IRS Proposes End to Tax Exemption for Schools Using Race-Based Policies
The U.S. Treasury has proposed regulations that would revoke the 501(c)(3) tax-exempt status of any private educational institution that considers race or national origin in its policies, including for diversity or remedial purposes.
On September 3, 2026, the U.S. Treasury and IRS proposed regulations that would revoke the federal tax-exempt status of private educational institutions using race-based policies. The rule would apply to any 501(c)(3) private school, from grade schools to universities, that considers race, color, or national origin in admissions, scholarships, loans, or other programs. Citing the Supreme Court's 2023 decision in Students for Fair Admissions v. Harvard, the Treasury asserts that any consideration of race, even for remedial or diversity purposes, now constitutes impermissible discrimination. This would reverse existing guidance that permitted certain race-conscious measures. The consequences for non-compliant institutions are significant, including the loss of deductible charitable contributions, jeopardized eligibility for foundation grants, potential default on tax-exempt bonds, and the loss of state and local tax exemptions. The Treasury estimates 18,000 schools could be affected. The proposed regulations are open for public comment until November 3, 2026, and would take effect for taxable years beginning after May 31, 2027.