On September 4, 2026, the U.S. Department of the Treasury and IRS are scheduled to publish proposed regulations that could significantly affect race-based practices associated with diversity, equity, and inclusion initiatives at tax-exempt private schools. The proposal would apply to private K-12 schools, colleges, universities, professional schools, and trade schools.
Under the proposed regulations, a private school would not qualify for federal tax-exempt status under Section 501(c)(3) if it adopts, maintains, or enforces a policy or practice that discriminates based on race, color, or national or ethnic origin. The prohibition would extend to admissions, educational policies, scholarships and loans, athletics, and other school-administered or school-supported programs. It would apply regardless of the purpose of the practice, including a remedial or diversity-related purpose.
If finalized, the proposal would eliminate portions of existing IRS guidance that permit certain practices favoring racial minority groups when intended to further a school’s racially nondiscriminatory policy. The proposal would not prohibit DEI programs generally. Schools could continue efforts intended to eliminate prejudice and discrimination, provided those efforts do not themselves discriminate based on race, color, or national or ethnic origin. The proposal also identifies income, geography, first-generation status, and other race-neutral criteria as possible alternatives for allocating scholarships and financial assistance.
The proposal would not prevent religious schools from maintaining a religious mission, curriculum, or program of observance or from selecting students based on religious affiliation or membership, provided the selection criterion is religious rather than racial or ethnic.
The regulations remain proposed and do not currently change schools’ obligations. Treasury and the IRS will accept public comments for 60 days after publication. If finalized as proposed, the regulations would apply to taxable years beginning after May 31, 2027.
Although schools need not revise their policies solely because of the proposal, they may wish to begin identifying admissions, scholarship, financial-assistance, affinity-group, and other DEI-related programs that use race or another covered characteristic as an eligibility or selection criterion. LCW regularly conducts DEI audits for private schools and can assist schools in evaluating potentially affected policies and programs, including donor-restricted scholarships. LCW will continue to monitor the rulemaking process and provide updates.