US Proposes Tax Penalties for Private Schools That Discriminate by Race

The US Department of the Treasury and the Internal Revenue Service (IRS) have unveiled a proposed regulation that would revoke the federal tax-exempt status of private educational institutions found to be discriminating on the basis of race, colour, or national or ethnic origin.

Treasury Secretary Scott Bessent stated that the measure is designed to ensure racial discrimination has no place in American education. He noted that institutions cannot circumvent the rule by framing race-based preferences as "equitable," "inclusive," or "diversity-enhancing." IRS Chief Executive Officer Frank J. Bisignano added that schools persisting with discriminatory practices should expect to lose the benefits tied to tax-exempt status.

The proposal, which falls under Section 501(c)(3) of the tax code, would apply to a broad range of activities, including admissions, educational policies, scholarships, loans, athletics, and financial assistance. It would cover private primary and secondary schools, colleges, universities, professional schools, and trade schools. Treasury and the IRS estimate that up to 18,000 institutions could be affected.

The rule would also eliminate older IRS guidance that permitted private schools to favour particular racial groups in admissions, facilities, and financial aid. Officials argue those provisions conflict with a uniform nondiscrimination standard and recent Supreme Court rulings, citing cases such as Brown v. Board of Education, Bob Jones University v. United States, and Students for Fair Admissions v. Harvard.

Religious schools would retain the ability to maintain their religious identity, curriculum, and observances, and could continue selecting students based on genuine religious affiliation. Schools may also use race-neutral criteria—such as family income, geographic location, first-generation college status, or academic achievement—to expand opportunities for disadvantaged students, as long as race is not the basis for decisions.

As the regulations are still in proposed form, they are not yet final. If adopted, they would apply to taxable years beginning on or after May 31, 2027, giving institutions time to review and adjust their policies. The move is part of the administration's broader push to end what it calls discriminatory practices and restore merit-based opportunity in education.