The Trump administration on Thursday unveiled a sweeping proposal that could strip thousands of private schools, colleges and universities of their federal tax-exempt status if they use race-based preferences in admissions, scholarships, athletics or other programs, dramatically raising the financial stakes in President Donald Trump’s campaign against diversity, equity and inclusion policies in American education.
The proposed regulations, issued by the Treasury Department and Internal Revenue Service, would establish that private educational institutions cannot qualify for tax exemption under Section 501(c)(3) if they maintain or enforce policies that discriminate on the basis of race, color, national origin or ethnicity. Treasury and the IRS estimate that as many as 18,000 private educational institutions could be affected.
The rule would reach far beyond college admissions. It would apply to elementary and secondary schools, colleges, universities, professional schools and trade schools, and would cover admissions policies, scholarships and loans, athletics, educational programs and other activities administered or supported by a school.
“Under President Trump, this Administration is standing up for America’s students by ensuring racial discrimination has no place in American education,” Treasury Secretary Scott Bessent said in announcing the proposal. “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.”
The administration says the regulation is intended to bring IRS rules into line with Supreme Court decisions governing racial discrimination, including the high court’s landmark 2023 decision in Students for Fair Admissions v. Harvard, which effectively ended race-conscious admissions at colleges and universities. Treasury also cited Brown v. Board of Education and the Supreme Court’s 1983 decision in Bob Jones University v. United States.
The Bob Jones case provides an important legal foundation for the administration’s approach. The university lost its tax exemption because of racially discriminatory policies, including restrictions on interracial relationships. The Supreme Court upheld the IRS action, ruling that an institution seeking charitable tax-exempt status must comply with fundamental public policy against racial discrimination. Bob Jones University later abandoned those policies and ultimately regained tax-exempt status.
The new Trump administration proposal would eliminate older IRS provisions that allowed certain race-conscious practices involving admissions, facilities, programs, scholarships and financial assistance. Treasury and the IRS said those provisions can no longer be reconciled with a uniform prohibition on racial discrimination and recent Supreme Court precedent.
IRS Chief Executive Officer Frank Bisignano issued an explicit warning to schools that continue such practices.
“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.”
Losing 501(c)(3) status could carry enormous financial consequences, particularly for major private universities. Beyond exemption from federal income taxes, nonprofit status generally allows donors to claim tax deductions for contributions and plays an important role in universities’ broader financial operations. The administration’s proposal therefore introduces a potentially powerful enforcement mechanism against institutions found to be maintaining prohibited race-based programs.
The proposal does not prohibit schools from trying to increase opportunities for disadvantaged students. Instead, the administration says institutions may continue considering race-neutral factors including family income, geographic location, first-generation college status, individual hardship, military-family status and academic achievement when making admissions or financial-aid decisions.
The regulations also contain provisions of particular significance to religious schools. Treasury said the proposal would not interfere with a private school’s religious mission, curriculum or religious observances. Religious institutions would continue to be permitted to select students on the basis of genuine religious affiliation or membership when consistent with existing federal law.
The proposal represents an expansion of the administration’s broader effort to eliminate race-conscious policies throughout higher education. The Justice Department has separately investigated medical schools over allegations that admissions policies improperly favored Black and Hispanic applicants, while numerous universities have eliminated, renamed or substantially modified DEI offices, scholarships and other programs amid federal scrutiny.
Trump had previously raised the prospect of challenging the tax-exempt status of individual universities, most prominently Harvard during his administration’s confrontation with the school. Harvard maintained that there was no lawful basis for revoking its exemption and warned that such a move could force reductions in financial aid and medical research.
The newly proposed regulation takes a broader approach by establishing a general standard that could apply across private education rather than focusing on a single institution.
The proposal is not yet final and will go through the federal rulemaking and public-comment process. If finalized in its current form, the regulations would apply to taxable years beginning on or after May 31, 2027, giving schools time to review their admissions, scholarship and other policies before the new standards take effect.
The administration is framing the initiative as an effort to enforce a single nondiscrimination standard regardless of how institutions characterize their programs, while opponents of the broader federal campaign against DEI have argued that the administration is dismantling programs intended to expand educational opportunities for historically underrepresented students. The proposed regulation is likely to intensify the legal and political fight over how far the federal government may go in using tax policy to police race-conscious practices at private educational institutions.
{Matzav.com}
