Grand Canyon University says if the IRS recognizes it as a nonprofit, the Department of Education should, too.
(CN) — Grand Canyon University sued the U.S. Department of Education Tuesday in an attempt to force the federal agency to recognize the Christian school’s nonprofit status, as the Internal Revenue Service and state of Arizona have.
The university, founded in 1949, was a nonprofit until financial woes forced the trustees to sell the school in 2004 to the for-profit Significant Education, LLC, also known as Grand Canyon Education, which allowed the trustees to raise capital in ways it couldn’t as a nonprofit, according to the lawsuit filed in federal court in Arizona.
With the school rebounding, the trustees formed a new nonprofit corporation — Grand Canyon University — in 2011 and sought a return to nonprofit status. The school was sold to GCU under an operating agreement to give a portion of income to the for-profit corporation.
The Internal Revenue Service and the state of Arizona eventually recognized the return to nonprofit status, the lawsuit states.
But in November, the Education Department said that although it had approved the sale of the school to a nonprofit, it would continue to treat GCU as a for-profit institution because of the revenue-sharing agreement and bar the school from identifying itself publicly as a nonprofit.
The department offers no process to appeal the decision and no valid explanation for denying nonprofit status under Title IV, which regulates financial aid” according to the lawsuit.
Because the Education Department refused to recognize the nonprofit status, the school has fewer research and grant opportunities, the lawsuit states.
The refusal is contrary to the Higher Education Act and the department’s regulations, which have long held that IRS nonprofits are also considered nonprofit by the department, the school’s attorneys argue in the lawsuit.
“Even assuming the department may second guess GCU’s non-profit status, its authority under the definition the department cites is limited to whether an institution is owned and operated by one or more non-profit organizations, and whether the net earnings benefit any individual,” the lawsuit states.
“But the department’s decisions exceeded that limited review by applying the IRS’s operational test, which the department’s regulations commit to the sole discretion of the IRS.”
The decision not to recognize GCU’s nonprofit status is arbitrary, because the department doesn’t have a defined process for recognizing nonprofits, GCU’s attorney argue.
During the school’s for-profit years, it operated largely as a nonprofit, pumping all of the profit — $1.2 billion — back into the school for new classrooms, research and sports facilities, and technology, including a thriving online education program now serving 85,000 students, the lawsuit states.
The university’s 107,000 students have not seen a tuition increase in 13 years, according to the suit.
“GCU’s ability to offer a quality, private Christian education at prices that are affordable to many students has made it a resounding success while making a positive impact in the broader Phoenix community,” the lawsuit states.
GCU is asking the court to declare that the school is a nonprofit under Title IV, is entitled to be regulated as a nonprofit and can publicly identify itself as a nonprofit.
Grand Canyon University spokesman Bob Romantic said the university “reluctantly” filed its suit due to the department’s “continued refusal” to acknowledge the school’s nonprofit status.
“GCU has sought an amicable resolution with the Department of Education for the past 30 months to acknowledge the University’s legally authorized nonprofit status,” Romantic said. “GCU is not a litigious organization and has made extraordinary efforts to address every concern raised by the Department in its November 2019 ruling. However, for a variety of reasons outlined in the complaint, we have no choice but to seek this legal remedy given that the Department’s refusal to recognize the University’s nonprofit status for Title IV, HEA purposes contradicts the law and is arbitrary and capricious.”