Trump admin targets tax-exempt status at private colleges — threatening a key tax break for donations

The US Department of the Treasury and Internal Revenue Service have proposed new regulations that could strip private schools of their tax-exempt status if they engage in racial discrimination. President Donald Trump's administration announced the proposal on September 3. Treasury Secretary Scott Bessent stated the goal is to prevent racial discrimination in American education.

The rules would target private educational institutions that adopt, maintain, or enforce policies based on race, color, or national or ethnic origin. IRS Chief Executive Officer Frank J. Bisignano said institutions continuing discriminatory practices may lose federal tax-exempt benefits.

Affected institutions include those engaged in admissions, educational policies, scholarships, athletics, financial assistance, and other school-administered programs. The regulations would apply to tax-exempt private primary and secondary schools, colleges, universities, professional schools, and trade schools.

The proposal would eliminate IRS guidance allowing private schools to favor certain racial groups in admissions, facilities, programs, scholarships, and financial assistance. The timeline for the regulations to take effect is May 31, 2027, allowing institutions to review policies and make necessary changes. The proposal cites landmark Supreme Court cases and respects the religious missions and practices of religious schools.