Treasury Proposes Rule Stripping Tax-Exempt Status From Colleges With Race-Based Practices

The Treasury Department proposed a new rule on September 3, 2026, that would strip private schools and colleges of their tax-exempt status if they engage in providing preferential treatment to minority students. The rule, which would take effect on or after May 31, 2027, if finalized, specifically states that race-based benefits in admissions, scholarships, and facilities “would be incompatible” with maintaining tax-exempt status, and Treasury and the IRS estimate up to 18,000 private schools and colleges could be affected. Politico reports pushback among higher education groups: Alliance for Higher Education called it an attack on working-class Americans and people of color, while the National Association of Independent Colleges and Universities warned of new compliance burdens even for schools already following civil rights law. Revoking a college’s nonprofit status has historically required a high bar, with Bob Jones University’s 1970s loss of tax-exempt status over its interracial dating ban standing as the only major precedent. Comments are due to the IRS by November 3, 2026.