The Trump administration has proposed a new rule that would remove the tax-exempt status from private schools and colleges that offer race-based support to students, marking an escalation in efforts to dismantle diversity programs targeting minority groups. The Treasury Department unveiled the proposed regulation on Thursday, which, if finalized, would take effect after May 2027.
The rule is designed to prohibit policies or programs that provide assistance to students based on their race, specifically stating that such benefits in admissions, scholarships, and facilities are "incompatible" with the proposed regulation. This initiative is the latest in the administration's campaign to pressure educational institutions to eliminate diversity, equity, and inclusion (DEI) policies, which the administration argues discriminate against white and Asian American students.
Treasury Secretary Scott Bessent stated that rebranding race-based preferences as equitable or diversity-enhancing does not alter their discriminatory nature. The Treasury Department and IRS estimate that up to 18,000 private schools, colleges, and other educational institutions could be impacted by this proposal.
Private universities have historically held tax-exempt status for over a century due to their role in providing a public good, a benefit that saves many institutions millions of dollars annually. President Trump has previously used this tax-exempt status as leverage, including a threat to revoke it for Harvard University during a dispute last year. Harvard officials responded at the time that such a move lacked a legal basis and could force reductions in financial aid and research.
While rare, there is a precedent for the federal government revoking a college's tax-exempt status. Bob Jones University lost its exemption in the 1970s due to a ban on interracial dating and marriage, a decision upheld by the Supreme Court. The university has since ended the ban and regained its tax-exempt status in 2017.
Federal law prohibits the IRS from targeting individuals or organizations for ideological reasons, and officials are restricted from directing IRS investigations. To maintain nonprofit status, organizations must adhere to IRS regulations regarding lobbying, political campaign activities, and annual reporting.
The administration frames this proposal as a measure to restore merit within the nation's education system. Separately, the Justice Department has initiated investigations into several medical schools accused of favoring Black and Hispanic students in admissions, asserting that such practices violate Title IV of the Civil Rights Act of 1964.
IRS Chief Executive Officer Frank J. Bisignano commented that private schools engaging in discriminatory practices would no longer be tax-exempt, stating that institutions continuing such activities should expect to lose their status.