Treasury Ties Tax-Exempt Status to Race-Neutral School Policies
Proposed IRS regulations would deny or revoke the tax-exempt status of private educational institutions using race-conscious criteria in admissions, scholarships, and other programs.
The U.S. Treasury and IRS have proposed regulations that would deny or revoke federal tax-exempt status for private educational institutions engaging in racial discrimination. The proposal, issued September 3, 2026, extends the Supreme Court’s 2023 holding in Students for Fair Admissions v. Harvard beyond admissions to encompass scholarships, financial aid, athletics, and other school-administered programs. Counsel for universities, private schools, and foundations should note the significant financial stakes, as loss of exempt status would prevent institutions from receiving tax-deductible contributions, accessing tax-exempt bond financing, and avoiding tax on investment income. The administration grounds its proposal in the precedent of Bob Jones University, which held that tax-exempt status is conditioned on compliance with fundamental public policy. The move signals a broader Treasury agenda to use the tax code to enforce nondiscrimination standards. The comment period for the proposed rules is 60 days from publication, and if finalized, they would generally apply to taxable years beginning on or after May 31, 2027. Legal challenges are expected.