Benevolent Trust

Until 1970 the Internal Revenue Service granted tax-exempt status to private schools without regard to their racial admissions policies under section 501(c)(3) of the Internal Revenue Code. On January 12, 1970, a three-judge district court issued a preliminary injunction in Green v. Kennedy prohibiting the IRS from according tax-exempt status to private schools in Mississippi that discriminated on the basis of race. In July 1970 the IRS concluded it could no longer legally justify allowing tax-exempt status to private schools practicing racial discrimination and announced it would not treat gifts to such schools as charitable deductions. The IRS formalized its revised policy in Revenue Ruling 71-447, stating that a 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). Bob Jones University is a nonprofit corporation located in Greenville, South Carolina, whose purpose is to conduct an institution of learning giving special emphasis to the Christian religion and the ethics revealed in the Holy Scriptures. The university operates a school with an enrollment of approximately 5,000 students from kindergarten through college and graduate school and requires its teachers to be devout Christians while teaching all courses according to the Bible. Until 1971 the university completely excluded Negroes. From 1971 to May 1975 it accepted no applications from unmarried Negroes but did accept applications from Negroes married within their race. Following the Fourth Circuit decision in McCrary v. Runyon, the university revised its policy. Since May 1975 the university has permitted unmarried Negroes to enroll while maintaining a disciplinary rule that prohibits interracial dating and marriage and expels students who violate it. The university continues to deny admission to applicants engaged in an interracial marriage or known to advocate interracial marriage or dating. Until 1970 the IRS extended tax-exempt status to Bob Jones University under section 501(c)(3). On January 19, 1976, the IRS officially revoked the university's tax-exempt status effective December 1, 1970. The university paid a $21 federal unemployment tax for 1975, had its refund request denied, and filed suit in the United States District Court for the District of South Carolina seeking recovery of that amount while the government counterclaimed for $489,675.59 in unpaid taxes for 1971 through 1975. The district court ordered the IRS to pay the refund and rejected the counterclaim, but the Fourth Circuit reversed. Goldsboro Christian Schools is a nonprofit corporation located in Goldsboro, North Carolina, established to conduct an institution of learning giving special emphasis to the Christian religion and the ethics revealed in the Holy Scriptures. Since its incorporation in 1963 the school has maintained a racially discriminatory admissions policy based upon its interpretation of the Bible. Goldsboro has for the most part accepted only Caucasians. On occasion, however, the school has accepted children from racially mixed marriages in which one of the parents is Caucasian. Upon audit the IRS determined that Goldsboro was not an organization described in section 501(c)(3) and required it to pay taxes under the Federal Insurance Contribution Act and the Federal Unemployment Tax Act. Goldsboro paid the IRS $3,459.93 in taxes for one employee for the years 1969 through 1972 and filed suit in the United States District Court for the Eastern District of North Carolina seeking a refund while the government counterclaimed for $160,073.96 in unpaid taxes. The district court granted summary judgment to the IRS on its counterclaim, and the Fourth Circuit affirmed per curiam. The Supreme Court granted certiorari in both cases. The cases were argued on October 12, 1982. The Court decided the cases on May 24, 1983.

Charles B. Henry, a resident of Winchester, Virginia, died testate on April 23, 1949. His will dated April 21, 1949, was admitted to probate and the Shenandoah Valley National Bank of Winchester qualified as the designated executor and trustee. Subject to two inconsequential provisions, Henry's entire estate valued at $86,000 was left in trust to be known as the Charles B. Henry and Fannie Belle Henry Fund. The trustee was directed to invest and reinvest the estate, collect the income, and on the last school day before Easter and before Christmas each year divide the net income into equal parts and pay one part to each child then enrolled in the first, second, and third grades of the John Kerr School in Winchester, with the payments to be used by each child in the furtherance of his or her education. The John Kerr School is a public primary school with an enrollment of approximately 458 pupils. If the school were discontinued, payments would be made instead to children in the same grades of any successor school or schools as determined by the Winchester School Board. The trustee was granted broad power and discretion to retain, sell, invest, and reinvest estate assets as it deemed in the best interest of the trust. Henry left no children or near relatives. His heirs and distributees upon intestacy were first cousins and more remote kin. One next of kin filed suit against the executor and trustee challenging the trust provisions. The bill alleged that the trust did not constitute a charitable trust and was invalid because it violated the rule against perpetuities. Other heirs joined the suit and sought to have the trust declared void with the estate distributed among the next of kin. The cause was heard on the bill and a demurrer filed by the executor and trustee. The demurrer was overruled and decrees were entered adjudicating the principles of the cause. From those decrees this appeal was awarded.

In 1911 United States Senator Augustus O. Bacon executed a will that devised to the Mayor and Council of the City of Macon, Georgia, a tract of land. After the death of the Senator's wife and daughters, the land was to be used as a park and pleasure ground for white people only. Control was vested in a Board of Managers of seven white persons. The city kept the park segregated for some years. In time the city let Negroes use it. The city took the position that the park was a public facility which it could not constitutionally manage and maintain on a segregated basis. Thereupon individual members of the Board of Managers brought suit in a Georgia state court against the City of Macon and the trustees of certain residuary beneficiaries of the estate. They asked that the city be removed as trustee and that the court appoint new trustees to whom title to the park would be transferred. The city answered that it could not legally enforce racial segregation in the park. The other defendants admitted the allegation and requested the city's removal. Several Negro citizens of Macon intervened. They alleged that the racial limitation was contrary to federal law and public policy. They asked that the court refuse to appoint private trustees. The city resigned as trustee and amended its answer accordingly. Other heirs of Senator Bacon intervened seeking reversion of the trust property to the estate if the petition were denied. The Georgia trial court accepted the city's resignation and appointed three individuals as new trustees. On appeal by the Negro intervenors the Supreme Court of Georgia affirmed. The United States Supreme Court granted a writ of certiorari.