Key Takeaways
- The IRS is seeking to strip private schools of their tax-exempt status if the Trump administration determines they have engaged in racist practices.
- Experts say the threat of targeting schools with diversity programs could lead donors to withdraw contributions and lose programs.
- The proposed regulation, which builds on the Supreme Court’s 2023 decision to end race-based affirmative action, will likely face legal challenges.
A Trump administration proposal to revoke the tax-exempt status of private schools with diversity, equity and inclusion programs could make it harder for independent schools to raise money and maintain programs intended to expand access to minority students.
Tax and nonprofit law experts say the proposal, announced Thursday morning by the Internal Revenue Service, could have a chilling effect on private schools and universities, even if the policy never takes effect.
“The intent, clearly, is to starve these organizations of funding, or at least use that as a threat to stop them from doing things that the administration opposes,” said Geoff Green, CEO of the advocacy group CalNonprofits.
If passed, the proposed regulations would allow the IRS to strip institutions of federal tax-exempt status if the Trump administration determines that the school has racist policies. The U.S. Treasury Department said the rule could affect up to 18,000 independent schools, universities and trade schools across the country. The rule does not apply to public schools.
According to the California Department of Education, there were nearly 3,000 private K-12 schools with more than five students enrolled in the 2025-2026 school year. There are about 150 private, nonprofit colleges in the state, according to the Public Policy Institute of California.
“Schools that present race-based preferences as equitable, inclusive, or supportive of diversity do not change their discriminatory nature,” Treasury Secretary Scott Bessent said in a statement. announcing the rule.
The federal agency’s proposed regulations are part of the Trump administration’s ongoing efforts to reshape the nation’s higher education systems and eliminate DEI programs on college campuses.
Legal challenges are likely to come
Like many of the Trump administration’s controversial policies, the proposal will almost certainly face legal challenges.
The administration cited the 2023 Supreme Court decision that ended race-based affirmative action in support of the IRS rule change. But the impact of the proposed rule would be much broader than the Supreme Court’s decision, said Lloyd Hitoshi Mayer, a professor at Notre Dame Law School.
“It touches a much broader range of activities, not just admissions,” Mayer said of the proposal. “It reaches K-12 schools, not just colleges and universities, and that includes K-12 schools that are not subject to either the Federal Constitution, because they are not government entities, or Title VI, because they do not receive federal financial aid.”
Mayer questioned the Treasury Department’s argument that private schools discriminate based on race, color, nationality or ethnicity and therefore should lose their tax-exempt status. He said the agency’s interpretation of the tax law was arguably unreasonable.
The proposed rule will be subject to public comment, to which the federal government must then respond, before being finalized.
Schools could give up their programs and scholarships
If adopted, the rule would prevent donors from deducting their charitable contributions from their federal income taxes if the school receiving the donation loses its tax-exempt status. Mayer noted that some state tax exemptions rely, in part, on approval of federal tax-exempt status, which could have an additional impact on nonprofits’ finances.
Last year, in response to President Donald Trump’s efforts to target organizations that conduct DEI work, California passed a law to ensure that the state’s nonprofits can continue to receive public funding, even if their federal tax-exempt status is revoked.
Green said the Trump administration has failed to eliminate DEI programs through executive orders, litigation and federal rules. But the proposal could lead independent schools to withdraw from access schemes and scholarships intended to diversify their student bodies.
At private schools, which traditionally cater to wealthier students, efforts have been made to make those institutions more accessible to minority and low-income students, Green said. Those efforts could be undone, he noted.
“The administration’s strategy is to intimidate as many institutions and organizations as possible, rather than having to do the work and go after institutions one by one, which would have taken them a lot more time and energy if they could just intimidate entities into self-policing or self-censoring,” Green said.
This story was originally published by EdSource.
