The US Treasury Department and Internal Revenue Service announced proposed rules on September 3, 2026, to strip tax-exempt status from private schools, colleges, and educational institutions that consider race in admissions, scholarships, athletics, or other programs [1, 2, 3, 4, 5]. About 18,000 schools across elementary to vocational levels could be affected if the regulations are enacted [1, 2, 3, 4, 5].

The proposal follows a 2023 Supreme Court ruling in Students for Fair Admissions, which banned most race-conscious admissions policies [1, 2, 5]. Treasury Secretary Scott Bessent said schools attempting to rebrand race-based preferences as equity or diversity policies "does not change their discriminatory nature" [1, 2, 3, 4, 5]. He stated in Mandarin, "學校企圖把種族偏袒重新包裝，塑造成追求公平、包容或促進多元化，但歧視本質並沒有改變" [1].

Under the new regulations, schools could still apply race-neutral criteria like family income, economic disadvantage, geographic location, academic achievement, or first-generation status to guide admissions and aid decisions [1, 2, 5]. The administration aims to prevent discrimination that disadvantages white and Asian applicants in favor of minority students [1, 2, 5].

The rule could impact fundraising, as losing tax-exempt status would limit donors’ ability to deduct contributions. Schools worry about cuts to financial aid and research funding [1, 2]. Legal challenges are expected. Critics say the regulation weaponizes tax-exempt status to suppress diversity policies and infringe on academic freedom [1, 2, 5]. Todd Wolfson, president of the American Association of University Professors, said the proposal "is an affirmative attempt to turn civil-rights law against the very people it was enacted to protect" [5]. Law professor Roger Colinvaux warned the IRS is being given a "weapon" to control schools’ behavior [1].

The Trump administration, returning to power in January 2025, has pressured universities to reform curricula and admissions to counter perceived left-wing ideological influence and protect white majorities [3, 4].

If adopted, the proposed rule would take effect for tax years starting on or after May 31, 2027 [1, 2, 3, 4]. That date marks the earliest opportunity for schools to lose tax-exempt status based on race-conscious policies.