Proposed Rule May Strip Private Schools of Tax-Exempt Status Over Race-Based Programs
The Trump administration has initiated a contentious move that could have a profound impact on private educational institutions across the United States. A newly proposed rule seeks to revoke the tax-exempt status of private schools and colleges that engage in programs offering targeted assistance to students based on race. This proposal is part of a broader effort by the administration to dismantle diversity initiatives.
The Treasury Department announced the proposed regulation on Thursday, which, if enacted, would take effect in May 2027. The rule aims to terminate any program or policy that provides benefits based on race, including those related to admissions, scholarships, and facilities. The administration argues that such benefits are incompatible with the rule.
Impact on Thousands of Institutions
This proposal is the latest development in a series of actions by the Trump administration to challenge diversity, equity, and inclusion (DEI) measures in educational settings. These efforts have led to the closure or rebranding of DEI offices and the discontinuation of scholarships and clubs for minority students. The administration claims these programs discriminate against white and Asian American students, drawing on Civil Rights-era laws to support this stance.
Mike Gavin, the president and CEO of the Alliance for Higher Education, criticized the proposal, stating, “The administration’s latest rules changes are its most blatant attack to keep working-class Americans and people of color from accessing higher education and a better life.”
Treasury Secretary Scott Bessent emphasized that policies, even if rebranded under different terms such as “equitable” or “inclusive,” remain discriminatory if they are race-based. The Treasury Department and IRS project that up to 18,000 private schools and colleges could be affected by this proposal.
A Historical Perspective on Tax Exemption
The revocation of tax-exempt status is not common, but there is a historical precedent. In the 1970s, Bob Jones University lost its tax-exempt status due to a campus ban on interracial dating and marriage. The Supreme Court upheld the IRS’s decision, and the school later regained its status after reversing the policy.
Federal laws prohibit the IRS from targeting organizations for ideological reasons, and officials cannot direct IRS investigations. Organizations must adhere to IRS rules on lobbying, political campaign activity, and reporting requirements to maintain nonprofit status, which allows tax-deductible donations.
Potential Challenges and Reactions
The proposed rule is seen as an attempt to restore merit in the nation’s educational systems, according to the Trump administration. Marjorie Hass, president of the Council of Independent Colleges, suggested that such changes could impact donations, often designated for scholarships.
Tim Powers of the National Association of Independent Colleges and Universities noted that the proposal might introduce new compliance burdens and legal uncertainties for institutions already following nondiscrimination rules. “Our institutions are committed to complying with applicable civil rights laws and maintaining safe and supportive campuses free from discrimination,” he stated.
The IRS’s Chief Executive Officer, Frank J. Bisignano, emphasized that institutions promoting discriminatory practices could lose their tax-exempt status. “Today’s proposed regulations put institutions on notice,” he declared.
Both political parties have historically viewed nonprofit status as requiring a substantial threshold to alter. Preston Cooper from the American Enterprise Institute indicated that the outcome of this push might influence future political actions. If the regulation results in widespread revocations, it could provoke a strong response from Democrats.
Associated Press Education Writers Annie Ma and Heather Hollingsworth contributed to this report.
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