The Trump administration is preparing to yank federal tax-exempt status from private schools that sort students by race, a proposed rule that could reach as many as 18,000 institutions and that critics in higher education are already vowing to fight in court.
The Treasury Department and the IRS plan to issue proposed regulations that would revoke tax-exempt status from any private school engaged in racially discriminatory practices across admissions, scholarships, athletics, loans, educational policies, and other school-administered programs, the Daily Caller reported in an exclusive. The rule, rooted in President Trump's executive orders aimed at restoring merit and ending discriminatory practices, would take effect for taxable years beginning May 31, 2027.
Treasury Secretary Scott Bessent and IRS CEO Frank J. Bisignano both went on the record. Bessent did not hold back about institutions that have tried to dress up racial preferences in softer language.
"Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature."
Bessent added that the 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." Bisignano echoed the warning, saying the regulations "put institutions on notice" and that schools continuing to engage in racial discrimination "should expect to lose that status."
An unnamed administration official told the Daily Caller the rule could affect as many as 18,000 private schools. Fox News reported that the proposal could also touch roughly 750,000 students who may currently qualify for race-based scholarships, a figure that underscores the scale of race-conscious programming still embedded in American private education, years after the Supreme Court banned race-based admissions at public universities.
The scope is broad. It covers not just admissions but scholarships, financial aid, athletics programs, loans, and any other school-administered program where race is used as a factor. The administration is drawing a bright line: if the program sorts by race, the tax benefit goes away.
At the same time, the proposed rule carves out room for schools to maintain curricula and observances tied to genuine religious affiliation. It also permits schools to expand educational and assistance programs using criteria based on income, geographic location, individual hardship, first-generation status, military status, or academic achievement, so long as those criteria are race-neutral.
That distinction matters. The administration is not telling schools they cannot help disadvantaged students. It is telling them they cannot use skin color as the sorting mechanism. Schools that want to target low-income families, first-generation college students, or veterans remain free to do so.
The proposed regulations do not land in a vacuum. The Department of Justice has already reviewed internal policies, email correspondence, and publicly available materials at three prominent institutions and found racial discrimination in each one.
A DOJ review of Yale University School of Medicine concluded that the school had discriminated based on race in its admissions process. Similar findings hit George Washington University School of Medicine and Health Sciences and Duke University School of Law. None of the three institutions' responses to the findings appeared in the reporting.
Those findings give the new rule a factual foundation that will be difficult for opponents to dismiss as theoretical. The DOJ did not speculate about what might be happening at elite schools. It reviewed the internal records and said it found discrimination. The Treasury and IRS proposal now attaches a financial consequence to that kind of conduct.
The administration's broader push to enforce accountability across federal institutions has extended well beyond education. The president has also taken the IRS to appeals court over disputes involving anti-weaponization funding, signaling a willingness to use every available lever to reshape how federal agencies operate.
Treasury and the IRS cited three landmark Supreme Court decisions as the legal backbone of the proposed rule: Brown v. Board of Education, the 1954 case that struck down racial segregation in public schools; Bob Jones University v. United States, the 1983 ruling that upheld the IRS's authority to revoke a university's tax-exempt status over racially discriminatory policies; and Students for Fair Admissions v. Harvard, the 2023 decision that banned race-conscious admissions under the Fourteenth Amendment's equal-protection guarantee.
The Bob Jones precedent is especially relevant. In that case, the Supreme Court ruled that the IRS could deny tax-exempt status to a private religious university that prohibited interracial dating. The court held that the government's interest in eradicating racial discrimination in education outweighed the institution's claimed religious liberty interest. The Trump administration is now applying that same logic to schools that use race-based preferences, whether they call them diversity initiatives, equity programs, or something else entirely.
Breitbart noted that the policy seeks to broadly implement the 2023 Students for Fair Admissions ruling, which banned race-conscious admissions under the Fourteenth Amendment's Equal Protection Clause. That ruling applied directly to colleges receiving federal funds, but many private institutions continued race-based programming in other areas. The new proposed rule closes that gap by targeting the tax code.
The administration's willingness to use executive authority to force institutional change mirrors its approach in other policy areas. Trump has also refused to sign a bipartisan housing bill until the Senate acts on voter ID legislation, another instance of the president leveraging his position to extract policy concessions from reluctant institutions.
Opposition materialized quickly. Todd Wolfson, president of the American Association of University Professors, called the proposal an attempt to "turn civil-rights law against the very people it was enacted to protect," AP News reported. The AAUP is reportedly considering legal action.
Wolfson also said that "weaponizing the IRS to attack colleges and universities that uphold and expand civil rights is outrageous." Mike Gavin, president and CEO of the Alliance for Higher Education, called the rule "its most blatant attack to keep working class Americans and people of color from accessing higher education and a better life."
Those objections deserve scrutiny. The proposed rule does not bar any student from attending any school. It does not cut financial aid based on income. It does not restrict scholarships for first-generation students, veterans, or applicants from underserved communities. It bars one thing: using race as a criterion. The claim that ending racial sorting keeps working-class Americans from higher education assumes that working-class Americans cannot compete without racial preferences, an assumption the Supreme Court rejected in Students for Fair Admissions.
Bessent addressed the rebranding problem directly:
"Under President Trump, this Administration is standing up for America's students by ensuring racial discrimination has no place in American education."
That framing puts opponents in an awkward position. They must argue either that race-based sorting is not discrimination, or that this particular form of discrimination deserves a tax subsidy. Neither argument polls well with the American public, and both collide with the plain language of the Supreme Court's 2023 ruling.
The administration's enforcement posture extends well beyond education policy. The DOJ recently arrested a Honduran national on voter fraud charges as part of Trump's election integrity push, another signal that this White House is willing to use federal agencies to enforce laws that previous administrations chose to overlook.
Just The News reported that the new rules eliminate IRS provisions that previously permitted schools to discriminate on the basis of race or national origin, though schools may still offer support based on other criteria. That detail confirms the administration is not merely issuing guidance, it is rewriting the regulatory framework.
Several questions remain open. The proposed regulations have not yet been published, and no docket number or Federal Register citation has been released. The comment period and finalization timeline are unknown. It is also unclear how the IRS will determine whether a school is engaged in racial discrimination, who investigates, who adjudicates, and what appeals process exists for institutions that dispute the finding.
The religious-affiliation exemption raises its own questions. The rule permits schools to maintain curricula and observances based on "genuine religious affiliation," but the standard for what qualifies as genuine has not been spelled out. That ambiguity will almost certainly draw litigation.
None of the three institutions named in the DOJ findings, Yale's medical school, George Washington's medical school, or Duke's law school, have publicly responded to the proposed regulations, based on available reporting. Their silence may not last long. With legal challenges already being telegraphed by the AAUP and others, the courtroom phase of this fight is likely just beginning.
The administration's broader pattern of aggressive policy moves suggests it expects the opposition and is prepared for it.
For decades, elite institutions have used taxpayer-subsidized status to run programs that sort Americans by skin color and call it progress. The Trump administration just told them the subsidy has an expiration date, and the clock is running.
