Taxes and Civil Rights; “Constitutionalizing” the Internal Revenue Code

In McGlotten v. Connally, a three-judge federal court held that theSecretary of the Treasury could not grant federal income tax exemptionsto fraternal orders that exclude nonwhites from membership orallow gifts supporting the charitable functions of such organizationsto be deducted by the donors as charitable contributions in computingtaxable income. In the court\u27s view, these tax benefits constitute federal subsidies that, if granted to a fraternal order with a raciallyrestrictive membership policy, would violate the Due Process Clauseof the Fifth Amendment as well as the statutory prohibition on discriminationin any program or activity receiving Federal financialassistance imposed by Section 601 of the Civil Rights Act of 1964.The court also held that a clearly indicated Congressional policy against racial discrimination by the beneficiaries of federal largesse required that the Internal Revenue Code be construed to disallow adeduction for contributions to fraternal orders excluding nonwhitesfrom membership. Although the plaintiff also attacked the incometax exemption of segregated nonprofit social clubs, the court heldtheir exemption to be more limited than the tax benefits enjoyed byfraternal orders, and therefore not burdened with the same prohibitionon racial discrimination