Treasury, IRS Propose New Regulations on Racial Discrimination for Tax-Exempt Schools

September 4, 2026

Yesterday morning, the Department of the Treasury and the Internal Revenue Service released a set of widely expected and potentially consequential proposed regulations addressing racial discrimination and tax-exempt status for private schools under Section 501(c)(3) of the Internal Revenue Code. While the proposed regulatory text is relatively brief, if finalized as drafted, it could have significant implications for private educational institutions.

Proposed Regulations

The proposed regulations seek to apply and broaden the Supreme Court's 2023 ruling in Students for Fair Admissions v. Harvard (SFFA), which banned the consideration of race in college and university admissions, to all policies and practices of private schools. Further, the regulations would condition a private school's federal tax-exempt status on compliance with a broad new racial nondiscrimination standard. The proposal would apply to tax-exempt private primary and secondary schools, colleges, and universities, as well as professional and trade schools. Governmental entities and organizations owned or operated by governmental instrumentalities are expressly excluded. [1]

Under the proposed regulations, a private school would not qualify as tax-exempt under Section 501(c)(3) if it "adopts, maintains, or enforces any policy or practice that discriminates on the basis of race, color, or national or ethnic origin in the administration of any educational policy, admissions policy, scholarship or loan program, athletic program, or other school-administered or school-supported program." The breadth of the listed  activities and the absence of any materiality threshold suggests that prohibited discrimination in even one aspect of a school's operations could make the school ineligible for exemption, regardless of its significance or substantiality. 

The proposed regulations further state that prohibited discrimination includes discrimination "for any purpose," which appears intended to prohibit race-conscious policies adopted for remedial or diversity-related objectives, even those that may be permissible under current law. The preamble notes that the proposed regulations are intended to bar discrimination "regardless of the intent behind or the legality of such discrimination."

The proposal would also revise Revenue Procedure 75-50, the IRS's foundational guidance implementing the preexisting racial nondiscrimination requirement for 501(c)(3) private schools, by deleting provisions that currently permit schools to maintain certain preferences for racial minority groups when designed to promote or remain consistent with a school's racially nondiscriminatory policy. Other requirements of Revenue Procedure 75-50 would remain in effect.

Fundamental Public Policy

Significantly, the proposed regulations also seek to enshrine this broad new prohibition of any form of racial discrimination in education, regardless of intent or legality, as the "fundamental public policy of the United States," with a violation precluding a school from exemption under Section 501(c)(3). This "fundamental public policy" doctrine was established in the 1983 case, Bob Jones University v. United States, 461 U.S. 574 (1983), in which the Supreme Court upheld the IRS's revocation of Bob Jones University's tax-exempt status because of its express policies against interracial dating and marriage.  Specifically, the Court noted that such policies stood in clear violation of the national consensus against racial segregation and discrimination in education that had been established over a quarter of a century going back to Brown v. Board of Education in 1954 and reflected in "every pronouncement of the Supreme Court and myriad Acts of Congress" since then.

The proposed regulations cite these same cases to assert an unbroken line of cases tying Brown v. Board of Education to SFFA in order to conclude that any consideration of race, whether remedial or invidious, constitutes racial discrimination that is contrary to fundamental public policy. Whether this assertion, and its effect on Section 501(c)(3) status, will withstand challenge remains an open question. 

Next Steps

It is important to note that these proposed regulations are not currently final nor effective and remain subject to a mandatory notice and comment period. Further, the regulations are likely to be challenged through litigation. If finalized, the regulations provide that they would apply to taxable years beginning after May 31, 2027. As noted in the proposed regulations, Treasury and the IRS anticipate addressing comments and issuing final regulations before that date, although any significant litigation over the regulations could delay their effective date.

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Jean Tom is a partner in DWT's San Francisco office and chair of the firm's tax-exempt organizations (TEO) group. Kevin Roe is a partner in the firm's New York office and a member of the TEO group. Tom Schroeder is a partner in our San Francisco and Seattle offices, a member of the TEO group, and head of the firm's education group. For any questions, please reach out to the authors or another member of our higher education or tax-exempt organizations teams. To stay informed, sign up for our alerts.