The IRS has proposed new rules that could strip private schools of their tax-exempt status if they use race-based admissions, scholarships or other programs. The Treasury Department and Internal Revenue Service announced on Thursday that private educational institutions could lose their 501(c)(3) status if they maintain policies or practices that discriminate on the basis of race, color, or national or ethnic origin. The move is the latest step in the Trump administration’s wider campaign against diversity, equity and inclusion (DEI) policies.
Since returning to office in January 2025, President Donald Trump has ordered federal agencies to dismantle DEI programs and directed the government to challenge what it considers unlawful race-based preferences in schools, workplaces and federal contracting. "Under President Trump, this Administration is standing up for America’s students by ensuring racial discrimination has no place in American education," Treasury Secretary Scott Bessent said as part of the announcement. "Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature." The National Association of Independent Schools told Newsweek: "NAIS is reviewing the proposed Treasury Department and IRS regulations and assessing their potential implications for independent schools.
Because the regulations are still proposed, questions remain about how they would be interpreted and implemented. We will continue to monitor the process and provide guidance to our member schools as appropriate." American Association of University Professors President Todd Wolfson told that the latest proposal was "not neutral enforcement of civil rights law." "For half a century, federal policy recognized that measures intended to dismantle entrenched racial exclusion are not equivalent to policies designed to preserve it," he said. Organizations recognized under section 501(c)(3) are generally exempt from federal income tax and are eligible to receive tax-deductible charitable contributions, according to the IRS.
Losing that designation could therefore affect both a school's own tax treatment and incentives for donors to contribute. The proposed regulations would cover admissions and educational policies, scholarships and loans, athletics and any other school-administered or supported programs. The proposal says race-based treatment would count as discrimination regardless of its purpose, including when intended to remedy past discrimination or advance diversity.
Existing IRS guidance contains provisions allowing schools to favor racial minority groups in some circumstances as part of a nondiscrimination policy; those provisions would be removed. Treasury and the IRS estimate that as many as 18,000 private elementary, secondary and post-secondary schools could be affected, along with approximately 750,000 students who may qualify for scholarships allocated on the basis of racial, ethnic or national identity. Schools would still be allowed to target assistance using race-neutral measures including family income, geographic location, first-generation status, individual hardship, military-family status and academic achievement, and religious schools could also continue selecting students on the basis of genuine religious affiliation.
The proposal was published in the Federal Register on September 4. Comments and requests for a public hearing are due by November 3, and, if finalized, the regulations would apply to school tax years beginning after May 31, 2027. The move is the latest step in President Donald Trump's effort to dismantle DEI policies across the federal government and scrutinize their use by schools, businesses and federal contractors.
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