRS might hold such religious practices to be violations of public policy against discrimination by sex.

Language Of Proposed Legislation

He said that the proposal soon to be considered by the two Congressional committees contains language which narrows the definition of racially discriminatory policy to exclude practices based on demonstrably religious premises.

The language of the proposed legislation states that “an organization has a racially discriminatory policy if it refuses to admit students of all races to the rights, privileges, programs and activities generally accorded or made available to students by that organization … in a manner that does not discriminate on the basis of race.

“The term ‘racially discriminatory policy’ does not include an admissions policy of a school, or a program of religious training or worship of a school that is limited or grants preference to members of a particular religious organization or belief, provided that no such policy, program preference or priority is based upon race or upon a belief that requires discrimination on the basis of race.”

Consequences Of A Failure To Enact Legislation

The COLPA official disputed predictions that Congress might fail to enact the proposed legislation, noting that the absence of such a law could create a situation in which private schools and related institutions could freely claim tax exempt status no matter how extensively they practiced racially discriminatory policies.

Rapps also said failure of Congress to enact the requested legislation would touch off a flood of litigation and create widespread chaos over eligibility generally for tax exempt status.

Rapps said the President’s proposed legislation will be considered by the Senate Finance Committee on February I and by the House Ways, and Means Committee on February 4. He said COLPA representatives will testify before both Congressional committees.

He said they will urge that the measure, when approved, contain language to clarify that differing treatment of men and women by religious institutions for religious reasons is not grounds for denying tax exempt status to such institutions or to religious schools restricting admission to members of their own faith.