IRS Proposes Regulations on Racial Nondiscrimination Requirements for Private Universities and Other Private Schools

On September 3, 2026, the Internal Revenue Service published proposed regulations (REG-119986-25) that would expand significantly upon the long-standing requirement that private schools maintain racially nondiscriminatory policies in order to maintain tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. The proposed regulations would add a new section to the Treasury Regulations, precluding tax-exempt status for any private school that “adopts, maintains, or enforces any policy or practice that discriminates on the basis of race, color, or national or ethnic origin,” regardless of the purpose behind such policy or practice.

Referencing Supreme Court precedent including Students for Fair Admissions, Inc. v. President and Fellows of Harvard College 600 U.S. 181 (2023), the preamble to the proposed regulations asserts that “all forms of racial discrimination in education, regardless of the intent behind or the legality of such discrimination (for example, where such discrimination is defended as serving remedial or diversity-related objectives), are against a fundamental public policy of the United States.” The proposed regulations would extend beyond admissions – the subject of SFFA v. Harvard – to scholarships and loans, athletics, and any other school-administered or school-supported program.

The proposed regulations would apply to taxable years beginning after May 31, 2027, which for many schools means the 2028 fiscal year. Treasury and the IRS expect to finalize the regulations before that date.

Key Takeaways

• General Rule. A private school that fails to satisfy the nondiscrimination requirement set forth in the proposed regulations would not be considered operated exclusively for tax-exempt purposes and therefore would not qualify for tax-exempt status under Section 501(c)(3).
• Broad Nondiscrimination Requirement. A private school is not operated exclusively for exempt purposes if it adopts, maintains, or enforces any policy or practice that discriminates on the basis of race, color, or national or ethnic origin in its educational policies, admissions policies, scholarship or loan programs, athletic programs, or other school-administered or school-supported programs. Critically, the nondiscrimination requirement applies to discrimination for any purpose—meaning that race-based policies cannot be defended on the ground that they serve remedial, diversity-related, or other objectives.
• Modifications to Rev. Proc. 75-50. Revenue Procedure 75-50 has historically been the key authority setting forth guidelines and recordkeeping requirements for determining whether private schools have impermissible racially nondiscriminatory policies as to students for Section 501(c)(3) purposes. If the proposed regulations are finalized, the Service would modify Rev. Proc. 75-50 by removing certain sections that currently permit policies favoring racial minority groups and race-based scholarship programs designed to further a school’s nondiscriminatory policy. In particular, Rev. Proc. 75-50 would be modified to remove language permitting policies that favor racial minority groups with respect to admission, facilities, and programs, as well as scholarships and loans made as part of a financial assistance program favoring members of one or more racial minority groups, that are designed to promote the school’s nondiscriminatory policy. These deletions would align Rev. Proc. 75-50 with the proposed regulations’ prohibition on race-based policies for any purpose.
• Religious Selection Criteria Preserved. The preamble to the proposed regulations makes clear that schools may maintain religious missions and select students based on religious affiliation without running afoul of the nondiscrimination requirement, so long as criteria are based on religion and not on shared ancestry or ethnic characteristics.
• Definition of “Private School.” The proposed regulations define “private school” as an organization described in Section 501(c)(3) that is classified as an educational organization under Section 170(b)(1)(A)(ii). This encompasses private primary and secondary schools, colleges, professional and trade schools, and universities. The definition expressly excludes governmental units and their instrumentalities.
• Comment period. Comments on the proposed regulations are due by November 3, 2026, 60 days after publication in the Federal Register on September 4, 2026.

Open Questions and Areas of Uncertainty

The proposed regulations leave several significant questions unanswered:

• Enforcement: The regulations do not provide detailed guidance on how the IRS would enforce the nondiscrimination requirement or conduct examinations of private schools for compliance.
• Existing scholarships: Although the regulations acknowledge that schools with existing endowed scholarships with race-based donor restrictions may face complex legal questions about modifying such restrictions, which may require court proceedings or negotiations with donors or their heirs, the regulations generally minimize these concerns.
• Coordination with state laws: The regulations do not address the intersection with state-level anti-discrimination or affirmative action laws that may impose different or conflicting requirements.
• Use of alternative criteria to address discrimination: The use of criteria (e.g., geography, socioeconomic status) as alternatives to race-based criteria is expressly contemplated and encouraged by the preamble to the regulations. It remains unclear, however, to what extent the IRS will view use of such alternatives as mere proxies for race, color, national or ethnic origin.

What’s next?

• Notice and comment period – comments are due by November 3, 2026.
• Potential legal challenges – it seems inevitable that the regulations, once finalized, will face challenges in court.
• Potential congressional action – if there is a change in control of Congress following this year’s midterm elections, it is possible that Congress might take action to prevent the finalization of these regulations.

If you have any questions about the proposed regulations, please contact Franziska Hertel, Kendi Ozmon, Gil Ghatan, or Steve Sencer.