[VT | September 3, 2026 | Philadelphia PA]
The U.S. Department of the Treasury and the Internal Revenue Service published proposed regulations on September 4 that could make private schools ineligible for federal tax-exempt status if they use race, color, national origin, or ethnic origin in admissions, scholarships, financial aid, athletics, or other school-supported programs.
The proposal would apply to tax-exempt private elementary and secondary schools, colleges, universities, professional schools, and trade schools.
Federal policy has long denied tax-exempt status to private schools that practice racial segregation or exclude students based on race. Existing IRS guidance, however, permits certain preferences for racial minority groups when their purpose and effect are to establish or maintain a nondiscriminatory educational environment.
Treasury and the IRS now propose removing those provisions. Under the proposed standard, any direct use of race or ethnicity would be treated as racial discrimination for federal tax purposes, including policies intended to remedy past discrimination or promote educational diversity.
The agencies cite the Supreme Court’s decisions in Brown v. Board of Education, Bob Jones University v. United States, and Students for Fair Admissions v. Harvard as part of the proposal’s legal foundation. The cases addressed different legal settings: racial segregation in public schools, the tax-exempt status of private schools with racially restrictive policies, and the consideration of race in university admissions.
Treasury and the IRS argue that the decisions, together with federal civil rights law and executive actions, support a uniform standard prohibiting private schools from using race for any purpose while receiving federal tax-exempt status. The proposal would apply that standard beyond admissions to scholarships, loans, athletics, and other school-administered or school-supported programs.
The most immediate effect on colleges may involve race-based scholarships and financial aid because many institutions have already revised their admissions policies following the Supreme Court’s 2023 decision in Students for Fair Admissions. Scholarships administered by schools and limited to Asian, Black, Hispanic, Native American, or other racial and ethnic groups could require new eligibility criteria.
Schools could continue supporting disadvantaged students through race-neutral measures such as family income, geographic location, first-generation status, individual hardship, military family status, or academic achievement. Religious schools could also continue selecting students based on genuine religious affiliation or membership, provided that religion is not used as a substitute for ancestry or ethnic identity.
For Asian American and other minority students, the proposal could operate in both directions. Schools would not be permitted to use race to disadvantage Asian American applicants or apply different standards to them. At the same time, scholarships and programs that directly favor Asian American or other racial and ethnic groups could also be affected.
Treasury and the IRS estimate that as many as 18,000 tax-exempt private educational institutions could fall within the proposal’s scope. The figure represents the number of potentially covered institutions, not the number accused of violating the proposed standard.
The regulations are not final and do not immediately change any school’s tax-exempt status. The proposal is open for public comment for 60 days following its September 4 publication in the Federal Register. If finalized substantially as proposed, it would apply to private-school tax years beginning after May 31, 2027.
