Treasury Proposes Race-Based 501(c)(3) Rules Targeting Private Schools

Treasury and the IRS on Sept. 4 proposed regulations denying Section 501(c)(3) status to any private elementary, secondary or postsecondary school that adopts, maintains or enforces a race-, color- or national-origin-based policy in admissions, scholarships, financial aid, athletics or any other school-administered or school-supported activity. The proposal eliminates the permissive language of Revenue Procedure 75-50 and would make the mere use of race, regardless of intent or effect, grounds for loss of exemption, applying to taxable years beginning after May 31, 2027 if finalized. The agencies estimate roughly 18,000 schools and 750,000 students could be affected.

Counsel should note the unresolved legal architecture: the rules extend Students for Fair Admissions, 600 U.S. 181 (2023) beyond admissions into financial aid and tax exemption, stretch Bob Jones University, 461 U.S. 574 (1983) to reach desegregative rather than exclusionary practices, and sit awkwardly with Treasury's own charitable-purpose regulations. The religious-schools carve-out appears only in the preamble, not the regulatory text, and donor-restricted endowments raise consent and reformation questions; continued prohibited practices combined with knowing false filings could implicate criminal tax statutes now overseen by DOJ's Fraud Division.

Watch the Nov. 3 comment deadline, the Dec. 2 telephonic hearing, and the final rule's reasoning.