Treasury Proposes Revoking Tax Exemptions for Private Schools Using Racial Preferences

The U.S. Treasury Department and the Internal Revenue Service proposed regulations on Thursday that would strip federal tax-exempt status from private schools discriminating based on race, color, or national or ethnic origin.

The proposed rule would cover admissions, scholarships, athletics, and other school programs, but would allow faith-based schools to continue selecting students based on religious affiliation. Treasury Secretary Scott Bessent stated that rebranding race-based preferences as equitable or diversity-enhancing does not change their discriminatory nature. Schools could still use race-neutral criteria such as income, geography, and first-generation status.

This proposal reverses previous IRS guidance that permitted schools to favor certain racial groups in admissions and financial assistance. It follows the U.S. Supreme Court's 2023 ruling in Students for Fair Admissions v. Harvard, which ended race-based college admissions policies. The Treasury Department and IRS estimate the proposal could affect up to 18,000 tax-exempt private schools, including elementary and secondary schools, colleges, universities, and professional and trade schools.

If finalized, the regulations would apply to tax years beginning after May 31, 2027. The proposal also threatens to remove tax breaks for donations to these institutions. A public comment period is expected to last until early November.