By Brian Guerinot and Kristin L. Smith, of Fisher & Phillips LLP
On March 27, 2024, a federal appeals court ruled that Title IX does not apply to a private school based purely on its nonprofit status, reversing a lower court’s bombshell decision that put the entire private and independent school community on notice. This decision by the 4th U.S. Circuit Court of Appeals represents a big win for private schools in Maryland, Virginia, West Virginia, North Carolina, and South Carolina – and helps restore the status quo that had been in place for decades. Private schools nationwide can cautiously celebrate this decision, as it may influence other courts to follow suit on an issue that has courts split across the country. We’ll explain what happened and guide nonprofit private schools on what they should do next.
How Did We Get Here?
In 2022, a federal district court in Baltimore ruled that a nonprofit school’s tax-exempt status constituted receipt of federal financial assistance for purposes of Title IX. Under that ruling – which ran contrary to longstanding federal administrative policy and was the first of its kind in the country – private nonprofit schools in Maryland scrambled to determine whether they must comply with Title IX’s web of regulations and administrative obligations. The school immediately appealed the decision.
Now What Happened?
The 4th Circuit unanimously ruled that a school’s tax-exempt status does not constitute accepting “federal financial assistance.” While that term is not defined in Title IX, the court concluded that under the law’s plain text, “receiving federal financial assistance” involves “taking or accepting” support. “Thus, the plain text of Title IX contemplates the transfer of funds from the federal government to an entity,” the court said.
A tax exemption, however, is merely the “withholding of a tax burden, rather than the affirmative grant of funds.” Therefore, the court concluded that nonprofit entities are not recipients of federal financial assistance by virtue of their tax-exempt status and are not subject to Title IX.
The court also determined that the favorable tax treatment of charitable contributions to nonprofit entities does not function as an indirect grant to the school. The court said the benefit that the school might receive from donors potentially donating more money than they otherwise would due to the favorable tax treatment is “far too attenuated to constitute ‘receiving’ federal financial assistance.”
What Does This Mean For Private and Independent Schools?
Private and independent schools that operate as 501(c)(3) entities in the states covered by the ruling (Maryland, Virginia, West Virginia, North Carolina, and South Carolina) can now breathe a sigh of relief. These schools no longer have to worry about the complexities of Title IX compliance based on their nonprofit status.
This ruling is also another data point for courts across the country to consider in cases raising the same or similar arguments. While the court’s ruling in this case would not be binding outside the states listed above, courts are constantly in dialogue with one another, and this type of unanimous opinion could be highly persuasive to other courts in other jurisdictions.
What’s Next?
If you are a school in any of the states affected by this ruling, you can return to the pre-July 2022 status quo before the lower court’s bombshell decision. If you are located outside of these states, we recommend filing this decision away, but keep it handy if similar litigation arises in your area.
All schools should continue to monitor this issue, as the 4th Circuit’s decision may not be the last word. This issue of whether a school’s tax-exempt status is akin to federal financial assistance has also been raised in California and Arizona (you can read more about those cases here and here), so it very well could resurface in other states.
