The U.S. Treasury Department and IRS unveiled proposed regulations on Thursday that would eliminate federal tax-exempt status for private educational institutions that employ race as a factor in admissions, student aid allocation, or other school-administered programs. The regulations would take effect for taxable years beginning on or after May 31, 2027.
Treasury Secretary Scott Bessent framed the proposal as an effort to eliminate racial discrimination in American education, stating that institutions using discriminatory practices would lose federal tax-exempt benefits. IRS CEO Frank Bisignano echoed this position, noting that schools continuing to engage in racial discrimination should expect to lose their tax-exempt status. The proposal could affect approximately 18,000 private schools across the United States, ranging from colleges and universities to elementary and trade schools. The regulations would apply comprehensively across admissions policies, educational programs, scholarships, loans, and athletics, though religious-based student selection criteria would remain exempt.
Tax and education experts warned the proposal carries significant financial implications. Loss of tax-exempt status would eliminate the charitable tax deduction for donations to affected institutions, potentially reducing philanthropic giving. The Treasury and IRS estimate the rules could impact scholarships for approximately 750,000 students currently attending these schools. Tax policy analysts noted that recent changes to tax law have already reduced the number of households claiming charitable deductions, and this proposal could further diminish incentives for educational donations.
The proposal prompted criticism from education advocacy organizations. Denise Forte, president and CEO of EdTrust, characterized the regulations as federal overreach, arguing that addressing racial inequity in education is not discrimination but rather necessary work to remove barriers to opportunity. Accounting and tax experts identified particular complications around existing scholarship funds with race-based eligibility requirements, noting that schools may need to work with donors to modify such arrangements to comply with the new standards.
The proposal represents the latest administration action targeting diversity, equity, and inclusion initiatives at educational institutions, following the Supreme Court’s decision invalidating race-conscious admissions practices.
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