What parameters determine whether a non-profit can maintain its tax-exempt status while dispensing benefits based on protected characteristics?

I'm trying to understand the pattern of organizations that dispense benefits to a certain protected characteristic based on its underrepresentation (e.g. Scholarships for X), but exclude demographics even less well represented.

Because tax-exempt status is not the same as legality, I've created a separate question for legality. This is about tax-exempt status.

Possibly relevant rulings:
  1. Masterpiece Cakeshop v. Colorado Civil Rights Commission
  2. Schuette v. Coalition to Defend Affirmative Action
Helpful examples:
  1. Before 2018, the Boy Scouts maintained legal discrimination and its nonprofit status while barring female and non-binary applicants. The Boy Scouts voluntarily opened its membership, but did not have a legal obligation nor did it risk its tax exempt status.
  2. A number of organizations (DFBSST, UNCF, Ron Brown Scholar Program) award scholarships only to certain ethnicities underrepresented in higher education. Would they be able to deny a scholarship to e.g. a Native American student, or any other student with even less representation in higher education than their target demographic?
  3. In certain programs, like athletic scholarships, certain ethnicities normally perceived as "privileged" are in fact largely underrepresented. Would it be legal for a non-profit to award scholarships only to these underrepresented groups?
  1. It was my understanding that positive discrimination was called "affirmative action" in the United States, and that it generally did not allow hard quotas (or racial exclusion, which is a quota with an allowance of zero for certain groups).

  2. I'm ignoring the complication of religious organizations, and also the fact that the ability to discriminate may be restricted by a more conservative Supreme Court. I understand that maintaining non-profit status and legality are two separate matters.

  3. If this is too complex a question or tries to answer too many things at the same time (scholarships, food, nonprofit status vs. legality), I'm happy to break it into multiple questions so it is helpful for future searchers.

  4. If a specific example is helpful, consider the Ron Brown Scholar Program: "Applicants for this scholarship must be low-income Black or African American high school seniors."

  • You have a newer, duplicate version oof this, perhaps you should delete this one. Commented May 30, 2023 at 1:18
  • I state the difference: tax-exempt status vs legality, which is very thorny and complicated—to the point than an answerer would have to write 2 separate answers. That's why they're 2 questions.
    – Test
    Commented May 30, 2023 at 1:29
  • @Test: You may want to edit your question's title and body to more clearly focus on the relevant issues, rather than merely mentioning it in the first and third paragraphs of the post and then having the rest of the post be identical. In particular: example #1 mentions both legal obligation and tax-exempt status, example #2 just asks "would they be able" to do something (without specifying that you're asking about one or the other), and example #3 specifically asks "Would it be legal". Instead, you should tailor the body of each question to match what it's asking.
    – V2Blast
    Commented Jun 29, 2023 at 21:19
  • (It might also help if each question included a link to the other, and more clearly delineated how it's different from the other question.)
    – V2Blast
    Commented Jun 29, 2023 at 21:21

1 Answer 1


Most of the non-discrimination law in the United States comes from the Civil Rights Act of 1964, as amended; see 42 USC Chapter 21. It doesn't outlaw discrimination across the board, but only in certain specified settings, which are broad but not all-encompassing. They are, generally:

  • Public accommodations (e.g. business that serve the public)

  • Public facilities (parks, swimming pools, transportation, etc)

  • Public education

  • Federally assisted programs, meaning those which receive federal grants or loans. Tax exemption is not considered "assistance" in this context, I believe.

  • Employment

  • Voting

None of these headings would cover the charitable activities, such as awarding scholarships, of a charity that was supported solely by private donations and did not receive government grants. They may still be forbidden to discriminate in their employment practices, but the recipient of a scholarship is not in any sense an employee of the charity.

As for tax exempt status, this comes from 26 USC 501(c)(3), which exempts:

Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

There isn't a requirement that their charitable programs be targeted without regard to protected characteristics.

Subsection (i) does require social clubs (which are normally tax exempt under (c)(7), not (c)(3)) to avoid discrimination on the basis of race, color or religion. But that doesn't apply to 501(c)(3) organizations.

So to the best of my understanding, activities like those you mention are legal simply because there is no law against what they do, because Congress has not seen fit to create one. They also do not interfere with tax-exempt status, simply because the law does not include it as a factor in determining that status.

  • I'm a bit confused. Pardon the unpalatable language, but I'm trying to come up with an extreme case, a scholarship program or university that did not receive federal funding could be considered a federally tax-exempt charity while being segregationist, like in the 1960s, or explicitly admit all but, say Native American students? That is hard to believe. Pre-1960s signs, like "For this scholarship, Black students need not apply."? I find that hard to believe.
    – Test
    Commented May 30, 2023 at 22:10
  • If this is really not stopped, can you name examples of this happening?
    – Test
    Commented May 30, 2023 at 22:24
  • 1
    IRS Rev. Rul. 75-231, 1975-1 C.B. 158 limits charitable contributions to 501(c)(3) educational institutions that discriminate based upon race. irs.gov/pub/irs-tege/rr75_231.pdf See also a 2006 law review article discussing this Revenue Ruling and related considerations. law.bepress.com/cgi/… and this 1983 law review article on the topic. digitalcommons.nyls.edu/cgi/… referencing Revenue Ruling 71-4474.
    – ohwilleke
    Commented Oct 27, 2023 at 23:14
  • In short, I'm not downvoting due to this somewhat obscure legal authority that was missed, but it does majorly change the legal analysis.
    – ohwilleke
    Commented Oct 27, 2023 at 23:19
  • 1
    The second Revenue Rules in the comment above is Revenue Ruling 71-447, not 71-4474. Fat fingers on my part. See also Bob Jones Univ. v. U.S., 461 U.S. 574 (1983), aff’g 639 F.2d 147 (4th Cir. 1980) and Rev. Rul. 75-384, 1975-2 C.B. 204, Rev. Rul. 71-447, 1971-2 C.B. 230, and Gen. Couns. Mem. 39,862 (Nov. 22, 1991).
    – ohwilleke
    Commented Oct 27, 2023 at 23:34

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