Trump administration proposes rule to strip tax-exempt status from private schools considering race in programs

The Trump administration wants to disqualify private schools from tax-exempt status if they consider race in school programs, impacting as many as 18,000 educational institutions.

In an effort to crack down on schools that utilize affirmative action to promote diversity, the IRS and Treasury Department said that under the new rule, any private institution that considers race in admissions, educational policies, scholarships, loans, athletics or any other school-supported program would be ineligible for tax-exempt status.

Over the last year, President Donald Trump has sought to punish schools that consider race to benefit racial-minority students, arguing that it violates the 2023 Supreme Court decision that banned the use of affirmative action in admissions.

Trump administration officials have taken the position that the policies are unfair toward white or Asian students.

“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” Treasury Secretary Scott Bessent said in a Thursday press release.

Bessent added: “Today’s Treasury and IRS proposed regulations establish a clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”

The proposed rule still needs to undergo a lengthy public comment period before being adopted. But if approved, the final version could go into effect as early as June 2027.

Private schools can obtain tax-exempt status under 501(c)(3) if they are considered a non-profit corporation. In doing so, schools commit to reinvesting their revenue in education, rather than distributing it among owners or shareholders.

Tax-exempt status is a valuable financial tool for private schools – under it, a school does not pay federal income tax, and donors can consider their donation to the school a charitable contribution.

The Trump administration has capitalized on that, threatening to revoke schools’ tax-exempt status if they do not comply with the president’s demands. Last year, CNN reported that the IRS was looking to revoke Harvard University’s tax-exempt status after the president became embroiled in a battle over policy differences.

The IRS and Treasury’s proposed rule did not provide guidelines on how they would examine whether a private school was not considering race in school programs.

But the administration maintained schools would still be permitted to provide financial aid or admission assistance to disadvantaged students under the proposed rule by using race-neutral criteria.

In announcing the proposed rule, the Trump administration said it was relying on a Supreme Court precedent from the 1983 case Bob Jones University v. U.S. that determined an institution could not be tax-exempt if it is in opposition to “fundamental public policy.”