The Trump administration has proposed a new rule that would revoke the tax-exempt status of private colleges and private grade schools that provide targeted assistance to students based on their race. This proposal is part of the administration's broader effort to eliminate diversity programs aimed at Black, Latino, and other minority students. Critics have labeled the move as illegal and counterproductive, arguing it does not contribute to educational fairness.
The Treasury Department announced the proposed regulation on Thursday, which, if finalized, would take effect after May 2027. It aims to end any policies or programs that offer benefits based on race, stating that such practices in admissions, scholarships, and facilities would be deemed incompatible with the new rule.
IRS Chief Executive Frank Bisignano stated, "Private educational institutions that promote discriminatory practices will no longer be afforded the benefits of federal tax-exempt status." He indicated that institutions continuing to engage in racial discrimination should expect to lose their tax-exempt status.
The proposed changes would affect over 85 nonprofit colleges and universities in California, including Stanford and USC, as well as more than 18,000 private K-12 schools nationwide. Public colleges and school districts would not be impacted, although President Trump has threatened to withdraw federal funding from public institutions that provide race-based assistance.
Denise Forte, president and CEO of EdTrust, criticized the proposed rules, stating, "Students of color continue to face real and persistent barriers to accessing educational opportunities. Threatening the tax-exempt status of institutions for recognizing those barriers does nothing to make education fairer."
Conversely, Erika Sanzi, senior director of communications for the group Defending Education, supported the proposed rule, asserting that tax-exempt status is a benefit that comes with obligations to adhere to federal civil rights law.
Steven Bloom, assistant vice president of government relations at the American Council on Education, expressed concerns that the regulations would create a chilling effect, noting that many institutions may lack the resources to litigate against such measures.
UC Berkeley law professor Brian Galle predicted that the proposed IRS rules would likely face legal challenges, emphasizing that the proposal appears to be an attempt to intimidate universities that resist the administration's efforts.
The administration has provided a justification for its actions, citing legal precedents such as Brown vs. Board of Education and Bob Jones University vs. United States. The administration argues that tax-exempt organizations cannot operate contrary to fundamental public policy, claiming that race-conscious school policies are now illegal.
However, Galle contended that there is no settled consensus on the administration's stance, particularly regarding educational programs that have not been deemed illegal.
Kristen Soares, president of the Assn. of Independent California Colleges and Universities, stated that the proposed revision may create significant compliance burdens and legal uncertainty for institutions.
Occidental College President Tom Stritikus expressed resistance to the proposed changes, asserting that the administration's actions seem to impose its interpretation of legal standards prematurely.
Todd Wolfson, president of the American Assn. of University Professors, described the federal move as an "outrageous" weaponization of the IRS.
The Trump administration's campaign against race-related programs has included investigations into UC admissions and demands for nearly $1.2 billion from UCLA over allegations of race-based admissions practices, which the university denies. Federal grant cuts deemed discriminatory have also pressured California community colleges and CSUs to eliminate key student support programs.
Nationally, many universities have shut down or rebranded their diversity, equity, and inclusion offices under pressure from the administration. Treasury Secretary Scott Bessent suggested that even policies no longer labeled as DEI could be scrutinized.
While California institutions have taken fewer measures to reduce diversity initiatives compared to those in red states, they have still faced federal and legal pressure. For instance, USC recently closed its diversity office website, and UC regents ended a requirement for faculty applicants to submit diversity statements.
The Trump administration views tax-exempt status as a means to pressure colleges that it perceives as promoting "wokeness." Investigations into UCLA, UC San Diego, and Stanford medical schools have been initiated, accusing them of favoring Black and Latino students in admissions, which the administration argues violates the Civil Rights Act of 1964.
However, laws prohibit the IRS from targeting individuals and organizations for ideological reasons, and federal officials are restricted from directing IRS investigations. To maintain nonprofit status, organizations must comply with IRS rules regarding lobbying, political campaign activity, and annual reporting requirements.