The Treasury Department and IRS unveiled proposed regulations that would revoke federal tax-exempt status from private educational institutions that consider race in admissions, student aid distribution, scholarships, athletics, and other school programs. The regulations would take effect for taxable years beginning on or after May 31, 2027, and could impact approximately 18,000 private schools across all educational levels, from elementary through professional schools.
Treasury Secretary Scott Bessent framed the proposal as a measure to eliminate racial discrimination in the education system, stating that institutions continuing discriminatory practices would no longer receive tax-exempt benefits. IRS CEO Frank Bisignano added that schools engaging in racial discrimination should expect to lose their 501(c)(3) status. The proposal notably excludes schools that select students based on religion.
The financial implications could be substantial. Donations to schools losing tax-exempt status may no longer qualify for tax deductions, potentially reducing philanthropic contributions. Additionally, approximately 750,000 students attending affected institutions could lose access to race-based scholarships. Experts noted that scholarship funds with race-based eligibility requirements established by donors would present complex compliance challenges for schools attempting to modify their terms.
Education advocates criticized the proposal as part of a broader effort to dismantle diversity, equity, and inclusion initiatives. Denise Forte, president of EdTrust, argued that addressing racial inequity should not be characterized as discrimination and that barriers facing students of color remain real obstacles to educational access. Recent tax law changes that expanded charitable deduction eligibility to more taxpayers could amplify the donation impact if schools lose their tax-exempt status.
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