Gates alters scholarship rules after complaint of racial discrimination

The Gates Foundation has changed the eligibility criteria of its signature scholarship program after a right-wing activist group argued to the United States’ Internal Revenue Service, or IRS, that it was violating its tax-exempt status by discriminating against white people. The nonprofit American Alliance for Equal Rights, or AAER, has worked to overhaul policies that address discrimination in universities — and has now set its sights on charities. On April 1, AAER filed a formal complaint to the IRS claiming that the Seattle, Washington-based Gates Foundation, as well as two smaller foundations, was violating federal anti-discrimination laws. The complaint focused on the Gates Scholarship program, which only accepts applicants who are low-income minority students. The eligibility criteria on the scholarship’s website says that applicants must “from at least one of the following ethnicities: African-American, American Indian/Alaska Native, Asian & Pacific Islander American, and/or Hispanic American.” Behind the complaint is AAER President Edward Blum, the legal strategist at the heart of the 2023 U.S. Supreme Court case that struck down race-based affirmative action in U.S. college admissions. The targeting of scholarship programs, including Gates', is a continuation of that strategy. It comes at a politically fraught time when the Trump administration is taking aim at all diversity, equity, inclusion, and accessibility, or DEIA, programs across any domestic and international entities that it funds — as it views DEIA as discriminatory, specifically against white men. In an email to Devex, the Gates Foundation said it would expand its eligibility criteria for the Gates Scholarships, which give high school seniors full funding for college. Gates awards them to 300 students annually. “The Gates Foundation’s mission is to create a world where every person has the opportunity to live a healthy and productive life,” a spokesperson wrote in response to Devex’s request for comment, adding that the foundation has been evaluating its scholarships to ensure the program was “reaching the broadest range of low-income students. It has been decided to expand eligibility to all Pell Grant-eligible students in order to achieve this goal. In the future, Gates Scholarship recipients will be selected through the expanded eligibility criteria.” The foundation did not specify what exactly the expanded criteria meant, but it published an announcement regarding the changed criteria on its website this month. Pell grants are needs-based, but not race-based, federally funded scholarships. Applicants must be able to demonstrate financial need: 51% of Pell Grant funds go to students whose families earn less than $20,000 annually. In addition to the Gates Foundation, AAER’s complaint named the Lagrant Foundation and Creative Capital. The Lagrant Foundation’s mission is to increase representation in advertising, marketing, and public relations. Creative Capital provides assistance to artists. What now? As the largest philanthropic organization in the world, the Gates Foundation sets an example for other charities. According to 2021 data, it accounted for nearly half of all philanthropic funding in global development. It also spent at an ever-faster clip, recording a 41.4% increase in spending from 2017 to 2021. Experts say that the AAER complaint underlines a fundamental question that charities are pondering as the Trump administration tries to impose its “America First” vision on a range of organizations: “Do you stay underground to live another day? Or do you fight because this is the last stand?” said Philip Hackney, an expert in nonprofit tax exemption law and law professor at the University of Pittsburgh. “This shows how fearful [charitable organizations] are right now and how they have to decide what is the best way for them to proceed,” said Ellen Aprill, a leading scholar of nonprofit tax law. “If the Gates Foundation is going to change, that’s not going to decrease fear.” With Gates’ decision to expand eligibility, the complaint may not move forward, experts said. But it could have held weight if it were picked up by the IRS. “If your charities are forced to adopt the position of whoever is the current president, we don't have much of a democracy anymore.” --—Philip Hackney, law professor, University of Pittsburgh The IRS isn’t required by law to respond to complaints, both Aprill and Hackney said. It preemptively sets aside some room in its audit plans for high-pressure cases, but never gets to everything. Second, the Trump administration’s appointee to lead the IRS has not yet been approved. The IRS is currently run by acting commissioner Melanie Krause, who recently submitted her resignation after disagreeing with a controversial agreement for the agency to provide taxpayer data to federal immigration authorities to help the Trump administration deport undocumented immigrants. While the U.S. could put pressure on the IRS to follow through with the audit of Gates and the two other foundations, the IRS is likely to first need stable and permanent leadership. The ‘Bob Jones’ argument If the complaint were to move forward and morph into a lawsuit, it would likely rest on a 1983 Supreme Court ruling that a private religious university in South Carolina was violating its tax-exempt status through discriminatory policies on race. The school, called Bob Jones University, prohibited interracial dating and marriage. The AAER complaint mentions the Bob Jones decision 54 times, citing it as precedent for revoking tax-exempt status to institutions that discriminate based on race. “An investigation is warranted because the Gates Foundation is engaged in invidious racial discrimination that violates established public policy and thus renders it ineligible for tax-exempt status,” the complaint says, before referring to the Bob Jones University v. United States case. The Bob Jones case was ruled on the basis of “fundamental public policy,” or the “public policy limitation,” which allows courts to rule on the basis that something goes against the public’s fundamental social values. The Supreme Court, rather than ruling that the school had the right to ban interracial dating based on the principles of free speech and free expression of religion, decided that Bob Jones’ policies violated public benefit. “Whatever may be the rationale for such private schools' policies, racial discrimination in education is contrary to public policy,” the 1983 decision states. “Racially discriminatory educational institutions cannot be viewed as conferring a public benefit within the above ‘charitable’ concept or within the congressional intent underlying [charitable institutions].” The Bob Jones case lays out a possible precedent for philanthropies to lose their tax exemptions — and the success of the 2023 affirmative action Supreme Court case has empowered groups to push for more, including the AAER complaint, according to Hackney. “Not only has it empowered, but it is essentially infecting spaces: law firms, charitable organizations, a lot of places,” he said. But, in his opinion, charities should manage to stay protected under some interpretation of the fundamental public policy concept. “The charitable community is part of civil society. They should have freedom to speak and associate as they see fit,” he said. “Limitations on that front are harmful to our democratic order. If your charities are forced to adopt the position of whoever is the current president, we don't have much of a democracy anymore.”