Why It Matters
A proposed IRS rule would make all forms of racial discrimination in education, including affirmative action and DEI programs, grounds for a private school to lose its federal tax exemption, according to a new Congressional Research Service (CRS) report. Unlike other Trump administration actions targeting DEI in education tied to federal funding, the proposed regulations would apply to all private schools receiving tax exemption under § 501(c)(3) of the Internal Revenue Code. The proposal would also delete an existing IRS guidance carve-out in Revenue Procedure 75-50 that had shielded policies favoring racial minority groups from being treated as racial discrimination.
The Big Picture
The IRS published the proposed rule on Sept. 4, citing the Supreme Court's ruling in Students for Fair Admissions v. Harvard and executive orders issued during the second Trump administration targeting DEI in education.
The nondiscrimination requirement would reach beyond admissions to cover scholarships, loan programs, athletic programs and other school-administered programs. Under Tax Court precedent, the IRS may also look beyond a school's written policies to its actual practice.
The legal foundation rests on the "public policy doctrine," which the Supreme Court established in Bob Jones University v. United States (1983) and which requires § 501(c)(3) organizations to avoid violating fundamental public policy. Bob Jones University remains the Supreme Court's only decision finding a "fundamental public policy," and the IRS has rarely relied on the doctrine to deny or revoke exemption.
Potential legal challenges could argue the rule is arbitrary and capricious, exceeds statutory authority, or that actions against affirmative action and DEI are too recent and unsettled to qualify as fundamental public policy. The Supreme Court's 2024 decision in Loper Bright Enterprises v. Raimondo overruled the Chevron doctrine, meaning a court would likely not defer to the IRS's interpretation of § 501(c)(3).
Rep. Alma S. Adams (D-NC) and Rep. Jamie Raskin introduced H.R. 10330, which would impose procedural requirements for IRS audits of universities similar to those that apply to churches. The bill was referred to the House Committee on Ways and Means on Sept. 10 and remains at the introduced stage.
The Bottom Line
Comments on the proposed rule are due Nov. 3, and a public hearing is scheduled for Dec. 2. If finalized, the rule would take effect for calendar-year schools beginning Jan. 1, 2028.
Congress could respond by legislating on affirmative action or DEI, codifying the public policy doctrine, imposing procedural requirements on IRS enforcement, or invoking the Congressional Review Act against any finalized rule.
Access the Legis1 platform for comprehensive political news, data, and insights
Spot something wrong? Report an issue with this article
