The Treasury Department and Internal Revenue Service on Thursday proposed rules that would bar private schools from federal tax-exempt status if they discriminate on the basis of race, including race-conscious admissions, scholarships, and other campus programs.
Treasury Secretary Scott Bessent framed the proposal as an enforcement of a color-blind standard after the Supreme Court’s 2023 decision in Students for Fair Admissions v. Harvard.
“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” Bessent said. “The institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”
IRS Chief Executive Officer Frank Bisignano added the proposal “put[s] institutions on notice” and that schools that keep race-based practices “should expect to lose that status.”
Once in force, the new regulations would deny Section 501(c)(3) status to any private school that “adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin.” The standard would cover admissions, educational policies, scholarships and loans, athletics, and other school-administered programs. Treasury estimated the rule could reach as many as 18,000 private elementary, secondary, and postsecondary institutions.
The agencies said in a detailed statement that the rule updates longstanding doctrine that tax exemption is conditioned on compliance with fundamental public policy against racial discrimination, citing Brown v. Board of Education, Bob Jones University v. United States (1983), and SFFA. The proposal would also drop older IRS guidance that had allowed certain racial preferences in admissions, facilities, programs, and financial aid.
Religious schools could still select students based on genuine religious affiliation. Schools could also use race-neutral criteria such as family income, geography, first-generation status, hardship, military family status, or academic achievement. They could not award admission or benefits on the basis of race.
Loss of 501(c)(3) status would make a school’s net income taxable and generally end the deductibility of gifts, which could represent a material hit for tuition-dependent schools and large university fundraising operations.
Final rules, scheduled for publication in the Federal Register on Friday, would apply to tax years beginning on or after May 31, 2027.
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Christina Botteri is the Executive Editor of The Tennessee Star and The Star News Network. Follow her on X at @christinakb.
Photo “On Campus” by University of Minnesota.
