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The Treasury Department and IRS have proposed regulations that could jeopardize the federal tax-exempt status of private schools that maintain policies or practices that discriminate on the basis of race, color, or national or ethnic origin.

Issued as IR-2026-103, the proposal would apply to the administration of any educational policy, admissions policy, scholarship or loan program, athletic program, and other school-administered or school-supported activity. Importantly, the proposed prohibition would apply regardless of the purpose of the program, including programs intended to promote diversity or address historical disadvantages.

If finalized, the rules become applicable for taxable years beginning after May 31, 2027.

Why It Matters

The sweeping proposal would represent a significant change from existing IRS guidance, including Rev. Proc. 75-50, which permits certain race-conscious practices under specified circumstances.

Specifically, the proposal adds to the regulations, among other things, the following provision: 

A private school is not operated exclusively for exempt purposes if it adopts, maintains, or enforces any policy or practice that discriminates on the basis of race, color, or national or ethnic origin in the administration of any educational policy, admissions policy, scholarship or loan program, athletic program, or other school-administered or school-supported program. For purposes of this section, discrimination on the basis of race, color, or national or ethnic origin includes any discrimination on the basis of race, color, or national or ethnic origin for any purpose.

The proposed rules would apply to tax-exempt private primary and secondary schools, colleges, universities, professional schools, and trade schools, but would not directly apply to public universities or governmental entities. Treasury estimates the rule could affect up to 18,000 institutions, making it important to assess the potential impact now.

As a result, a program that may be permissible under other applicable law could nevertheless create a Section 501(c)(3) tax-exemption concern for private educational institutions.

What Schools Should Be Considering Now

While the proposed regulations are under consideration, private schools should use this time, with the assistance of legal counsel, to conduct a close review of existing policies, programs, and donor arrangements in light of the proposal’s broad regulatory prohibition. In particular, schools should consider:

  • Admissions and student programs: Are race-conscious criteria incorporated into admissions, recruitment, or other student-facing programs?
  • Scholarships and financial aid: Do eligibility or selection criteria take race, ethnicity, or national origin into account?
  • Donor restrictions: Do endowments, scholarship funds, or gift agreements contain race- or ethnicity-based eligibility requirements?
  • Affiliated organizations: Are potentially affected programs administered through a foundation or other related entity?
  • Alternative approaches: Can the objectives be achieved through race-neutral criteria?

Public Comment Period Creates an Immediate Opportunity

The regulations are still proposed and are subject to change, providing affected schools and other stakeholders an opportunity to influence the final rules. Public comments are due November 3, 2026.

Schools considering submitting comments should confer with legal counsel to evaluate not only the legal issues raised by the proposal, but also the practical consequences.

How We Can Help

Our attorneys can assist private schools in evaluating the proposed regulations and developing a practical response, including:

  • Preparing and submitting public comments before the November 3 deadline;
  • Conducting a confidential, privileged review of admissions, scholarship, financial-aid, and other potentially affected policies and programs;
  • Developing race-neutral alternatives referenced in the preamble that advance the school’s lawful educational and charitable objectives;
  • Assessing related tax, governance, contractual, and operational risks; and
  • Advising boards and senior leadership on implementation and risk management.

For schools with potentially affected policies and programs, now is the time to assess exposure and options. A proactive review can help identify potential issues, preserve flexibility in restructuring programs, and position the institution to participate effectively in the rulemaking process.

If you have any questions about the issues raised in this alert, please contact the authors or the Womble Bond Dickinson attorneys with whom you normally work.