IRS, Treasury Propose Cutting Tax-Exempt Status For Schools With Diversity Policies

Authored by Jack Phillips via The Epoch Times,

The Trump administration is proposing a new rule that would strip private colleges and schools of their tax-exempt status if those institutions engaged in racial discrimination through policies such as diversity, equity, and inclusion (DEI).

The U.S. Treasury Department and the Internal Revenue Service said on Thursday that a proposed rule would bar a private school from obtaining tax-exempt status under section 501(c)(3) of the U.S. tax code if the school "adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin."

Under the new regulation, which would take effect in May 2027, a broad range of programs administered by schools would be affected. They include admissions, policies, loans, scholarships, and athletics, said the Treasury Department in a news release.

The proposal may impact as many as 18,000 private educational institutions across the United States, the IRS and Treasury estimated.

"This administration is standing up for America's students by ensuring racial discrimination has no place in American education," said Treasury Secretary Scott Bessent in a statement.

"Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature."

The proposal, he added, would "establish a clear standard" for private schools to follow, warning that any institution that continues to "use discriminatory practices will no longer receive the benefits of federal tax-exempt status."

The move by the Treasury is another attempt to put pressure on schools and colleges to drop DEI policies that had become common before President Donald Trump returned to the White House. Trump officials have said the policies discriminate against white and Asian American students.

On his first day in office in his second term last year, Trump signed an order ending a number of DEI-related policies implemented under the Biden administration.

Last year, the Trump administration threatened to revoke Harvard University's tax-exempt status during a battle with the nation's oldest college. In a response, Harvard officials said there was no legal basis for doing so and argued it would force cuts to financial aid and crucial medical research.

To maintain nonprofit status, which allows donations to be tax-deductible, organizations must follow IRS rules on lobbying, political campaign activity, and annual reporting requirements, as well as other obligations.

The IRS says on its website that 501(c)(3) organizations also cannot be operated or organized for the benefit of private interests and that their net earnings cannot "inure to the benefit of any private shareholder or individual."

IRS Chief Executive Officer Frank J. Bisignano said private schools that promote discriminatory practices will no longer be exempt from taxes.

"Today's proposed regulations put institutions on notice and schools that continue to engage in racial discrimination should expect to lose that status," he said in a statement on Thursday.

Religious private schools will still be able to maintain a "religious mission, curriculum, or program of religious observance" under the latest proposal, the Treasury Department said.

It added that those schools can continue to select students based on religious affiliation or membership, provided they follow guidelines consistent with federal law.