IRS Proposes New Racial Nondiscrimination Rules for Tax-Exempt Schools
Proposed Treasury regulations would bar private schools and universities from maintaining any race-based policies, even for diversity purposes, to keep their 501(c)(3) tax-exempt status.
Citing the Supreme Court's 2023 decision in SFFA v. Harvard, the IRS has issued proposed regulations that would deny 501(c)(3) tax-exempt status to any private school with policies that discriminate based on race, color, or national origin. The proposed rule's prohibition is absolute, applying broadly to admissions, scholarships, athletics, and other school-administered programs, and it explicitly invalidates policies intended to promote diversity or serve remedial objectives. This forces a significant operational and legal review for many private primary schools, colleges, and universities that currently consider race in their programs. The proposal would also modify the long-standing Revenue Procedure 75-50 to eliminate language permitting policies that favor racial minority groups. The regulations are scheduled to apply to taxable years beginning after May 31, 2027. Counsel for educational institutions should note the November 3, 2026, deadline for public comments and monitor for inevitable legal challenges once the regulations are finalized. Open questions remain around enforcement and the permissible use of non-racial proxies like socioeconomic status.