Title IX and Tax-Exempt Status: What Two Recent Federal Court Opinions Mean for Independent Schools

5 min

Historically, independent schools have not been required to comply with certain federal non-discrimination laws, including Title IX of the Education Amendments Act of 1972 (Title IX), because they did not accept federal financial assistance and their 501(c)(3) status was not considered federal financial assistance. In the past two years, many independent schools accepted federal financial assistance under the Paycheck Protection Program (PPP), with the understanding that doing so would require compliance with certain federal non-discrimination obligations until the PPP loan was fully forgiven or repaid.

In a departure from prior legal standards, on July 21, 2022 the U.S. District Court for the District of Maryland held that an independent school's status as a 501(c)(3) tax-exempt organization is considered federal financial assistance, requiring the school to comply with Title IX. On July 25, 2022, the U.S. District Court for the Central District of California similarly held that 501(c)(3) status constitutes federal financial assistance.

The Decisions

Maryland: Buettner-Hartsoe v. Baltimore Lutheran High School Association d/b/a Concordia Preparatory School

In a series of consolidated cases, five former students brought several claims under federal and state laws against Concordia Preparatory School, an independent school located in Baltimore, Maryland, alleging that the school failed to address numerous complaints of unwelcome sexual conduct and permitted a "hyper-sexualized" culture to continue from 2016 to 2019 (prior to the school's acceptance of a PPP loan). Among the former students' claims were allegations that the school failed to comply with the requirements of Title IX.

Concordia Prep moved to dismiss the Title IX claims, arguing that the District Court did not have jurisdiction, as Concordia Prep was not a "recipient of federal financial assistance" for purposes of Title IX. In response, and among other things, the former students argued that Concordia Prep's tax-exempt status under Section 501(c)(3) of the Internal Revenue Code constituted federal financial assistance for purposes of Title IX.

The District Court denied Concordia Prep's motion, holding that 501(c)(3) status constitutes federal financial assistance for purposes of Title IX, equating 501(c)(3) status to a receipt of a cash grant from the federal government.

California: E.H. v. Valley Christian Academy

In the Valley Christian case, a female student who played football for a public school traveled to play a football game at Valley Christian in 2021. The student alleges that, after she removed her helmet and Valley Christian realized she was female, she was prohibited from playing future games against Valley Christian. The student then brought suit, alleging violations of Title IX, among other things. Valley Christian moved to dismiss the Title IX allegations, asserting that it had not received federal financial assistance. In denying Valley Christian's motion, the District Court held that Valley Christian's 501(c)(3) status constituted federal financial assistance, even after Valley Christian's PPP loan was forgiven.

Prior Interpretations of the Term "Federal Financial Assistance"

Prior to these decisions, 501(c)(3) had not been considered federal financial assistance. Rather, Title IX regulations define federal financial assistance as the following:

  • Grants or loans of federal funds made available for the acquisition, construction, renovation, restoration, or repair of a building and for scholarships, loans, grants, or wages for payment of students' tuition;
  • Grants or donations of federal property and interests in property;
  • Services of federal employees;
  • The sale or lease of, and the permission to use, federal property; and
  • Contracts, agreements, or arrangements intended to provide assistance to any educational program or activity.

Concordia Prep's motion to dismiss relied heavily on Johnny's Icehouse, Inc. v. Amateur Hockey Ass'n, a 2001 opinion from the U.S. District Court for the Northern District of Illinois, which held that a women's hockey association was not subject to Title IX based solely on its 501(c)(3) status. In Johnny's Icehouse, the district court noted that the Title IX regulations contained a clear definition of "federal financial assistance" and observed that income tax exemptions are "conspicuously absent from that laundry list." In sum, the district court concluded that "'federal financial assistance encompasses only direct transfers of federal money, property or services from the government to a program' and that '[e]xemption from taxation just does not equate to such transfers.'"

In addition to Johnny's Icehouse, prior court decisions, including a 1999 decision from the Eleventh Circuit and a 2012 decision from the Eastern District of New York, have affirmed that an independent school's 501(c)(3) status does not constitute federal financial assistance for purposes of Title IX. Instead, courts have commonly looked at whether the school accepted federal financial assistance as part of a grant or program.

The Impact on Independent Schools

These trial court decisions, if upheld on appeal, would significantly impact independent schools' policies regarding their response to sex-based misconduct, as the vast majority of independent schools are tax-exempt organizations under Section 501(c)(3). Given that these opinions represent a departure from prior interpretations, we can expect that they will be appealed. Additionally, given conflicting opinions, this interpretation is not settled law. Therefore, we recommend that independent schools await further guidance and consult with their legal counsel.

Venable's Independent School Law team will continue to monitor this case and related developments. Independent schools with questions about the legal obligations of federal financial assistance recipients are encouraged to contact Caryn Pass, Grace Lee, Janice Gregerson, or Ashley Sykes for assistance.