IRS Proposes Bar on All Race-Based Policies for Tax-Exempt Schools
Proposed Treasury regulations would eliminate the ability of tax-exempt private schools, colleges, and universities to use policies that favor racial minority groups, even for remedial purposes, citing a shift in fundamental public policy.
The U.S. Treasury Department and IRS have proposed new regulations that would significantly alter the racial nondiscrimination requirements for educational institutions to maintain their 501(c)(3) tax-exempt status. Published on September 4, 2026, the proposal adopts an absolute rule against any school policy or practice that discriminates on the basis of race, color, or national origin 'for any purpose.' This change explicitly reverses decades of IRS guidance under Revenue Procedure 75-50, which permitted policies favoring racial minority groups if they were intended to promote a school’s nondiscriminatory objectives. Citing the Supreme Court’s 2023 decision in Students for Fair Admissions v. Harvard, the Treasury asserts that any form of racial discrimination in education now violates fundamental U.S. public policy, warranting loss of tax exemption. The rule would impact approximately 18,000 private schools, colleges, and universities. If finalized, the regulations would take effect for tax years beginning after May 31, 2027, requiring institutions to promptly review and potentially overhaul their admissions, scholarship, and financial aid programs.