The Department of the Treasury and the Internal Revenue Service have issued proposed regulations that would end federal tax-exempt status for private schools that engage in racial discrimination, an action officials said delivers on President Trump’s executive orders aimed at ending discrimination and restoring merit-based opportunity.
“Under President Trump, this Administration is standing up for America’s students by ensuring racial discrimination has no place in American education,” said Treasury Secretary Scott Bessent. “Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature. Today’s Treasury and IRS proposed regulations establish a clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”
“Private educational institutions that promote discriminatory practices will no longer be afforded the benefits of federal tax-exempt status,” said IRS Chief Executive Officer Frank J. Bisignano. “Today’s proposed regulations put institutions on notice and schools that continue to engage in racial discrimination should expect to lose that status.”
Federal law grants tax-exempt status to organizations that operate exclusively for charitable and educational purposes. For decades, the Supreme Court has held that eligibility for tax-exempt status is conditioned on compliance with fundamental public policy, including the prohibition against racial discrimination. The proposed regulations update Treasury and IRS guidance to reflect that principle, citing Brown v. Board of Education, Bob Jones University v. United States, and Students for Fair Admissions v. Harvard, and are intended to provide greater clarity for private educational institutions regarding the nondiscrimination requirements tied to federal tax-exempt status.
Under the proposed rule, a private school would not qualify for federal tax-exempt status under section 501(c)(3) if it adopts, maintains or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin. The rule would apply across admissions, educational policies, scholarships and loans, athletics, and every other school-administered or school-supported program. The regulations would apply to tax-exempt private primary and secondary schools, colleges, universities, professional schools and trade schools. Treasury and the IRS estimate the proposal could affect as many as 18,000 private educational institutions.
The proposal would also eliminate outdated provisions of IRS guidance that had permitted schools to favor certain racial preferences in admissions, facilities, programs, scholarships and financial assistance. Treasury and the IRS said they concluded that those provisions are inconsistent with a uniform nondiscrimination standard and incompatible with Supreme Court case law.
The proposal would not prevent a private school from maintaining a religious mission, curriculum or program of religious observance, and religious schools may continue to select students based on genuine religious affiliation or membership consistent with existing federal law. Schools may also continue to expand educational opportunity for disadvantaged students using race-neutral criteria, such as family income, geographic location, first-generation status, individual hardship, military family status or academic achievement, when awarding admission or financial assistance. However, schools may not make decisions or confer benefits on the basis of race, color, or national or ethnic origin.
The final regulations would apply to taxable years beginning on or after May 31, 2027, giving affected institutions time to review and update their policies to bring admissions, scholarship and other practices into compliance.