Racial Nondiscrimination in Private Schools
Last Updated: September 4, 2026.
Background
On September 3, 2026, the Department of Treasury (Treasury) and Internal Revenue Service (IRS) released a Notice of Proposed Rulemaking that would end federal tax-exempt status for private schools that engage in racial discrimination.
Historically, courts have determined that schools that discriminated based on race were operating against a fundamental public policy and, therefore, could not achieve tax-exempt status under section 501(c)(3). The proposed regulations address the application of the public policy doctrine to 501(c)(3) private schools. They provide that a private school is not operated exclusively for charitable purposes if it adopts, maintains, or enforces a policy or practice that discriminates on the basis of race, color, or national or ethnic origin. This nondiscrimination requirement would apply to any educational policy, admissions policy, scholarship or loan program, athletic program, or other school-administered or school-supported program. Read more about the public policy doctrine.
If finalized, proposed regulations would affect private schools in taxable years beginning after May 31, 2027. Comments are due Tuesday, November 3, 2026.
Summary of the Proposed Regulation
Under the proposed regulations, a private school would not qualify as a 501(c)(3) if it adopts, maintains, or enforces a policy or practice that discriminates based on race, color, or national or ethnic origin in connection with educational policies, admissions policies, scholarship and loan programs, and other school-administered or school-supported programs. This includes administering a scholarship or loan program that uses race, color, or national or ethnic origin as an eligibility or selection criterion.
For purposes of the proposed regulations, “private school” includes any private primary or secondary school, college, professional or trade school, or university that is classified as an educational organization. Public schools and schools operated by governmental units are not covered.
According to the proposal, race-based discrimination includes discrimination undertaken "for any purpose." This would include activities that are consistent with the existing definition of charitable purpose, which allows 501(c)(3) organizations to engage in actions meant to increase diversity or remedy the effects of past or societal discrimination. Schools could continue taking actions intended to eliminate prejudice and discrimination (as is allowed by current regulations), provided that those actions do not discriminate among individuals on the basis of race, color, or national or ethnic origin. Schools are also allowed to maintain a religious mission, curriculum, or program of observance, or select students based on religious affiliation or membership.
Changes to Existing IRS Guidance
If regulations are finalized as proposed, Treasury and IRS would modify Revenue Procedure 75-50, which establishes racial nondiscrimination requirements for private schools, and delete portions of sections 3.02 and 4.05.
The agency would remove language that states:
- A school may favor racial minority groups in admissions, facilities, or programs when the purpose and effect are to establish or maintain a racially nondiscriminatory policy; and
- Certain financial assistance programs favoring one or more racial minority groups will not adversely affect a school’s tax-exempt status.
Other portions of Revenue 75-50 would remain in effect.
Impact on Philanthropy
In the special analysis that accompanies the proposed regulation, Treasury and the IRS expressly state that race-based policies intended to “ameliorate societal discrimination” are now defined as a form of discrimination. In addition, the preamble provides that this is true regardless of the “legality of such discrimination.” This represents a significant departure from prior IRS guidance, which had permitted schools to favor racial minority groups in admissions, programs, and financial assistance when the purpose was to promote the school’s racially nondiscriminatory policy.
The proposed regulations are limited to private schools, including race-based scholarships and other grantmaking administered by private schools, and they do not apply directly to other 501(c)(3) organizations that are not educational organizations described in section 170(b)(1)(A)(ii) of the Tax Code. However, the proposal could impact some foundations and donors that issue scholarships that are administered by a private school. This includes not only direct contributions but also those made via a donor-advised fund or private foundation, as well as designated funds held by community foundations that make distributions to support scholarships administered by a private school. Donors may continue to donate to private schools using alternative criteria, such as income, geography, or first-generation student status.
Impact on Public Policy Doctrine
The proposed regulations would modify certain provisions of existing IRS guidance, under which a school policy or program “that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance will not constitute discrimination on the basis of race when the purpose and effect is to promote…that school’s racially nondiscriminatory policy.” The proposal would thus go beyond the historical scope of the public policy doctrine as applied to private educational organizations by extending the doctrine’s application beyond what would traditionally be considered invidious discrimination and clarifying that even practices that are intended to have a remedial effect are against a fundamental public policy of the United States if they discriminate on the basis of race, color, nationality or ethnicity. As a result, private schools exempt under 501(c)(3) would no longer be allowed to hold or administer scholarships or similar financial aid programs that have the purpose of increasing diversity among underrepresented or historically marginalized groups.
In addition, it is unclear what policies and practices would be considered discrimination, or if any acknowledgment or recognition of race would be disallowed. For example, the proposed regulations do not address whether a policy and practice to increase the diversity of the student body through increased outreach to underrepresented groups to increase the applicant pool would be prohibited.
However, the proposed regulations apply only to the tax-exempt status of private schools. There is no immediate direct impact on other types of organizations exempt under 501(c)(3), although there may be indirect impacts. If finalized as proposed, this interpretation of "fundamental public policy" could provide a framework for future efforts to challenge race-based grants, scholarships, fellowships, and charitable programs that occur in other 501(c)(3) organizations. Extending this proposed standard to other tax-exempt organizations would require additional regulatory action, legislation, or a court decision.
