The IRS requires all tax-exempt private schools to have – and to publish – a racially nondiscriminatory policy that applies to all facets of student life, including admissions, financial aid, and all school programs. Failure of a school to maintain and comply with such a policy may mean revocation of tax-exempt status.

Private schools, including colleges and universities, secondary schools, preschools and schools operated by churches, are required to comply with the provisions of IRS Revenue Procedure 75-50, which stipulates that in order to qualify for exempt status under Section 501(c)(3), a school must publicize its racial nondiscrimination policy. Further, the school must maintain records "sufficient to demonstrate compliance."

(The rules also apply to other organizations operating as private schools, such as hospitals operating nursing schools.)

According to Revenue Procedure 75-50, 1975-2 C.B. 587, the principal source of guidance on the topic, private schools must establish that their schools do not discriminate on the basis of "race," which includes color and national or ethnic origin. Specifically, a school must show that it provides students of any race "all the rights, privileges, programs, and activities generally available to its students." In addition, the school also must not discriminate on the basis of race in applying educational or admissions policies, such as those related to scholarship and loan programs, or in athletic and other school-administered programs (Rev. Rul. 71-447).

Schools may satisfy the publication requirements of Revenue Procedure 75-50 by publishing an annual notice (during the period of the school's solicitation for students) in a "newspaper of general circulation that serves all racial segments of the community." Alternatively, schools may use broadcast media to publicize their racially nondiscriminatory policy if this use makes the policy known to all segments of the general community the school serves.

It is important to note that posting the policy on your website does not satisfy the IRS’s requirement. The requirements were first published in 1975 and have not been updated or modified to reflect modern technological advancements – namely the Internet. Therefore, the options for compliance remain narrowly drawn. Though some aspects of the publishing requirement seem archaic – publishing in a newspaper rather than online – private schools would be wise to follow the letter of the law in order to maintain compliance.

Revenue Procedure 75-50 stipulates the notice’s content, size and appearance, as well as provides guidance in a variety of related areas, such as:

• Disclosure requirements (a school's racial nondiscrimination policy must appear in a school’s brochures, catalogs, and advertisements)
• Recordkeeping requirements
• Requirements for governing documents, including articles of incorporation and bylaws
• Rules for church-owned and operated schools

Approved Statement

Your nondiscriminatory policy should be contained in your charter, bylaws or other governing documents or in a resolution of your governing body. The Revenue Procedure expressly approves the following statement:

Notice of Nondiscriminatory Policy as to Students

"The [name] school admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admission policies, scholarship and loan programs, and athletic and other school administered programs."

This notice must appear in a section of the newspaper "likely to be read by prospective students and their families" and it "must occupy at least three column inches" and be captioned in at least 12-point bold-faced type as a Notice of Nondiscriminatory Policy as to Students. Text must be printed in at least 8-point type.

As indicated above, broadcast media may be an acceptable alternative – as long as you are sure that your policy statement would reach the general community you serve. The IRS requires that you provide documentation that "the means by which this policy was communicated to all segments of the general community was reasonably expected to be effective." To fulfill this requirement, you should make announcements during the admission season.

As proof of compliance, keep a copy of the tape or script used in the recording and records "showing that there was an adequate number of announcements made during hours when announcements were likely be communicated to all segments of the community, that the announcements were of sufficient duration to convey the message clearly and that they were broadcast on radio or television stations likely to be listened to by substantial numbers of members of all racial segments of the general community."

It is important to note that the publicity requirement is NOT required by a school if the school follows a racially nondiscriminatory policy as to students and meets one of the available exceptions: 1) If the school customarily draws its students nationally or internationally, and if the school regularly enrolls minority students in meaningful numbers and keeps records of its student body that evidences this policy, the school is not required to publicize its racially nondiscriminatory policy; or 2) if the school customarily draws its students from local communities and if the school regularly enrolls minority students in meaningful numbers and keeps records of its student body that evidences this policy, the school is not required to publicize its racially nondiscriminatory policy.

Nonetheless, the Service encourages schools to meet the publicity requirement, even if not technically required, as it believes those methods are more effective.

Other Requirements

A few more caveats about publicizing your policy. While Revenue Procedure 75-50 requires schools to publicize their nondiscriminatory policy in ALL brochures and catalogs dealing with student admission, programs, and scholarships, it provides little guidance on the meaning of "all." For instance, schools typically send myriad printed materials to students, parents, and other interested parties – not only about admissions but also about the school in general. The IRS does not offer guidance on whether the nondiscrimination policy must be referenced in every one of these mailings. Therefore, you must make a "reasoned judgment" about when to include a reference to your policy in any materials you send to students, parents and others.

Be aware that the Revenue Procedure expressly sanctions schools that don't follow the Revenue Procedure 75-50 guidelines - even schools that "substantially comply" with the publication requirements. Thus, electing not to precisely follow the procedures carries risk.

To demonstrate that your school has satisfied the applicable requirements of Revenue Procedure 75-50, file Schedule E with the appropriate responses with your Form 990 or Form 990-EZ. If your organization operates a tax-exempt school that is not required to file Form 990 or 990-EZ, you are required to file Form 5578 "Annual Certification of Racial Nondiscrimination for a Private School Exempt from Federal Income Tax." If you are a new school and are applying for tax-exempt status for the first time, you must file Schedule B on Form 1023 (Application for Recognition of Exemption) as well.

If you have any questions on these procedures, please contact your CBIZ MHM advisor.

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