The proposal would expand the conditions for maintaining Section 501(c)(3) status and eliminate existing exceptions for certain race-conscious programs.
On September 4, 2026, the Internal Revenue Service (IRS) published proposed regulations that would significantly expand the requirement that private schools holding tax-exempt status under Section 501(c)(3) maintain racially nondiscriminatory policies. The proposed rules, which would come into effect for taxable years beginning on or after May 31, 2027, prohibit any policy or practice that discriminates on the basis of race, color, or national or ethnic origin. The proposed regulations are not limited to admissions — they also encompass scholarships, financial aid, athletics, facilities, and other “school-administered or school-supported” programs.
Notably, the proposed regulations state that “all forms of racial discrimination in education, regardless of the intent behind or the legality of such discrimination … are against a fundamental public policy of the United States.” As such, if finalized the rules would modify Revenue Procedure 75-50, which has historically allowed schools to give preference to students from minority groups in admissions, programs, and financial assistance where such policies serve remedial, diversity-related, or other legal objectives.
Under the proposed regulations, schools may continue to maintain religious affiliations, and may admit students based on that affiliation, so long as such selection is based solely on religion and not on shared ancestry or ethnicity. Additionally, although the proposed regulations explicitly state that the use of alternative criteria — such as socioeconomic status, income, and geography — in school programs or policies is permissible, such criteria have been a focus of enforcement from other federal agencies and should be clearly untethered from racial or ethnic preferences (see, for example, the Department of Justice’s July 2025 memorandum cautioning against the use of “unlawful racial proxies”).
The Treasury Department did not explain how the proposed regulations would be enforced. It is likely to rely on existing compliance mechanisms such as IRS-led audits or compliance checks, which could ultimately be challenged in court.
Some education groups, such as the American Council on Education and the American Association of University Professors, have already signaled that they may oppose the proposed regulations in the public comment period and/or through litigation. Comments and requests for a public hearing are due by November 3, 2026.