Treasury proposes rule to strip tax-exempt status from schools with race-based programs

Overview

Updated 5 days ago

The Treasury Department proposed a rule on September 3 that would end federal tax-exempt status for private schools and colleges that give students any benefit based on race. The Internal Revenue Service estimates 18,000 institutions could be affected, along with 750,000 students holding race-based scholarships.

A school that loses tax-exempt status loses the deductibility of charitable donations, access to tax-exempt bonds, and other federal benefits. The rule would apply to admissions, scholarships, athletics, and every other school-administered program. It would take effect for taxable years beginning after May 31, 2027.

Why it matters

If this rule takes effect, donations to private schools lose their tax deduction unless schools end race-based admissions and aid programs.

Questions about this story

Free account needed to ask — your question is kept and asked for you right after sign-up. Answers are public.

No questions yet — be the first to ask.

Key Indicators

18,000

Private schools potentially affected

Treasury and IRS estimate the rule could affect tax-exempt private primary, secondary, post-secondary, professional, and trade schools.

750,000

Students with race-based scholarships

Students who may qualify for scholarships allocated on the basis of racial, ethnic, or national identity.

May 31, 2027

Proposed effective date

Rule would apply to taxable years beginning after this date, giving schools time to adjust policies.

Voices

Curated perspectives — historical figures and your fellow readers.

Ever wondered what historical figures would say about today's headlines?

People Involved

Scott Bessent

Treasury Secretary

Leading the administration's push to tie tax-exempt status to anti-discrimination compliance

Shiloh Theberge

Chair, higher education law practice at Fisher Phillips

Analyzing the rule's impact on minority-serving institutions

Joe Rosenberg

Senior fellow, Urban-Brookings Tax Policy Center

Commenting on the tax consequences of the rule

Jamie Beaton

Co-founder and CEO, Crimson Education

Warning of a drop in charitable giving to affected schools

Organizations Involved

U.S. Department of the Treasury

Federal agency

Issuing agency for the proposed rule

Issued the proposed rule on September 3, 2026, alongside the IRS.

Internal Revenue Service

Federal Agency

Co-issuing agency and administrator of tax-exempt status

Co-issued the proposed rule and estimates 18,000 institutions could be affected.

Timeline

June 2023 September 2026

3 events Latest: September 4th, 2026 · 1 week ago

September 2026
Proposal published in Federal Register
Latest Procedural

Proposed regulations published, opening the public comment period before finalization.
September 4th, 2026
Treasury proposes tax-exemption rule
Regulation

Treasury and IRS propose ending tax-exempt status for schools with race-based programs, covering 18,000 institutions and 750,000 scholarship students.
September 3rd, 2026
June 2023
Supreme Court strikes down race-based admissions
Legal

Court rules Harvard and UNC admissions policies violate the Equal Protection Clause.
June 29th, 2023

Scenarios

Treasury finalizes tax-exemption rule for May 2027

Likely Resolves by May 31, 2027

Discussed by: Treasury and IRS statements, Federal Register notice

The public comment period closes and Treasury publishes a final rule largely unchanged from the proposal. Schools that maintain race-based policies lose tax-exempt status for taxable years beginning after May 31, 2027. Treasury and IRS have said this is the expected timeline, with affected institutions given time to amend policies before the rule applies.

Court blocks Treasury's tax-exemption rule

Possible Resolves by End of 2027

Discussed by: Shiloh Theberge of Fisher Phillips; Inside Higher Ed analysis

Nonprofit schools or civil rights organizations file suit arguing the rule exceeds Treasury's statutory authority under the Internal Revenue Code or violates First Amendment associational rights. A federal court issues an injunction before the May 2027 effective date, halting enforcement pending appellate review. Affected institutions, particularly HBCUs and tribal colleges, would be the likely plaintiffs.

Treasury modifies rule after comment period

Possible Resolves by May 31, 2027

Discussed by: Coverage in Inside Higher Ed and Bloomberg Tax

Under pressure from religious schools and minority-serving institutions during the comment period, Treasury narrows the rule. Possible changes include exemptions for religious schools' admissions based on genuine religious affiliation, grandfathering existing scholarships, or limiting the rule to admission policies rather than all school programs. Treasury has already noted religious schools may continue selecting students based on religious membership.

Historical Context

3 moments from history that rhyme with this story — and how they unfolded.

May 1954

Brown v. Board of Education (1954)

The Supreme Court ruled that racial segregation in public schools violates the Fourteenth Amendment's Equal Protection Clause, overturning the separate but equal doctrine.

Then

Desegregation orders followed; resistance was often violent and prolonged.

Now

Established racial non-discrimination as fundamental public policy in American education.

Why this matters now

Treasury cites Brown as the foundation of the public policy requiring non-discrimination in education.

May 1983

Bob Jones University v. United States (1983)

The Supreme Court upheld the IRS's decision to deny tax-exempt status to Bob Jones University, a private Christian school that banned interracial dating. The Court ruled that tax exemption requires compliance with fundamental public policy, which prohibits racial discrimination.

Then

The IRS retained power to deny tax exemption for racial discrimination. The principle became settled law.

Now

Established that tax-exempt status is conditioned on non-discrimination, a standard Treasury says this rule simply codifies.

Why this matters now

This is the direct legal precedent Treasury cites for linking tax exemption to anti-discrimination policy.

June 2023

Students for Fair Admissions v. Harvard (2023)

The Supreme Court struck down race-conscious admissions policies at Harvard and the University of North Carolina, ruling they violate the Equal Protection Clause.

Then

Colleges ended race-based admissions policies; some shifted to income or geographic criteria.

Now

Provided the legal basis for arguing that race-based programs in education are unconstitutional under current law.

Why this matters now

Treasury cites this ruling to argue that race-based scholarships and other programs are discriminatory, not merely admissions.