IRS, Treasury Propose 501(c)(3) Rules on School Race Policies
Proposed regulations from the Treasury and IRS would deny or revoke the tax-exempt status of private schools with racial discrimination policies, including affirmative action programs of the type held unconstitutional by the Supreme Court.
The U.S. Treasury Department and IRS have issued proposed regulations that would deny or revoke section 501(c)(3) tax-exempt status for private schools maintaining policies that discriminate on the basis of race, color, or national origin. The proposal directly follows the Supreme Court's 2023 decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (SFFA), which held that certain affirmative action policies were unconstitutional. Under the new rules, any private school that adopts, maintains, or enforces such a policy could lose its tax exemption. This development is critical for tax-exempt educational institutions, as it elevates the consequences of non-compliance with the SFFA holding beyond litigation risk to a direct threat to their financial operating model. General counsel and administrators at private schools and universities should review their admissions standards, financial aid criteria, and other programs to ensure they align with the proposed framework. The next step will be the public notice and comment period on the proposed rules.