ISSUE

A tax-exempt private school must adopt a racially nondiscriminatory policy regarding students, publicize that policy to “all segments of the general community it serves,” and operate in a bona fide manner in accordance with that policy.  That usually meant taking out an ad in a newspaper.  Now, IRS has officially stated that the publicity requirement can be met by including this policy on an institution’s “primary publicly accessible Internet homepage.”

SITUATION

Saltwater Christian College (SCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

SCC’s Accounting Team has heard that the IRS has officially published new guidance regarding the publication of their racially nondiscrimination policy.  Historically, SCC has taken out an ad in the regional newspaper to publicize this policy.  Now, they are asking if that is still necessary.

By way of background, we explain the Schedule E (Form 990), Part I, Line 3 asks, “Has the organization publicized its racially nondiscriminatory policy through newspaper or broadcast media during the period of solicitation for students, or during the registration period if it has no solicitation program, in a way that makes the policy known to all parts of the general community it serves? If “Yes,” please describe. If “No,” please explain. If you need more space, use Part II.” (Alternatively, Form 5578 annually requires, under penalties of perjury, for a duly authorized officer to, “…certify that I am authorized to take official action on behalf of the above school(s) and that to the best of my knowledge and belief the school(s) has (have) satisfied the applicable requirements of sections 4.01 through 4.05 of Rev. Proc. 75-50, 1975-2 C.B. 587, for the period covered by this certification.”

NOTE: Institutions not required to file Form 990 should review “Tax Tips” from 2/10/16 regarding the potential for filing Form 5578.

Historically, the policy has been required to be published a) at least annually in a newspaper of general circulation that serves all racial segments of the community, or b) the broadcast media to publicize its racially nondiscriminatory policy if this use makes such nondiscriminatory policy known to all segments of the general community the school serves (with further information required including transcripts or tapes of the segments, the times played, and number of segments.)

Now, an additional, approved method would be by including the policy on your website.  When we say “website,” the IRS says, “primary publicly accessible Internet homepage at all times during its taxable year.”  In addition, Rev. Proc. 2019-22 includes model narrative for the racially nondiscrimination policy.

So, if SCC meets the requirements of Rev. Proc. 2019-22, no more newspaper ads for this policy.

 

RULES

From IRS Rev. Proc. 2019-22:

Background

.01 Revenue Procedure 75-50 sets forth guidelines and recordkeeping requirements for determining whether a private school, which is applying to be or currently recognized as exempt from federal income tax under section 501(a) and described in section 501(c)(3) of the Internal Revenue Code, has adopted a racially nondiscriminatory policy regarding students and operates in a bona fide manner in accordance with that policy. Section 4.03 of Revenue Procedure 75-50 requires a private school to make its racially nondiscriminatory policy known to all segments of the general community served by the school in one of two ways. Subsection 1(a) of section 4.03 permits a school to satisfy this publicity requirement by publishing, at least once annually, a notice of its racially nondiscriminatory policy in a newspaper of general circulation that serves all racial segments of the community.

Subsection 1(b) of section 4.03 permits a school to use the broadcast media to publicize its racially nondiscriminatory policy, provided that the means by which the policy is communicated is reasonably expected to be effective. .02 The purpose of the publicity requirement in section 4.03 of Revenue

Procedure 75-50 is for a private school to make its racially nondiscriminatory policy as to students known to all segments of the general community served by the school. Because of technological advances since the publication of Revenue Procedure 75-50, including the advent and widespread use of the Internet, in many cases a school can accomplish the purpose of the publicity requirement by using its Internet website.

Modifications To Revenue Procedure 75-50

.01 Subsection 1 of section 4.03 is modified to read as follows: 1 The school must use one of the following three methods to satisfy this requirement: .02 Section 4.03 is modified by adding new subsection 1(c) to read as follows:

(c) The school may display a notice of its racially nondiscriminatory policy on its primary publicly accessible Internet homepage at all times during its taxable year (excluding temporary outages due to website maintenance or technical problems) in a manner reasonably expected to be noticed by visitors to the homepage. (underline added)  The following notice, which is identical to the notice that may be used to satisfy the publicity requirement using a newspaper of general circulation that serves all racial segments of the community, is acceptable:

Notice Of Nondiscriminatory Policy As To Students

The M 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, admissions policies, scholarship and loan programs, and athletic and other school-administered programs.

A publicly accessible homepage is one that does not require a visitor to input information, such as an email address or a username and password, to access the homepage. Factors to be considered in determining whether a notice is reasonably expected to be noticed by visitors to the homepage include the size, color, and graphic treatment of the notice in relation to other parts of the homepage, whether the notice is unavoidable, whether other parts of the homepage distract attention from the notice, and whether the notice is visible without a visitor having to do anything other than simple scrolling on the homepage. A link on the homepage to another page where the notice appears, or a notice that appears in a carousel or only by selecting a dropdown or by hover (mouseover) is not acceptable. If a school does not have its own website, but it has webpages contained in a website, the school must display a notice of its racially nondiscriminatory policy on its primary landing page within the website in a manner that satisfies all other requirements of this subsection 1(c) to use this publication method.

 

BOTTOM LINE

• The IRS requires “certification” that a school has publicized its racially nondiscrimination policy annually – in a manner prescribed by law.
• Schools report their compliance with this publicity requirement annually either on Schedule E (Form 990) or Form 5578.
• Historically, schools have had to either place an ad in the newspaper or use broadcast media to publicize this policy.
• Now, the IRS has officially set forth guidance that the policy can meet the publication requirements by being included on the school’s primary webpage.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply. 

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