In 2022, a federal district court in Maryland held that tax exemption qualified as federal financial assistance to subject a private religious school to Title IX requirements.

Because some small private schools avoid receipt of federal aid to prevent the imposition of burdensome federal regulations, this holding caused many schools to fear increased costs and even closings. However, the U.S. Court of Appeals for the Fourth Circuit recently reversed the district court’s decision. It held that tax exemption is not federal financial assistance and does not expose tax-exempt entities to Title IX requirements. Therefore, small tax-exempt schools that do not receive federal financial assistance do not need to fear the imposition of federal regulations such as Title IX.

The plaintiff in the Maryland case was a student who attended Concordia Preparatory School (“Concordia Prep”). The school is affiliated with the Lutheran Church Missouri-Synod and has tax-exempt status. The student asserted that she had been sexually harassed and assaulted at school, so she sued Concordia Prep under Title IX. Only educational programs that receive federal financial assistance are subject to Title IX’s prohibition of exclusion and discrimination based on sex. Concordia Prep does not receive federal grants, so the student asserted that being tax-exempt is a form of federal financial assistance that would subject the school to Title IX requirements. The lower court agreed with the student, essentially holding that tax exemption was the equivalent of receiving federal funds.

Such a holding could have exposed all private tax-exempt schools to Title IX and potentially any federal law that imposes obligations based on the receipt of federal financial assistance. Even though many schools likely already receive some sort of federal financial assistance through grants or participation in federal programs (like the school lunch program), other schools purposefully structure their activities to avoid extra regulatory burdens, which can be very expensive. One prominent example of this is Hillsdale College.

Concordia Prep appealed the district court’s decision to the Fourth Circuit. The Fourth Circuit overruled the district court’s decision and concluded that tax exemption is not a form of federal financial assistance for the purposes of Title IX. The court explained that “receiving [f]ederal financial assistance” means taking or accepting federal financial aid, help, or support and contemplates the transfer of funds from the federal government to the school. Tax exemption is not a transfer or funds but rather the withholding of a tax burden. Therefore, schools and other entities are not subject to Title IX requirements solely based on tax-exempt status.

For the time being, private tax-exempt schools will not be subject to Title IX or other federal regulations based on their tax-exempt status. If your tax-exempt group has any concerns or questions, make an appointment with our non-profit attorney today. Here, it’s all about peace of mind.