The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have issued proposed regulations aimed at revoking federal tax-exempt status from private schools found to be engaging in racial discrimination, fulfilling President Trump's executive orders to end discrimination and restore merit-based opportunity.
Treasury Secretary Scott Bessent emphasized the administration's commitment, saying, “Under President Trump, this Administration is standing up for America’s students by ensuring racial discrimination has no place in American education. 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.” IRS Chief Executive Officer Frank J. Bisignano added, “Private educational institutions that promote discriminatory practices will no longer be afforded the benefits of federal tax-exempt status.”
The proposed rule stipulates that a private school will not qualify for Federal tax-exempt status under section 501(c)(3) if it maintains policies or practices that discriminate based on race, color, or national or ethnic origin. This applies broadly across admissions, educational policies, scholarships, athletics, and all other school-administered programs, affecting an estimated 18,000 private educational institutions, including primary, secondary, colleges, universities, professional, and trade schools.
The regulations also eliminate outdated IRS guidance that previously allowed certain racial preferences, deeming them inconsistent with a uniform nondiscrimination standard and Supreme Court case law. While religious schools may continue to select students based on genuine religious affiliation, the proposal prohibits decisions or benefits conferred on the basis of race, color, or national or ethnic origin. Schools can still expand opportunities for disadvantaged students using race-neutral criteria such as family income or academic achievement. The final regulations are set to apply to taxable years beginning on or after May 31, 2027.