Tax Insight

Treasury proposes regulations addressing racial nondiscrimination in private schools

Insight
5 minute read
September 08, 2026

What happened?

Treasury and the IRS released a Notice of Proposed Rulemaking (REG-119986-25) proposing to add new Reg. 1.501(c)(3)-2. The proposed regulations would disqualify a private school from Section 501(c)(3) tax-exempt status if it adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin and would apply to admissions, educational policies, scholarship and loan programs, athletics, and other school-administered or school-supported programs. The proposed regulations would modify Rev. Proc. 75-50 (as previously modified by Rev. Proc. 2019-22) by removing language that permits certain race-based preferences.

The regulations would apply to tax years beginning on or after May 31, 2027. Comments and requests for a public hearing are due on November 3, 2026.

Why is it relevant?

The proposed regulations would affect private educational organizations seeking to qualify or currently recognized as exempt under Section 501(c)(3) and classified as educational organizations under Section 170(b)(1)(A)(ii), including private primary and secondary schools, colleges, universities, professional schools, and trade schools—potentially affecting as many as 18,000 institutions, according to the IRS.

The proposal would codify a uniform public-policy requirement that tax-exempt private schools not discriminate on the basis of race, color, or national or ethnic origin. Treasury ties the proposal to several Supreme Court cases, including Brown v. Board of Education, Bob Jones University v. United States, and Students for Fair Admissions v. President and Fellows of Harvard College. The proposal was listed in the Treasury and IRS Priority Guidance Plan for 2025-2026 and builds on the Trump administration’s ongoing scrutiny of race-based and diversity-related programs. Early reactions from Congressional Democratic tax writers, impacted organizations, and other commentators suggest potential legal challenges to the rulemaking.

Actions to consider

Private schools may want to consider the following steps as they evaluate the proposed regulations:

Inventory potentially affected policies and programs: Review admissions, educational policies, scholarships and loan programs, athletics, and affinity or pipeline programs.
Review scholarship and loan criteria: Identify donor-restricted or endowed awards that expressly reference race, color, or national or ethnic origin.
Evaluate alternative criteria: Consider race-neutral factors such as family income, geographic location, first-generation status, individual hardship, military family status, or academic achievement when structuring admissions or financial assistance.
Assess documentation and communications: Review governance records, public-facing statements, application materials, and Form 990-related narratives for consistency with a racial nondiscriminatory policy.
Consider whether to comment and prepare for transition: Evaluate whether to submit comments and develop transition planning before tax years beginning on or after May 31, 2027.