The Trump administration is intensifying its pressure on private education, this time by aiming at a critical financial lever: tax-exempt status. On Thursday, the Internal Revenue Service (IRS) proposed a new rule that would strip private schools—from elementary to post-secondary—of their tax-exempt status if they maintain policies that discriminate on the basis of race, including diversity, equity, and inclusion (DEI) initiatives, according to The Federalist.
The proposed regulation, which was announced in conjunction with the Treasury Department, would apply to an estimated 18,000 private elementary, secondary, and post-secondary institutions, including colleges, universities, and trade schools. The Treasury Department released the estimate as part of the rulemaking, which is now open for public comment.
In a statement, Treasury Secretary Scott Bessent framed the move as a response to institutions that have publicly claimed to dismantle their DEI apparatuses while privately keeping them in operation. Bessent said the rule is designed to enforce a “clear standard” that disallows race-based preferences, no matter how they are labeled.
“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” Bessent said. “Today’s Treasury and IRS proposed regulations establish a clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”
The IRS has long linked tax-exempt status to compliance with public policy, explicitly including the prohibition against racial discrimination. The new rule would codify that connection by defining disqualifying conduct beyond just admissions or hiring, extending it to scholarships, loans, athletics, and “every other school-administered or school-supported program.”
That broad reach would likely cover affinity groups—student organizations based on race or ethnicity—that enjoy school support, such as meeting spaces provided by the institution. Also targeted would be medical school programs that promote “racial concordance,” the practice of matching patients and doctors by race, which critics argue creates an artificial demand for non-white medical students and thus a race-based admissions rationale.
The rule does, however, permit certain race-neutral criteria in admissions and financial aid. These include family income, geographic location, first-generation status, individual hardship, military family status, and academic achievement. The list mirrors strategies used in states like Michigan, which banned affirmative action in 2006, and have been adopted by some institutions to achieve diversity goals without explicit racial considerations.
The Federalist notes that Harvard University may have set a trend after the Supreme Court’s 2023 ruling in Students for Fair Admissions v. Harvard, which struck down race-based admissions. Shortly after the decision, then-President Claudine Gay—who later resigned amid plagiarism allegations but still holds a position at the school—signaled that students could still share their race in applications, hinting that this information could be used.
Harvard also renamed its DEI office, changing it from the “Office of Equity, Diversity, Inclusion, and Belonging” to the “Office of Community and Campus Life.” Similar rebranding efforts have been reported at other schools, reflecting a strategy of hiding programs while preserving their function, the article suggests.
The Justice Department has also been active in this area, having determined that Yale Medical School discriminated on the basis of race, according to The Federalist.
If the IRS rule is finalized, it is set to take effect on May 31, 2027. The window between now and then gives institutions time to review their policies and make any necessary adjustments to maintain their tax-exempt status.
Source: thefederalist.com — https://thefederalist.com/2026/09/03/new-irs-rule-to-strip-private-schools-at-all-levels-of-tax-exempt-status-for-using-dei/