Full Breakdown
Trump Administration Proposes Revoking Tax-Exempt Status for Private Schools Using Race-Based Policies
9/9/2026, 8:42:39 AM
Proposed Rule Overview
The U.S. The rule permits institutions to retain a religious mission and to use race-neutral criteria such as family income, geographic location, first-generation status, individual hardship, military family status, or academic achievement when awarding aid.
The regulation would apply to tax years beginning after May 31, 2027. The Treasury Department and IRS estimate the proposal could affect as many as 18,000 private educational institutions nationwide.
Background & Context
The proposal follows a series of federal actions aimed at curbing diversity, equity and inclusion (DEI) initiatives. In 2023, the Supreme Court’s decision in *Students for Fair Admissions v. Harvard* struck down affirmative-action admissions policies, providing a legal precedent that the administration cites to justify the new rule. Earlier in the same year, the Department of Housing and Urban Development declared race-based “affinity housing” in residence halls to violate anti-discrimination law, and several medical schools faced investigations over alleged race-based admissions practices.
Data & Statistics
- 18,000 institutions potentially subject to revocation (Treasury/IRS estimate).
- University of Notre Dame’s operating budget was $1.8 billion in 2025; loss of tax-exempt status would have generated over $500 million in federal taxes for the prior year (University spokesperson Erin Blasko).
- Tax-exempt status allows donors to deduct contributions, a key fundraising mechanism for private schools.
Official Statements & Responses
The IRS chief executive **Frank J.
An IRS news release clarified that the regulations do not prohibit schools from maintaining religious curricula or from supporting disadvantaged students through the listed race-neutral criteria. The agency also noted that the rule would be enforced through standard IRS audit procedures once the regulations become final.
Impact & Implications
If enacted, the rule could create significant financial pressure on private schools that rely on charitable donations. Loss of tax-exempt status would increase the institutions’ tax liability and reduce donors’ ability to claim deductions, potentially curtailing fundraising for facilities, scholarships, and program development. At the same time, schools would retain the ability to target aid using income-based or hardship-based criteria, a distinction the administration highlights as “race-neutral.”
Timeline
- May 31, 2027 – Effective date for tax years subject to the new regulation (as stipulated in the draft).
- May 31 – Treasury announcement that the rules would take effect on this date and could apply to up to 18,000 institutions (per the agency’s statement).
Verbatim Quotes
- “Under President Trump, this administration is standing up for America’s students by ensuring racial discrimination has no place in American education,” — Treasury Secretary Scott Bessent, said treasury secretary
- “Private educational institutions that promote discriminatory practices will no longer be afforded the benefits of federal tax-exempt status,” — IRS Chief Executive Officer, said IRS chief
- “The Trump administration’s effort to strip the tax-exempt status from thousands of schools and universities is another attempt by President Trump to impose his will on academic institutions,” — Democratic Sen. Michael Bennet
- “Today’s proposed regulations put institutions on notice and schools that participate in racial discrimination should expect to lose that status,” — Frank Bisignano, IRS chief executive
