IRS Proposes Revocation of Tax-Exempt Status for Discriminatory Private Schools

On September 3, 2026, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) unveiled proposed regulations aimed at revoking the federal tax-exempt status of private educational institutions that maintain discriminatory policies based on race, color, or national or ethnic origin ^[1][2][3]. The proposal, which applies to private primary and secondary schools, colleges, universities, professional schools, and trade schools, is set to take effect for taxable years beginning on or after May 31, 2027 ^[2][3].

Treasury Secretary Scott Bessent emphasized that rebranding race-based preferences as equitable or diversity-enhancing does not alter their discriminatory nature. Institutions engaging in such practices would lose their tax-exempt status ^[2][3]. IRS Chief Executive Officer Frank J. Bisignano stated that private educational institutions promoting discriminatory practices will no longer benefit from federal tax exemptions ^[1][2].

The Treasury and IRS estimate that the proposal could impact up to 18,000 private educational institutions ^[2][3]. The proposed regulations allow religious schools to select students based on genuine religious affiliation and permit assistance to disadvantaged students using race-neutral criteria such as family income, geographic location, first-generation status, individual hardship, military family status, or academic achievement ^[3][4].

The proposal is grounded in Supreme Court precedent, including landmark cases such as Brown v. Board of Education, Bob Jones University v. United States, and Students for Fair Admissions v. Harvard ^[3][5]. Historically, it is rare for the federal government to revoke a college’s tax-exempt status. A notable precedent is Bob Jones University, which lost its exemption in the 1970s over a ban on interracial dating and marriage, a decision upheld by the Supreme Court ^[4][6].

What Is Known

The proposed regulations target private educational institutions with discriminatory policies and are based on established Supreme Court precedents. The regulations would affect a significant number of institutions and are scheduled to take effect in 2027 ^[1][2][3].

What Remains Unclear

Details regarding the specific criteria used to determine discriminatory practices and how the regulations will be enforced remain unspecified. Additionally, the impact on Diversity, Equity, and Inclusion (DEI) programs is not explicitly addressed in the confirmed reports ^[2][3].