Treasury and IRS Propose Rule Ending Tax-Exempt Status for Private Schools That Consider Race
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The Facts
- The Treasury Department and IRS on Thursday proposed regulations denying federal tax-exempt status to private schools that the IRS finds racially discriminatory.
- The proposed standard would cover admissions, educational policies, scholarships and loans, athletics and other school-administered programs.
- Treasury estimates the proposed rule could affect as many as 18,000 educational institutions, including high schools, colleges and trade schools.
- The agencies estimate about 750,000 students who qualify for scholarships tied to race, ethnicity or national identity could be affected.
- Treasury said the proposed rule would not apply to religious institutions.
- Most private schools and universities hold 501(c)(3) status, which exempts them from federal income tax and lets donors deduct gifts.
- If finalized, the regulation would take effect after May 2027.
- The regulation is a proposal subject to a public comment period and is expected to draw legal challenges if implemented.
Context
What reason does the administration give for the proposal?
Treasury Secretary Scott Bessent said the rules would create a "clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status," adding that "schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature" Hill,Fox News,NY Post. Administration officials say the aim is to end what they describe as discrimination against white and Asian American students Reuters,Fortune.
What forms of student aid would still be allowed?
Treasury says the rule would not reach race-neutral criteria such as family income, individual hardship, military family status or academic achievement, and would not apply to religious institutions NY Post,Times of India.
What is the legal backdrop, and who opposes the plan?
The proposal draws on the 2023 Supreme Court decision barring the use of affirmative action in college admissions Independent,Reuters. Higher education leaders criticized the proposal, and civil rights advocates argue diversity practices address historic inequities for minority groups that faced decades of legal discrimination Fortune,Reuters.
Where Left and Right agree, and where they split
- Where Left and Right agree
- 501(c)(3) status is a deliberate public choice — no federal income tax, deductible gifts — so what it underwrites is legitimately the public's business, and both note religious institutions are exempted.
- Where Left and Right split
- The left and the right split on whether the exemption exists to widen access or to set conditions.
- Why they won’t converge
- This is a values divide over what a tax exemption is for — offsetting unequal access versus buying race-neutral treatment — so agreeing that 18,000 schools and 750,000 scholarships are in scope only sharpens whether that number names a harm or a subsidy.
How left and right read it
Roughly 750,000 students hold scholarships tied to race, ethnicity or national identity, and the point of the tax code's treatment of these schools is to support institutions that widen access, not to police them for trying. Yet the proposed standard reaches admissions, scholarships and loans, athletics and other programs across as many as 18,000 institutions — with religious institutions exempted. That is money redirected away from the students least served. Withdraw it.
“The new rule comes amid sweeping efforts by the government to gut funding from supposedly DEI programs, and to reallocate any money that's not earmarked for the white -- sorry, right purposes.” — The New Republic
Tax exemption is a public subsidy, not an entitlement — 501(c)(3) status spares schools federal income tax and hands their donors a deduction, so the public may ask what it is buying. Sorting students by race in admissions, scholarships and athletics is precisely what that subsidy should not underwrite. Religious institutions stay exempt. The comment period is open: which school will argue it needs racial criteria to earn the break?
“The rules, proposed by the Treasury Department and Internal Revenue Service, aim to end what administration officials argue is discrimination against white students in favor of students of color.” — Fox News
Every tax exemption carries an idea of what the public is buying. This rule writes that idea down, and 750,000 scholarships turn on the wording.
The receipts — all 92 sources
Wire services (12)
Independent coverage (50)
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