Bob Jones University regains nonprofit status 17 years after it dropped discriminatory policy

In a move that’s been more than two years in the making, Bob Jones University announced Wednesday it would regain its federal tax-exempt status on March 1, more than three decades after the IRS stripped its nonprofit status following a landmark U.S. Supreme Court ruling.

The issue in the court case was the university’s refusal to allow interracial dating or marriage among students, staff or faculty of the university, a rule it has since abandoned.

The conservative Christian university dropped its interracial dating ban in a nationally televised interview with past president Bob Jones III on CNN’s Larry King Live in 2000. In 2008, past President Stephen Jones, great-grandson of evangelist and university founder Bob Jones, apologized for BJU’s past racial discrimination.

But the university hadn’t sought to reinstate its tax-exempt status until 2014 after Steve Pettit took over as the school’s fifth president in its 90-year history.

“Organizing as a tax-exempt entity is something BJU has needed to do for quite some time,” Pettit said.

In his first meeting with the university’s Cabinet, Pettit said he believed it was appropriate for BJU to seek its tax-exempt status because the university doesn’t believe the positions it once held about race.

Pettit called the university’s racist policies a social issue that was not biblical.

“The Bible is very clear,” Pettit said as he announced the change to the university Wednesday night. “We are made of one blood.”

Bob Jones University lost its tax exemption after a 13-year battle with the IRS over whether the university’s policies against interracial dating precluded it as a non-taxable religious educational institution. The university didn’t admit any black students until 1971, 17 years after Brown vs. Board of Education. It then wouldn’t admit any students who were in a mixed-race marriage and created rules to prohibit students from interracial dating.

The case rose to the Supreme Court, which ruled in 1983 that the IRS could revoke the university’s tax-exempt status because the government’s interest in eradicating racial discrimination from education overrode the university’s First Amendment rights to religious free speech.

The case has been cited many times through the years. Most recently, it arose in an exchange before the Supreme Court in the Obergefell vs. Hodges decision, which legalized gay marriage. After that decision, the IRS commissioner said the agency would not target the tax-exempt status of religious institutions that oppose gay marriage.

It’s taken two-and-a-half years for BJU to accomplish the reorganization because it used a complicated plan to split its organization into two entities with the university falling under the umbrella of its elementary school’s existing non-profit status to achieve its own, according to university statements and organization documents filed with the South Carolina Secretary of State and the IRS.

That existing nonprofit was called Bob Jones Elementary School, Inc. until last May, when it was renamed BJU, Inc.

The restructuring came after “consultation with legal counsel and accountants with many years of experience in assisting tax exempt organizations—as well as input from members of the BJU community and our congressional delegation,” Pettit said.

The change didn’t require IRS approval because its elementary school was already a nonprofit, though the university had formal correspondence and conversations with the IRS, said Randy Page, BJU spokesman.

The university is now listed as a 501(c)(3) nonprofit on the IRS website, said Michael Dobzinski, IRS spokesman.

What it means

Until now, if members of the community or alumni wanted to donate to the university, their gifts were only tax deductible if they gave to certain nonprofit arms of the university, such as its scholarship fund, art museum or athletic foundation.

Donors couldn’t give tax-deductible gifts to the university itself to help with capital campaigns or for university initiatives.

Most of the large gifts to the university recently, like a $500,000 gift from the Sargant Foundation in December and a $1 million anonymous gift announced last November, went toward its BJU Scholarship Fund, a nonprofit entity of the university.

Now donors’ gifts will be tax-deductible, Page said.

“It helps when you’re trying to raise money for an organization to have a tax-exempt status,” Page said. “That obviously helps your advancement folks, your development folks and those in the community – companies, individuals, alumni – to make it easier to donate to a nonprofit.”

The change wouldn’t affect students’ scholarships or grants and wouldn’t affect employees, he said.

The change levels the playing field between the university and other sister institutions when applying for grants, he said.

It also moves BJU from a for-profit college to a nonprofit classification with the U.S. Department of Education, “which is frequently perceived more favorably by the public,” Page said.

That change could prove important as the U.S. Department of Education has targeted for-profit colleges with added oversight in recent years and fined several for-profit networks of colleges under the Obama administration, which resulted in colleges like Corinthian College and ITT Technical Institute closing down.

And though the university operates debt-free and doesn’t plan to take on debt, it could potentially save through lower interest rates if it chose to take on debt, Page said.

How BJU will be structured

On March 1, Bob Jones University, Inc. will be renamed Bob Jones Education Group, Inc. and will remain the university’s taxable entity and will donate about half its assets to the non-taxable BJU, Inc.

The university’s assets will effectively be split between the two organizations.

BJU, Inc. will include the university and most of its facilities, the art museum, elementary school and child development center. BJU Press writers also will come under the umbrella of BJU, Inc.

The for-profit arm of the university – Bob Jones Education Group, Inc. – will include the BJU Press, University Cleaners and the Bob Jones Academy middle and high schools.

The university will still be governed by its 25-member Board of Trustees. The board will appoint a new eight-member board to govern Bob Jones Education Group.

The transition process began in late 2014 with a study of how to achieve tax exemption. Last May 5, the Board of Trustees approved the final plan for pursuing tax exemption and the administration has been working to implement it since then.

At the same time, the university has been seeking regional accreditation through the Southern Association of Colleges and Schools Commission on Colleges. The university, which is listed as a candidate for accreditation, notified the commission of its potential changes, which wouldn’t affect its candidacy, Page said.

The university presented SACSCOC with its proposal plan for tax exemption and there is no change in governance, said Pamela Cravey, SACSCOC spokeswoman.

"The action was an IRS matter and did not constitute a substantive change," Cravey said,

SACSCOC has considered the university as a not-for-profit, she said.