Treasury and IRS propose stripping tax-exempt status from schools that consider race

Under the proposed rule, a private school would not qualify for 501(c)(3) status if it adopts or enforces a policy that discriminates based on race, color, or national or ethnic origin.

For decades the Supreme Court has recognized that tax-exempt eligibility is conditioned on compliance with fundamental public policy, including the ban on racial discrimination.

Federal law provides tax-exempt status to organizations that operate exclusively for charitable and educational purposes.

Treasury and the IRS concluded those provisions are inconsistent with a uniform nondiscrimination standard and incompatible with Supreme Court case law.

The rule would apply to any program that considers race, color, or national or ethnic origin for any purpose, including efforts to address past racial discrimination.

Education Secretary Linda McMahon and President Trump outlined an education overhaul in the White House Rose Garden on Aug. 24, 2026.

Treasury estimated 750,000 students who may qualify for race-based scholarships could be affected.

The proposal would likely spark legal challenges if adopted.

AAUP has sued the administration to block funding cuts in the past.

Besides DEI, the administration has targeted schools over race-based admissions and scholarships and alleged campus antisemitism.

The Treasury proposal was set to be published in the Federal Register on Sept. 4.

The proposal likened those orders to Eisenhower’s 1957 order authorizing the National Guard to enforce desegregation in Little Rock.

Colleges could still adopt policies intended to eliminate prejudice and discrimination if they do not discriminate based on race, color, or national or ethnic origin.

The administration has sought to apply that decision to everything from housing to graduation ceremonies.

The New York Post said the new rule would not apply to religious institutions.

Donors would no longer be able to write off donations if schools lost tax-exempt status.

The rule would also apply to schools that do not take federal funding.

The administration has targeted colleges and universities for race-based practices.

The Post said these schools would likely not pay much in taxes.

President Trump has sought to remake the country’s education system by shifting power from the federal government to the states.

Hawaii’s Kamehameha Schools, a private K-12 institution, is facing a lawsuit for giving preference to Native Hawaiian students in admissions.

The Post said Trump has ended “critical race theory and transgender insanity” in schools, brought back the presidential fitness test, and returned whole milk in cafeterias.

Once finalized, many schools would likely be audited by the IRS to ensure compliance.

The Post said the ruling had a ripple effect that reached financial aid.

The share of scholarships targeting specific races, ethnicities, or genders dropped from 15% in 2023–2024 to 11% by 2026, according to the National Scholarship Providers Association.

In March 2026 Trump signed an executive order directing federal contractors to refrain from what the administration called racially discriminatory DEI activities.

A Justice Department review found that Yale School of Medicine had discriminated based on race in admissions.

Similar discrimination findings were reported at George Washington’s medical school and Duke Law.