Treasury proposes stripping tax-exempt status from schools and colleges over race-based programs
The Treasury Department proposed a regulation that would strip private schools and colleges of their tax-exempt status if they provide targeted help to students based on their race, and Treasury Secretary Scott Bessent said schools that continue to engage in what he called racial discrimination should expect to lose that status.
What happened
Treasury proposed the change Thursday in a new regulation that, if made final, would kick in after May 2027. The Treasury Department and the IRS estimate that up to 18,000 private schools, colleges and other education institutions could be affected by the proposal. Bessent also said that schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature.
Why it matters
Tax exemption is what makes gifts to a private school or college tax-deductible, and those gifts are often earmarked for scholarships, so the status is tied to how these institutions are funded. The decision to withdraw it is made by the IRS rather than by a court, which reviews it only afterward - the one notable precedent, Bob Jones University in the 1970s, was an IRS denial the Supreme Court later upheld. A rule that makes exemption turn on an agency's reading of a school's own programs hands the administration a standing lever over institutions that are otherwise independent of it, and the lever does its work through the cost of compliance and the legal uncertainty it creates for schools already operating in line with existing nondiscrimination rules, well before any status is actually revoked.