At a Glance

• A three-judge panel of the Fourth Circuit ruled in Buettner-Hartsoe that “501(c)(3) status does not constitute receipt of federal financial assistance,” such that the defendant private school was subject to Title IX.
• In the potentially broader effect of the ruling on challenges to the use of race-conscious criteria in grantmaking via an argument that: (i) Title VI forbids race discrimination by recipients of federal funds and (ii) tax exemption under Code section 501(c)(3) constitutes the receipt of federal funds, the Fourth Circuit panel’s rationale in Buettner-Hartsoe would suggest that such an argument would not succeed.
• Of course, the Buettner-Hartsoe decision does not bind parties outside the Fourth Circuit’s jurisdiction. Moreover, the United States Supreme Court could address the issue in the future.

In late March 2024, in the case of Donna Buettner-Hartsoe v. Baltimore Lutheran High School Association, the U.S. Court of Appeals for the Fourth Circuit considered whether exemption from federal income tax under Internal Revenue Code (“Code”) section 501(c)(3) constitutes the receipt of federal financial assistance for purposes of Title IX, which prohibits sex-based discrimination in any school or education program that receives federal funding.

The Fourth Circuit took up this issue in the context of an interlocutory appeal from the District Court of Maryland. Eight federal district courts had considered this question to date, and those courts were evenly split: four (including the District of Maryland in the Buettner-Hartsoe case) had decided that tax-exempt status under Code section 501(c)(3) does constitute the “receipt” of federal funds for Title IX purposes. No federal appellate court had previously addressed the issue.

A three-judge panel of the Fourth Circuit ruled in Buettner-Hartsoe that “501(c)(3) status does not constitute receipt of federal financial assistance,” such that the defendant private school was subject to Title IX. In reaching that conclusion, the panel observed that “[t]ax exemption … is the withholding of a tax burden, rather than the affirmative grant of funds.” Technically, the panel opinion is subject to a motion for en banc reconsideration, although such reconsideration is not favored or ordinarily ordered under the Fourth Circuit’s rules. Moreover, the holding is in line with the Department of Justice’s long-held position that mere tax benefits are not “Federal financial assistance” for this purpose.

Race-Conscious Criteria in Grantmaking

We are particularly interested in the potentially broader effect of the Fourth Circuit’s ruling on challenges to the use of race-conscious criteria in grantmaking. In particular, to the extent that the use of such criteria in grantmaking is challenged via an argument that: (i) Title VI forbids race discrimination by recipients of federal funds and (ii) tax exemption under Code section 501(c)(3) constitutes the receipt of federal funds, the Fourth Circuit panel’s rationale in Buettner-Hartsoe would suggest that such an argument would not succeed.

Of course, the Buettner-Hartsoe decision does not bind parties outside the Fourth Circuit’s jurisdiction. Moreover, the United States Supreme Court could address the issue, either on appeal from the Fourth Circuit or in a future grant of certiorari to resolve a circuit split. In that regard, Hillsdale College currently is facing a similar Title IX lawsuit in the Western District of Michigan, where the trial court’s decision would be appealable to the Sixth Circuit Court of Appeals.

Outside of the courts, Senator Marco Rubio (R-FL) has introduced Senate Bill 3604, the Safeguarding Charity Act. If passed, it would provide a national rule that “the term ‘Federal financial assistance,’ or any other term referring to assistance provided by the Federal government, shall not include any exemption from Federal income tax.” The bill was introduced in January 2024 and has not yet been assigned to a committee.