The Treasury Department and IRS proposed regulations to revoke federal tax-exempt status from private schools engaged in racial discrimination on Sept. 16, citing President Donald Trump’s executive orders on merit-based opportunity as legal authority.
The proposed rule would strip qualifying tax exemptions and the ability to receive tax-deductible charitable contributions from private schools found to maintain racially discriminatory admissions, enrollment or operational policies, the IRS said. The financial consequences for affected institutions would be substantial.
Private schools that lose their 501(c)(3) tax-exempt status would face both direct federal tax liabilities and the loss of donor incentives, potentially undermining their fundraising capacity. Donors to such institutions would no longer be able to claim charitable deductions on their federal returns.
The proposed regulations represent one of the most significant uses of federal tax law as a civil rights enforcement mechanism in decades. The legal principle that tax exemptions can be conditioned on nondiscrimination dates to the Supreme Court’s 1983 ruling in Bob Jones University v. United States, which upheld the IRS’s authority to deny tax-exempt status to racially discriminatory educational institutions.
Treasury and IRS said the regulations align with executive orders directing the federal government to promote merit-based opportunity and eliminate discriminatory practices in institutions that benefit from public subsidies.
The proposed rule would affect private schools nationwide, though the IRS did not disclose how many institutions it believes currently maintain policies that would trigger the revocation. The agency will accept public comments before issuing a final rule.
For American taxpayers, the regulation would ensure that federal tax benefits, which represent a form of indirect public subsidy, do not flow to institutions that practice racial discrimination. The policy’s practical impact would depend on the IRS’s enforcement capacity and the specificity of its final compliance standards.
Education industry groups and civil rights organizations are expected to weigh in during the public comment period. The proposed rule does not address other forms of discrimination beyond race.