In a decision of significance for private schools and other tax-exempt organizations, the United States Court of Appeals for the Fourth Circuit (“Fourth Circuit”) decided recently that merely having 501(c)(3) tax status is not a form of “federal financial assistance” sufficient to subject a tax-exempt school or organization to compliance obligations under Title IX of the Education Amendments of 1972 (Title IX).
Title IX prohibits discrimination based on sex in any education programs and activities that receive federal funds and financial assistance. Federal financial assistance typically consists of grants, loans, or other funding made available to schools by the federal government to fund things such as student scholarships and improvements to school facilities. Thus, it had seemed easy enough for a private school that did not wish to be subjected to Title IX compliance obligations to accomplish that goal simply by not accepting certain federal funds.
In 2022, a U.S. District Court for the District of Maryland ruling made it far more difficult for a private school – even one that has not accepted the more traditional forms of federal funding – to avoid compliance with Title IX. Why? That trial court ruled that the school’s relief from federal taxes under Section 501(c)(3) of the Internal Revenue Code was tantamount to “receiving Federal financial assistance” for purposes of Title IX, according to the District Court in the Buttner-Hartsoe v. Baltimore Lutheran High School Association d/b/a Concordia Preparatory School case.
Concordia Preparatory School (CPS), formerly known as Baltimore Lutheran High School, is a religiously affiliated private school exempt from federal income taxes under Section 501(c)(3). CPS received no traditional form of direct federal funding.
CPS was sued for violations of Title IX by five female students who variously attended CPS from Fall 2014 through Spring 2019. The former students alleged that CPS 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.
The District Court rejected CPS’s argument that only schools that directly apply for federal aid, or receive checks directly from the federal government, are subject to regulation under Title IX. Pointing to some obscure authority, the District Court found support for the proposition that Section 501(c)(3) tax exempt status is “a form of subsidy and the equivalent of a cash grant” to the school, thereby rendering CPS subject to Title IX. After losing at the trial court level, CPS appealed the decision to the Fourth Circuit.
On appeal, the Fourth Circuit noted that Title IX’s phrase “receiving Federal financial assistance” was undefined in the statute. It then turned to various dictionaries, concluding that the wording means “taking or accepting federal financial aid, help, or support.” The Fourth Circuit determined that the plain text of Title IX contemplates “the transfer of funds from the federal government to an entity.”
To the question, “Do organizations with tax exempt status ‘receive Federal financial assistance’ for Title IX purposes?” the Fourth Circuit answered: “We think not.” Tax exempt status, the Court pointed out, is the “withholding of a tax burden” but is not “an affirmative grant of funds . . .” by the federal government. Thus, merely having tax exempt status was not Federal financial assistance and the school was not subject to Title IX compliance.
The Fourth Circuit’s decision in Buttner-Hartsoe is a welcome return to what was thought of as a reasonable status quo for private schools and other tax-exempt organizations. Bean, Kinney & Korman will continue to provide relevant updates on this issue and any changes in Title IX’s regulatory requirements. If you need assistance with Title IX policies and procedures, non-profit related issues, or have any other higher education or non-profit questions for your institution, please contact Timothy Hughes, thughes@beankinney.com, or Doug Taylor, rdougtaylor@beankinney.com.
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.