IRS Proposes Race-Nondiscrimination Test for Private School 501(c)(3) Exemption
Treasury and the IRS would treat any race-, color-, or national-origin discrimination in a private school's programs as against fundamental US policy and disqualifying for tax exemption, deleting Rev. Proc. 75-50 safe harbors.
On September 4, 2026, Treasury and the IRS published a Notice of Proposed Rulemaking that would add Code Reg. § 1.501(c)(3)-2, making it a condition of Section 501(c)(3) exemption that a private school not adopt, maintain, or enforce any policy discriminating on race, color, or national or ethnic origin across educational, admissions, scholarship, loan, athletic, or any "school-administered or school-supported program" — a term left undefined.
Two points matter. First, the draft goes further than Students for Fair Admissions (2023), which struck particular race-conscious programs under strict scrutiny rather than barring consideration of race categorically; the NPRM reaches discrimination "for any purpose," and its preamble appears to reach conduct regardless of intent or legality, including remedial or diversity-justified policies. Second, it would delete portions of Rev. Proc. 75-50 (as modified by Rev. Proc. 2019-22) protecting race-conscious scholarships and admissions aimed at promoting racial nondiscrimination — material for schools outside Title VI, which receive no federal financial assistance. Religious selection criteria based solely on religion are preserved. The NPRM is silent on compliance review or revocation procedures.
Key dates: comments and speaker outlines due November 3, 2026; hearing December 2, 2026; if finalized, effective for taxable years beginning after May 31, 2027. Audit policies, donor-restricted endowments, and religious-selection criteria now.