The Treasury Department and Internal Revenue Service on September 3, 2026, issued proposed regulations designed to deny federal tax-exempt status to private schools that discriminate based on race, according to announcements from Treasury Secretary Scott Bessent and IRS Chief Executive Officer Frank J. Bisignano.
The rule would prevent tax-exempt status for private schools that adopt, maintain, or enforce policies that discriminate on the basis of race, color, or national or ethnic origin across admissions, educational policies, scholarships, athletics, and school-supported programs. The regulations would apply to primary and secondary schools, colleges, universities, professional schools, and trade schools.
The Treasury and IRS estimate the proposal may affect as many as 18,000 private educational institutions. The regulations would also eliminate outdated IRS guidance that permitted schools to favor certain racial preferences in admissions, scholarships, and financial assistance.
Schools could continue to maintain a religious mission and curriculum. Religious schools may also select students based on genuine religious affiliation, consistent with existing federal law. However, schools may not make decisions or provide benefits based on race, color, or national or ethnic origin.
The regulations would allow schools to use race-neutral criteria for admissions and financial aid, such as family income, geographic location, first-generation status, individual hardship, military family status, and academic achievement.
The final regulations would apply to taxable years beginning on or after May 31, 2027, giving institutions time to update their policies.