Treasury pushes for measures to revoke tax exemptions for private schools that discriminate on basis of race

The Treasury Department and the Internal Revenue Service (IRS) issued a proposed regulation on Thursday to revoke federal tax-exempt status for private schools that engage in racial discrimination.

According to the Treasury, the measure seeks to comply with President Donald Trump's executive orders aimed at ending discrimination and restoring merit-based opportunities.

"Under President Trump, this Administration is standing up for America’s students by ensuring racial discrimination has no place in American education," said Treasury Secretary Scott Bessent.

Bessent added that educational institutions that implement race-based preferences under terms such as equity, inclusion, or diversity would still be engaging in discriminatory practices.

"Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature. 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," he noted.

For his part, Frank J. Bisignano, Executive Director of the IRS, stated that private educational institutions that promote discriminatory practices will no longer receive the benefits associated with federal tax-exempt status.

"Private educational institutions that promote discriminatory practices will no longer be afforded the benefits of federal tax-exempt status," Bisignano said. "Today’s proposed regulations put institutions on notice and schools that continue to engage in racial discrimination should expect to lose that status."

What does the proposal entail?

Federal law establishes tax-exempt status for organizations that operate exclusively for charitable and educational purposes. The Treasury argues that, for decades, the Supreme Court has recognized that eligibility for this benefit is contingent upon compliance with fundamental public policies, including the prohibition against racial discrimination.

The proposed regulations would update Treasury and IRS guidelines to reflect that principle, as established in Supreme Court decisions such as Brown v. Board of Education, Bob Jones University v. United States, and Students for Fair Admissions v. Harvard.

Under the proposal, a private school would not be eligible for federal tax-exempt status under section 501(c)(3) if it adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin.

The rule would cover admissions, educational policies, scholarships and loans, athletic programs, and any other program administered or supported by the institution.

The change would apply to private elementary and secondary schools, as well as universities, colleges, vocational schools, and technical schools. The Treasury Department and the IRS estimate that the proposal could affect up to 18,000 private educational institutions.

Provisions on racial preferences would be eliminated

The proposal would also eliminate provisions deemed obsolete from IRS guidelines that allowed schools to favor certain racial preferences in admissions, facilities, programs, scholarships, and financial aid.

The Treasury and the IRS concluded that these provisions are inconsistent with a uniform standard of nondiscrimination and with Supreme Court case law.

The proposal would not prevent a private school from maintaining a religious mission, a religious curriculum, or programs of religious observance. Religious schools could continue to select students based on genuine religious affiliation or membership, in accordance with existing federal law.