The IRS proposed a new regulation Thursday that would allow it to strip private schools of their tax exemptions if they use race-based preferences in their admissions or financial assistance.
Other preferences for income, hardship or academic or athletic achievement would be safe. But schools that seek to forge diversity through the use of “discriminatory practices” would lose their special tax status.
“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” Treasury Secretary Scott Bessent said.
The rule would apply to all levels, from primary schools to universities, and would also cover professional and trade schools. The IRS figured more than 18,000 private institutions, with 750,000 students, may be affected.
At issue is the schools’ status as 501(c)(3) organizations. Those are nonprofits that operate for religious, charitable or educational purposes. Donations to them are tax-deductible, which provides an immense benefit in their fundraising.
The IRS said the Supreme Court has recognized that tax-exempt status can be conditioned on groups not acting “contrary to public policy.”
The tax agency said non-discrimination meets that standard, and after the Supreme Court’s ruling in 2023 striking down race-based admissions policies at Harvard and the University of North Carolina, the line has been drawn.
“Today’s proposed regulations put institutions on notice and schools that continue to engage in racial discrimination should expect to lose that status,” said Frank J. Bisignano, the IRS’ CEO and acting head.
The new proposal will be published in the Federal Register on Friday, kicking off a public comment period.
A regulation would be finalized by May 31, 2027, and the rules would become binding in the next taxable year after that.
The proposal would apply even in cases where racial discrimination might be deemed legal, such as where it was seen as remedial for past discrimination.
Religious schools would still be able to keep their tax-exempt status even if their selection based on faith meant they ended up picking people of the same national origin or ethnicity.
IRS officials said the downside of losing tax-exempt status is so big that most schools will heel to the new rule.
But donors who endow scholarships specifically directed toward a race or ethnicity will have to adjust.
The IRS said it figures many of those donors will convert their race-based criteria to alternative measures, such as income, geography or first-generation student status.
The new proposal is the latest in a string of moves by the Trump administration to put teeth behind the Supreme Court’s ruling in the Harvard case.
Justice Department lawyers have been badgering universities that have tried to use workarounds to get at race without explicitly asking the question on admissions forms.
DOJ has launched probes of more than 15 schools and has fired off letters challenging admissions practices at George Washington University, Duke University, Yale University and several schools in the University of California system.
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