The Trump administration is proposing new rules that could allow the IRS to revoke tax-exempt status from schools that use race-based policies in admissions, scholarships or student programs.
The Treasury Department said Thursday that the rules would apply to as many as 18,000 schools, including colleges, universities and secondary schools. Officials argue that programs designed to address racial disparities can constitute unlawful discrimination.
The proposal would add financial pressure to universities already facing scrutiny from the administration over federal research funding. While losing tax-exempt status may not significantly increase a university’s income taxes, it could make fundraising more difficult because donors would lose the ability to deduct qualifying contributions.
Administration Cites Supreme Court Rulings
Treasury said the proposal builds on a 1983 Supreme Court decision involving Bob Jones University, which upheld the IRS’s authority to deny tax-exempt status to an institution that practiced racial discrimination.
The administration also cited the Supreme Court’s 2023 decision ending race-conscious admissions at Harvard and the University of North Carolina.
Treasury Secretary Scott Bessent said schools cannot avoid the rules by labeling race-based policies as diversity or inclusion programs.
Critics question whether the government can establish that its interpretation reflects a sufficiently settled “fundamental public policy.”
“Fundamental public policy is not something that the IRS can just go and grab,” said Phil Hackney, a University of Pittsburgh law professor.
Schools Could Face IRS Audits
The regulations will undergo a public comment period before potentially being finalized. If adopted, the IRS could audit schools to determine whether their policies violate the new standards.
Universities could challenge any loss of tax-exempt status in court, setting up another major legal battle over race and higher education.
Ellen Aprill, a nonprofit tax expert at UCLA, warned that even if a future administration reverses the rules, uncertainty could cause lasting damage.
The proposal marks another escalation in the Trump administration’s effort to pressure schools over diversity, admissions and race-conscious policies.
