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The Trump administration has proposed new tax rules for private schools that use race in their policies.

The rules could put a school’s tax-exempt status at risk. They could affect admissions, scholarships, athletics, and other programs.

The U.S. Treasury Department and Internal Revenue Service announced the plan on September 3, 2026.

The agencies say the plan would strengthen rules against racial discrimination in education.

However, the plan is not final. It could face opposition and legal challenges.

The proposed rules could affect up to 18,000 private schools and about 750,000 students.

The plan covers colleges, universities, professional schools, trade schools, and other private institutions.

Key Takeaways

• Treasury and the IRS proposed new tax rules for private schools.
• The plan could affect up to 18,000 schools.
• Some schools could lose Section 501(c)(3) status.
• The rules could cover admissions, scholarships, loans, and athletics.
• However, schools could still use race-neutral factors.
• Religious schools would keep some protections.
• The rules are not final.
• If approved, they would apply to tax years starting on or after May 31, 2027.

Trump Targets Race-Based School Policies

The new plan would change tax rules for private schools.

Under the plan, a school could lose its tax-exempt status under Section 501(c)(3).

This could happen if the school discriminates based on race, color, or national or ethnic origin.

The rules would cover many school activities.

For example, they could apply to admissions, scholarships, student loans, athletics, and other programs.

In addition, the plan would set one federal standard for private schools.

Which Schools Could Be Affected?

The rules would cover many types of private schools.

They include:

• Private elementary schools
• Private secondary schools
• Colleges
• Universities
• Professional schools
• Trade schools

Furthermore, Treasury and the IRS estimate that up to 18,000 schools could be affected.

As a result, the plan could have a wide impact on private education.

How Schools Could Lose Tax-Exempt Status

Section 501(c)(3) gives tax-exempt status to certain organizations.

Many private schools qualify under this section. However, they must follow federal rules.

The IRS already has rules against racial discrimination at private schools.

These rules cover race, color, and national or ethnic origin.

Now, Treasury and the IRS want to update those rules.

The plan would also remove older language about racial preferences.

The agencies say that language could allow some race-based preferences.

Those preferences could involve admissions, scholarships, financial aid, or school programs.

Therefore, schools may need to review their policies if the plan becomes final.

Supreme Court Cases Shape the Plan

The plan relies on several major Supreme Court cases.

These cases deal with race, education, and tax benefits.

They also help explain the legal basis for the plan.

Brown v. Board of Education

The agencies cite Brown v. Board of Education when discussing race and education.

The landmark case rejected racial segregation in public schools.

It also became a key part of U.S. civil rights law.

Bob Jones University v. United States

The plan also cites Bob Jones University v. United States.

That case involved a school with race-based policies.

The Supreme Court ruled that the government could deny tax benefits to an organization that violated a basic public policy against racial discrimination.

Therefore, the case is an important part of the plan’s legal basis.

Students for Fair Admissions v. Harvard

The plan also cites the Supreme Court’s 2023 decision in Students for Fair Admissions v. Harvard.

The Court rejected race-conscious admissions programs at Harvard and the University of North Carolina.

As a result, the Trump administration now cites the ruling in its effort to limit race-based policies in education.

Race-Neutral Admissions Allowed

The plan would not stop schools from helping disadvantaged students.

Instead, schools could use race-neutral factors in admissions and financial aid decisions.

For example, schools could consider:

• Family income
• Where a student lives
• First-generation college status
• Personal hardship
• Military family status
• Academic achievement

Therefore, schools could still help students who face financial or other barriers.

However, they could not use race, color, or national or ethnic origin as the basis for those decisions.

This could matter for schools with diversity, access, or scholarship programs.

Religious Schools Keep Protections

The plan would not prevent private schools from maintaining religious missions.

For example, religious schools could continue offering religious courses and programs.

They could also continue religious observance programs.

In addition, the plan would keep some protections for student selection based on genuine religious affiliation or membership.

Therefore, religious schools could continue their religious missions.

They would still need to review their race-related policies.

Legal Challenges Ahead

The plan could lead to a major legal dispute.

Civil rights and academic groups have criticized the administration’s approach.

The American Association of University Professors said it was considering legal action.

Meanwhile, supporters say schools should not receive federal tax benefits while using race-based policies that violate federal rules.

As a result, the dispute could reach federal court.

One key question is whether the government can link tax-exempt status to federal nondiscrimination rules.

Courts could also review the plan under Supreme Court decisions on race and tax benefits.

What Happens Next?

The proposed rules are not yet final.

First, Treasury and the IRS must review public comments.

After that, the agencies can decide whether to issue final rules.

Therefore, schools do not immediately lose their tax-exempt status.

The September 3 announcement does not change their status by itself.

However, private schools may want to review their current policies.

That review could cover admissions, scholarships, financial aid, athletics, and other programs.

Schools may also want to watch for new guidance from Treasury and the IRS.

When Could the Rules Take Effect?

If finalized, the rules would apply to tax years beginning on or after May 31, 2027.

As a result, schools would have time to review their policies.

They could also prepare for possible changes before the rules take effect.

Why the Plan Matters to Lawyers

The plan could affect several areas of legal work.

For example, education lawyers may advise schools on admissions and scholarships.

Meanwhile, tax attorneys could help schools review their Section 501(c)(3) status.

In addition, civil rights lawyers could handle disputes over race-based policies.

Administrative lawyers could also become involved.

They may challenge the rules or review how agencies apply them.

For law students and legal recruiters, the issue shows how legal fields can connect.

These fields include tax law, education law, civil rights law, constitutional law, and administrative law.

Frequently Asked Questions

Can a private school lose its tax-exempt status for using race?

Under the proposed rules, a private school could lose Section 501(c)(3) status.

This could happen if the school discriminates based on race, color, or national or ethnic origin.

However, the rules are not final.

How many schools could the plan affect?

Treasury and the IRS estimate that up to 18,000 private educational institutions could be affected.

The Treasury Department estimates that about 750,000 students could be affected, including students who may qualify for race-based scholarships.

Does the plan stop schools from helping disadvantaged students?

No. Schools could still use race-neutral factors.

For example, they could consider income, location, first-generation status, hardship, military family status, and academic achievement.

Would religious schools be affected?

Religious schools would keep certain protections under the plan.

For instance, they could continue religious programs and courses.

They could also select students based on genuine religious affiliation or membership when federal law allows it.

Is the proposed rule already in effect?

No. Treasury and the IRS issued a proposed regulation.

The agencies must complete the rulemaking process before the new rules become final.

When could the rules take effect?

If finalized, the rules would apply to tax years beginning on or after May 31, 2027.

Therefore, schools have time to watch the process and review their policies.

Impact on Education Law

The Trump administration’s plan adds a new chapter to the debate over race in education.

The issue goes beyond college admissions.

For example, the rules could affect scholarships, athletics, financial aid, and other school programs.

As a result, private schools could face new legal questions.

At the same time, lawyers may see more work in tax law, education law, civil rights, and administrative law.

The proposal is still under review.

Therefore, schools and attorneys should follow the process closely.

If the rules become final, some private schools may need to change their policies.

However, the final result could depend on public comments and court challenges.

For now, the plan signals a major change in the federal approach to race-based policies at private schools.

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The post Trump’s Bold Push to Punish Race-Conscious Schools first appeared on JDJournal Blog.