WASHINGTON (Diya TV) — The Trump administration has proposed new tax rules that could put thousands of schools at risk of losing their federal tax-exempt status. The move targets school programs that the administration says discriminate based on race.
The Treasury Department released the proposed regulations Thursday. The rules would apply to schools, colleges and universities that receive tax-exempt status from the Internal Revenue Service. They would also cover policies involving admissions, scholarships and student programs.
Under the proposal, schools could lose their tax-exempt status if the IRS determines that they use racially discriminatory policies. The Treasury said the rules would apply to as many as 18,000 schools after May 31.
The proposal marks another step in President Donald Trump’s effort to reshape American education. His administration has already pressured colleges to change diversity programs and has moved to limit federal research funding.
The new rules could have a major financial impact. Tax-exempt status does not only reduce a school’s federal tax burden. It also allows donors to claim tax deductions for gifts made to schools. As a result, losing the exemption could make fundraising more difficult.
The administration says the rules target racial preferences, including programs designed to support Black students and other minority groups. Treasury Secretary Scott Bessent said schools cannot avoid the rules by describing race-based programs as efforts to promote diversity or inclusion.
However, education groups strongly oppose the proposal. Ted Mitchell, president of the American Council on Education, said the group plans to challenge the rule during the public comment process. The American Association of University Professors also expects to oppose the regulations in court.
Critics say the administration could use the IRS to pressure schools over civil rights policies. They argue that the proposed rules could restrict programs created to address the effects of past discrimination.
The administration bases its position partly on a 1983 Supreme Court ruling involving Bob Jones University. In that case, the IRS removed the school’s tax-exempt status because it banned interracial relationships. The Supreme Court upheld the decision and said racial discrimination in education violated a fundamental public policy.
The Trump administration now seeks to apply that principle to race-conscious education programs. Officials also point to a 2023 Supreme Court ruling that rejected the use of race as a direct factor in college admissions.
Chief Justice John Roberts wrote that universities must judge applicants based on their individual experiences rather than their race. However, the ruling also said schools could consider how race shaped an applicant’s life.
That distinction could become important in future legal battles. University officials say the 2023 decision still allows them to consider personal experiences related to race. Meanwhile, the Trump administration takes a narrower view and argues that some schools use broader admissions reviews to maintain diversity.
Legal experts remain divided over whether the new tax rules will survive court challenges. Phil Hackney, a law professor at the University of Pittsburgh, questioned whether the IRS could broadly define what qualifies as a fundamental public policy.
The proposed regulations also leave several questions unanswered. They do not provide detailed standards for deciding which school programs violate the rules. Instead, the Treasury said it would further define race-based actions aimed at addressing societal discrimination.
Schools could still support students based on economic conditions or geographic areas, according to the Treasury. Officials said those programs could provide an alternative way to help disadvantaged students without directly using race.
The proposal will now enter a public comment period. The Treasury could revise the rules before issuing a final version. After that, the IRS could conduct audits to determine whether schools follow the requirements.
Legal challenges could follow. Courts could also block or change the rules. As a result, the debate over tax-exempt status, race-conscious education programs and federal oversight is likely to continue.
