IRS and Treasury Propose Rules Stripping Tax Status From Private Schools Over Race Policies
The proposed regulations would apply an existing Supreme Court standard to an estimated 18,000 institutions, creating the broadest federal review of private school tax-exempt status in decades.
The U.S. Treasury Department and the Internal Revenue Service announced proposed regulations last week that would revoke 501(c)(3) tax-exempt status from any private school, from elementary through graduate level, that "adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin," according to the Washington Examiner, which reviewed the regulatory announcement.
The Treasury and IRS estimate that as many as 18,000 institutions could be affected by the proposed rules, according to the Washington Examiner report published September 12, 2026. The agencies have not yet published a full regulatory impact analysis in the Federal Register specifying which institutions have been identified or how compliance would be assessed. The specific text of the proposed rule would need to be reviewed in the Federal Register to confirm precise definitions and enforcement mechanisms.
The legal foundation for the proposed regulations is not new. In 1983, the Supreme Court ruled in Bob Jones University v. United States that private schools do not have a constitutional right to tax-exempt status if they maintain racially discriminatory policies. In that case, the Court upheld the IRS revocation of Bob Jones University's 501(c)(3) status by a vote of 8 to 1, with Justice William Rehnquist the sole dissenter. The Court held that the government's compelling interest in eradicating racial discrimination in education outweighed the university's religious freedom claims.
The current proposal would extend the application of that 1983 precedent to cover institutions whose policies the IRS determines to constitute racial discrimination. The regulatory announcement cited in the Washington Examiner report references "race-conscious" policies, but the precise definitional language governing what qualifies as a prohibited policy or practice is contained in the full proposed rule text, which would be available through the Federal Register and IRS.gov.
The 501(c)(3) designation under the Internal Revenue Code provides organizations with exemption from federal income tax. Donors to 501(c)(3) organizations may also deduct contributions from their federal taxable income, subject to applicable limits under 26 U.S.C. Section 170. Revocation of this status would expose an institution to federal corporate income tax and eliminate the donor deduction benefit, materially affecting fundraising capacity.
The proposed regulations enter a legal environment already shaped by the Supreme Court's June 2023 decision in Students for Fair Admissions v. Harvard and Students for Fair Admissions v. University of North Carolina. In those consolidated cases, the Court held 6 to 3 that race-conscious admissions programs at Harvard University and the University of North Carolina violated the Equal Protection Clause of the Fourteenth Amendment. The majority opinion, authored by Chief Justice John Roberts, did not directly address tax-exempt status, but the administration has cited it as supporting authority for the IRS action, according to the Washington Examiner.
Private elementary and secondary schools would fall under the proposed rules alongside colleges and universities. The National Center for Education Statistics reported in its most recent Digest of Education Statistics that approximately 33,600 private elementary and secondary schools were operating in the United States, enrolling roughly 5.7 million students. Graduate and professional schools would add additional institutions to the total pool.
Opponents of the proposed rules are expected to argue that the definition of discriminatory policy is overbroad and that applying it to diversity, equity, and inclusion programs extends beyond the Bob Jones precedent. The Bob Jones case involved an explicit, written ban on interracial dating and marriage, a circumstance that critics argue is materially different from modern DEI frameworks. Legal challenges, if filed, would most likely be heard in federal district courts before any appeal to circuit courts or the Supreme Court. No lawsuit had been filed as of the date of this report.
The Treasury and IRS are required under the Administrative Procedure Act to accept public comment before finalizing any proposed rule. The comment period length and submission portal address would be specified in the Federal Register notice. The agencies have not announced a projected date for a final rule.
Several questions remain unanswered in publicly available records. The agencies have not released the methodology used to arrive at the 18,000 affected institutions figure, nor have they published a list of institutions under review. It is also unknown whether the IRS intends to proactively audit institutions or respond only to complaints. The Federal Register notice and any accompanying Treasury guidance documents would contain the clearest answers to those questions.