The US Department of the Treasury and the Internal Revenue Service (IRS) have proposed on Thursday (September 3) new regulations that could strip private schools of their federal tax-exempt status if they engage in racial discrimination.
The proposal, announced under President Donald Trump’s administration, would target private educational institutions that adopt, maintain or enforce policies that discriminate based on race, colour, or national or ethnic origin.
Treasury Secretary Scott Bessent said the proposed rules are aimed at ensuring that racial discrimination has no place in American education. He argued that schools cannot avoid the restrictions by describing race-based preferences as “equitable,” “inclusive” or “diversity-enhancing.”
IRS Chief Executive Officer Frank J. Bisignano said private educational institutions that continue discriminatory practices should expect to lose the benefits associated with federal tax-exempt status.
Which private schools could lose tax-exempt status?
Under the proposed regulations, a private school would no longer qualify for tax exemption under Section 501(c)(3) if it discriminates based on race, colour, or national or ethnic origin.
The proposed rule would cover a wide range of school activities, including:
-Admissions
-Educational policies
-Scholarships and loans
-Athletics
-Financial assistance
-Other school-administered or school-supported programmes
The regulations would apply to tax-exempt private primary and secondary schools, colleges, universities, professional schools and trade schools.
Treasury and the IRS estimate that as many as 18,000 private educational institutions could be affected.
IRS to remove provisions allowing racial preferences
The proposal would also eliminate certain older IRS guidance that allowed private schools to favour particular racial groups in areas such as admissions, facilities, programmes, scholarships and financial assistance.
Treasury and the IRS said those provisions are inconsistent with a uniform nondiscrimination standard and conflict with recent Supreme Court case law.
The proposed regulations cite landmark cases including Brown v. Board of Education, Bob Jones University v. United States and Students for Fair Admissions v. Harvard.
Religious schools would still be allowed to maintain religious missions
The proposed rule would not prevent religious schools from maintaining their religious identity, curriculum or programmes of religious observance.
Religious schools could continue selecting students based on genuine religious affiliation or membership, consistent with existing federal law.
The proposal also makes clear that schools could continue using race-neutral criteria to expand opportunities for disadvantaged students.
Such criteria could include:
-Family income
-Geographic location
-First-generation college status
-Individual hardship
-Military family status
-Academic achievement
However, schools would not be allowed to use race, colour, or national or ethnic origin as the basis for admissions, financial assistance or other benefits.
When would the new rules take effect?
The regulations are currently proposed, meaning they are not yet final.
If finalized, they would apply to taxable years beginning on or after May 31, 2027. Treasury and the IRS said the timeline would give affected institutions time to review their policies and make changes to admissions, scholarship and other programmes.
Trump administration’s broader education policy
The proposed regulations are part of the Trump administration’s broader effort to end what it describes as discriminatory practices and restore what it calls merit-based opportunity in education.
The administration says the new tax rules would establish a clearer and more uniform standard for private educational institutions seeking to retain federal tax-exempt status.
