Trump Administration Proposes Rule to Strip School Tax Exemption Over Race-Based Policies
The Treasury Department and IRS proposed regulations on September 3 that would remove federal tax-exempt status from private schools using race in admissions, scholarships, or diversity programs. The rule would affect up to 18,000 schools if finalized.
On September 3, 2026, the Department of the Treasury and the Internal Revenue Service issued proposed regulations to end federal tax-exempt status for private schools that engage in racial discrimination. The proposed regulation would cover admissions, scholarships and loans, athletics, educational policies and other programs administered or supported by private schools.
The Treasury Department and Internal Revenue Service estimate as many as 18,000 private educational institutions could be affected. If finalized, the regulation would apply beginning on May 31, 2027.
What This Means
The proposal is still open for public comment. If finalized, the regulation would apply to tax-exempt private elementary and secondary schools, colleges, universities, professional schools and trade schools. Schools currently operating with tax-exempt status—which typically allows them to accept donations and operate without paying property and income taxes—would lose that status if they maintain diversity-focused admissions or scholarship programs.
For families considering private education in the United States, this rule proposal signals a major shift in how schools fund operations and set admissions policies. If you're planning to enroll children in private schools or are seeking scholarship assistance, monitor how schools you're considering respond to or prepare for this potential regulation. The implementation date of May 31, 2027 gives schools and families time to plan, but families should ask schools about their diversity policies when evaluating enrollment options.
Sources
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