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Grand Canyon University, the largest Christian university in the country, has won its case pertaining to its nonprofit status at the U.S. Court of Appeals for the Ninth Circuit.
The court ruled on Nov. 8 that the U.S. Department of Education had used the wrong standard when it denied the university’s application for nonprofit status in 2019.
The university has been recognized by the Internal Revenue Service and by the State of Arizona as a nonprofit, but was rejected by the Department of Education under Title IV of the Higher Education Act. In a lengthy letter explaining its decision, the department focused on GCU’s close relationship to the publicly traded for-profit company Grand Canyon Education, which used to own it. For example, GCU’s president, Brian Mueller, is also the for-profit company’s CEO.
GCU filed suit against the department in 2021, stating, “The Department’s primary stated basis for denying GCU’s nonprofit status was GCU’s relationship with a company that provides services in exchange for a percentage of GCU’s revenue. But the Department has approved other nonprofit institutions that use materially similar arrangements.”
A federal district judge ruled in favor of the Department of Education in 2022. The department had found that GCU’s organizing documents “satisfied the relevant requirements of the organizational test, but GCU did not meet the operational test’s requirement that both the primary activities of the organization and its stream of revenue benefit the nonprofit itself.”
The school appealed the decision to the Ninth Circuit.
A three-judge appellate panel ruled unanimously that the Department of Education had used the incorrect legal standard and remanded the case to the department.
“The correct [Higher Education Act] standards required the Department to determine (1) whether GCU was owned and operated by a nonprofit corporation, and (2) whether GCU satisfied the no-inurement requirement,” the panel wrote.
“No-inurement” means that no earnings by the institution may benefit a private individual or shareholder.
“In light of the Ninth Circuit’s ruling, the IRS 501(c)(3) tax-exempt status and independent valuations, we are hopeful that the Department will act in good faith and render a quick decision recognizing the university’s nonprofit status,” GCU wrote in a press release about the decision.