The court also held that racially discriminatory private schools were not entitled to exemption under 501(c)(3) and that donors were not entitled to deductions for contributions to such schools under 170. 3 The application of the IRS construction of these provisions to petitioners, two private schools with racially discriminatory admissions policies, is now before us. Entering students are screened as to their religious beliefs, and their public and private conduct is strictly regulated by standards promulgated by University authorities. 15 "The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that the Government is compensated for the loss of revenue by its relief from financial burdens which would otherwise have to be met by appropriations from other public funds, and by the benefits resulting from the promotion of the general welfare." H. 18 History buttresses logic to make clear that, to warrant exemption under 501(c)(3), an institution must fall within a category specified in that section and must demonstrably serve and be in harmony with the public interest.
That court approved the IRS's amended construction of the Tax Code. All charitable trusts, educational or otherwise, are subject to the requirement that the purpose of the trust may not be illegal or contrary to public policy." Based on the "national policy to discourage racial discrimination in education," the IRS ruled that "a [private] school not having a racially nondiscriminatory policy as to students is not `charitable' within the common law concepts reflected in sections 170 and 501(c)(3) of the Code." Id., at 231. ., giving special emphasis to the Christian religion and the ethics revealed in the Holy Scriptures." Certificate of Incorporation, Bob Jones University, Inc., of Greenville, S. Its teachers are required to be devout Christians, and all courses at the University are taught according to the Bible. 17 When the Government grants exemptions or allows deductions all taxpayers are affected; the very fact of the exemption or deduction for the donor means that other taxpayers can be said to be indirect and vicarious "donors." Charitable exemptions are justified on the basis that the exempt entity confers a public benefit - a benefit which the society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues.
We granted certiorari to decide whether petitioners, nonprofit private schools that prescribe and enforce racially discriminatory admissions standards on the basis of religious doctrine, qualify as tax-exempt organizations under 501(c) (3) of the Internal Revenue Code of 1954. 501(c)(3), 1 and granted charitable deductions for contributions to such schools under 170 of the Code, 26 U. 7 The IRS counterclaimed for 0,073.96 in unpaid social security and unemployment taxes for the years 1969 through 1972, including interest and penalties. The court nevertheless rejected Goldsboro's claim to tax-exempt status under 501(c) (3), finding that "private schools maintaining racially discriminatory admissions policies violate clearly declared federal policy and, therefore, must be denied the federal tax benefits flowing from qualification under Section 501(c)(3)." Id., at 1318. And the actions of Congress since 1970 leave no doubt that the IRS reached the correct conclusion in exercising its authority. Petitioners' asserted interests cannot be accommodated with that compelling governmental interest, and no less restrictive means are available to achieve the governmental interest. Goldsboro admits that it maintains racially discriminatory policies, and, contrary to Bob Jones University's contention that it is not racially discriminatory, discrimination on the basis of racial affiliation and association is a form of racial discrimination. Assistant Attorney General Reynolds argued the cause for the United States in both cases. 12 More than a century ago, this Court announced the caveat that is critical in this case: "[I]t has now become an established principle of American law, that courts of chancery will sustain and protect . The Government counterclaimed for unpaid federal unemployment taxes for the taxable years 1971 through 1975, in the amount of 9,675.59, plus interest. The Court of Appeals for the Fourth Circuit, in a divided opinion, reversed. The court held that the IRS acted within its statutory authority in revoking the University's tax-exempt status. United States Goldsboro Christian Schools is a nonprofit corporation located in Goldsboro, N. Like Bob Jones University, it was established "to conduct an institution or institutions of learning . ., giving special emphasis to the Christian religion and the ethics revealed in the Holy scriptures." Articles of Incorporation § 3(a); see Complaint § 6, reprinted in App. Since its incorporation in 1963, Goldsboro Christian Schools has maintained a racially discriminatory admissions policy based upon its interpretation of the Bible. After its request for a refund was denied, the University instituted the present action, seeking to recover the it had paid to the IRS. The court accordingly ordered the IRS to pay the University the refund it claimed and rejected the IRS's counterclaim. In the court's view, Bob Jones University did not meet this requirement, since its "racial policies violated the clearly defined public policy, rooted in our Constitution, condemning racial discrimination and, more specifically, the government policy against subsidizing racial discrimination in education, public or private." 639 F.2d, at 151. The school requires its high school students to take Bible-related courses, and begins each class with prayer.