The Treasury Department and the IRS on Thursday, Sept. 3, 2026, put out proposed regulations that would yank federal 501(c)(3) tax-exempt status from private schools that discriminate on the basis of race, color, or national or ethnic origin — including preferences sold as diversity, equity, or inclusion. The notice (REG-119986-25 / RIN 1545-BS05) is scheduled for Federal Register publication Sept. 4; comments run 60 days from publication.

Secretary Scott Bessent cast the move as closing a branding loophole: “Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature. Today’s Treasury and IRS proposed regulations establish a clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”

IRS Chief Executive Officer Frank J. Bisignano — who also signed the proposed rule text — said schools that keep those practices “should expect to lose that status.”

The draft rule would add a new §1.501(c)(3)-2: a private school is not “operated exclusively for exempt purposes” if it adopts, maintains, or enforces any race-based policy in educational, admissions, scholarship or loan, athletic, or other school-administered programs, for any purpose. That language is aimed at the old IRS carve-outs in Rev. Proc. 75-50 that let schools favor racial minority groups when the stated goal was promoting a “nondiscriminatory” student body. If finalized as proposed, those minority-preference sentences would be deleted for tax years beginning after May 31, 2027.

Treasury and the IRS estimate the proposal may touch as many as 18,000 private elementary, secondary, and postsecondary schools. Religious schools could still keep faith-based missions and select students on genuine religious affiliation; race-neutral criteria such as income, geography, first-generation status, hardship, military family status, or academics would still be allowed for admissions and aid.

The agencies lean hard on Supreme Court landmarks — Brown, Bob Jones University, and Students for Fair Admissions v. Harvard (2023) — to argue that race discrimination in education, including “ameliorating societal discrimination,” is incompatible with the charitable public-policy condition on tax exemption. That is the lever: not a new criminal ban on private association, but a threat to the tax subsidy that makes tuition scholarships and donor deductions work.

Nothing is final yet. Schools get runway through mid-2027 if the rule sticks; challengers will almost certainly sue over whether Treasury can redefine “charitable” this broadly by regulation. For now, dated Thursday, Sept. 3, 2026, the message from the tax collectors is blunt: keep race out of the admissions and aid stack, or lose the 501(c)(3) shield.

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