On September 3, 2026, the U.S. Treasury Department and IRS announced proposed regulations aimed at ending the federal tax-exempt status for private schools that incorporate race into their admissions or financial aid processes.
This proposal could affect approximately 18,000 private educational institutions, including colleges and elementary schools, and may lead to significant financial implications for these schools and their donors. If finalized, the regulations would take effect for taxable years starting May 31, 2027.
The Trump administration previously indicated intentions to revoke tax-exempt status from schools perceived to engage in discriminatory practices following a Supreme Court ruling against race-conscious admissions. Treasury Secretary Scott Bessent emphasized that the proposed regulations set a clear standard against racial discrimination in education.
Experts warn that losing tax-exempt status could deter donations, as contributions to these schools would no longer be tax-deductible, potentially reducing philanthropic support. The IRS and Treasury also noted that around 750,000 students attending these schools might be affected, particularly regarding scholarships tied to racial or ethnic criteria.
The proposal reflects a broader federal initiative to challenge diversity and equity programs in education, with critics arguing that it undermines efforts to address systemic barriers faced by students of color.
The ultimate enforcement of these regulations and their impact on donor behavior remains uncertain, but they are expected to pressure schools to revise their admissions and scholarship policies to maintain their tax-exempt status