Treasury Proposes Revoking Tax-Exempt Status for Schools Using Race

The United States Department of the Treasury and the Internal Revenue Service proposed regulations on September 3, 2026, to revoke the federal tax-exempt status of private schools and colleges that use race to influence admissions, student aid, or other educational programs. The Trump administration characterizes diversity, equity, and inclusion policies as discriminatory against white and Asian American students, citing Supreme Court precedents such as Students for Fair Admissions v. Harvard to justify the move as a restoration of merit.

Treasury and IRS officials estimate the proposal could affect up to 18,000 institutions and 750,000 students. If finalized, the rules would apply to taxable years beginning on or after May 31, 2027. The regulations would eliminate tax deductions for donors and potentially jeopardize scholarships based on racial or national identity, though they allow for race-neutral criteria like family income and geographic location. Religious schools may still maintain affiliation-based selection.

Academic advocates have reacted sharply to the proposal. The American Association of University Professors is considering legal action, arguing that the administration is weaponizing civil-rights law against the populations it was designed to protect. Treasury Secretary Scott Bessent and IRS CEO Frank Bisignano have maintained that institutions rebranding race-based preferences as equitable or inclusive will no longer receive federal tax benefits.