501(c)(3) Tax Exempt Status, Private Schools, and Title IX

Employment Law

501(c)(3) Tax Exempt Status, Private Schools, and Title IX

Aug 12, 2022 | Employment Law

Title IX of the Education Amendments of 1972 (Title IX) prohibits discrimination on the basis of sex in any education programs and activities that receive federal funds and financial assistance. Federal financial assistance typically consists of grants or loans made available by the federal government to fund things such as student scholarships and improvements to school facilities. Thus, it seemed easy enough for a private school that did not want to be subjected to Title IX compliance obligations to accomplish that goal simply by not accepting certain federal funds.

However, several recent federal district court decisions suggest that it could be far more difficult for a private school – even one that has not accepted more traditional forms of federal funding – to avoid compliance with Title IX. What is the culprit? It is the school’s relief from federal taxes under Section 501(c)(3) that “qualifies as federal financial assistance under Title IX, according to the courts in Buettner-Hartsoe v. Baltimore Lutheran High School Association and E.H. v. Valley Christian Academy.

The Buttner-Hartsoe Outcome

Concordia Preparatory School (CPS), previously known as Baltimore Lutheran High School, is a religiously affiliated private school that is exempt from federal income taxes under Section 501(c)(3). CPS received no direct federal funding until March or April 2020, when it applied for and received a Paycheck Protection Act loan from the U.S. Small Business Administration.

CPS was sued for violations of Title IX by five female students who variously attended CPS from Fall 2014 through Spring 2019, alleging that the school officials failed to adequately address their numerous complaints of sexual assault and verbal sexual harassment by male CPS students. CPS moved to dismiss the lawsuit, claiming that it is not subject to Title IX Jurisdiction because it was not a recipient of direct federal financial assistance during the period relevant to the students’ alleged Title IX violations.

The Court disagreed, however, relying on dicta in Regan v. Taxation with Representation, a 1983 Supreme Court decision, to support for the premise that Section 501(c)(3) tax exempt status is “a form of subsidy and the equivalent of a cash grant” to the school. The Court rejected the notion that only institutions that directly apply for federal aid, or receive checks directly from the federal government, are subject to regulation under Title IX.

The Decision in E.H. v. Valley Christian Academy

In the second case, E.H., a female student at Cuyama Valley High School, earned a spot as wide receiver on Cuyama Valley’s varsity football team in 2021. At the conclusion of an away game against defendant Valley Christian Academy (VCA), a religiously affiliated private school, in which E.H. played for Cuyama Valley, VCA’s athletes, coaches, and parents realized that E.H. was a female and collectively glared at her while shaking their heads in disbelief, according to the lawsuit. E.H. felt humiliated and embarrassed by the reaction toward her.

Several days later, VCA informed Cuyama Valley that E.H. was not welcome on VCA’s field to compete in further football games because she was a female, thereby restricting her ability to compete in scholastic sports activities.

E.H. sued VCA for sex discrimination and/or hostile environment in violation of Title IX, and the school moved to dismiss the claim, asserting that it did not receive direct federal financial assistance and thus was not subject to oversight or liability under Title IX. The Court sided with E.H, agreeing that VCA derives financial assistance from the federal government in the form of its tax-exempt status.

The Court cited the “plain purpose of [Title IX],” which “is clearly to eliminate discrimination in programs or activities benefitting from federal financial assistance []” and rejected the notion that that “distinctions as to the method of distribution of federal funds or their equivalent . . .” should override Title IX’s clear mandate.

The Court further concluded that VCA was a recipient of direct federal financial assistance for Title IX purposes because the school had received a loan under the federal Paycheck Protection Program, noting that a PPP loan is tantamount to “federal financial assistance.”

What Do These Decisions Mean for Private Schools and Organizations?

Both Buttner-Hartsoe and E.H. appear to be outliers in the sense that there is little, if any, direct support for the Courts’ conclusions in the context of Title IX.

Ultimately, both decisions may be overturned on appeal. If, instead, the decisions are indicative of a growing trend toward acceptance of tax-exempt status as a form of direct federal financial assistance, the potential implications are significant for private schools and tax-exempt organizations that heretofore have not accepted traditional sources of direct federal financial assistance and have assumed that they were beyond Title IX oversight.

Tax-exempt schools and entities that provide educational programs and services may suddenly have to consider coming into full compliance with Title IX’s regulatory requirements.

We will continue to follow these decisions and provide relevant updates. In the interim, if you need assistance with Title IX policies and procedures or have any other higher education-related issues or questions for your institution, please contact Timothy Hughes, thughes@beankinney.com, or Doug Taylor, rdougtaylor@beankinney.com, or your current Bean, Kinney & Korman attorney.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.


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