What Happened?

Private schools with affirmative action or diversity, equity and inclusion (DEI) programs could lose their federal tax-exempt status under a proposed IRS rule. 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 cover admissions, scholarships, loan programs, athletic programs and other school-run programs.

Unlike grant cuts, this rule would reach every private school holding a tax exemption under the section of the tax code that covers nonprofits.

Why Does it Matter to Me?

Under the IRS proposal, any private school that holds a federal tax exemption could lose it over affirmative action or DEI programs.

The proposal would also delete an existing IRS guidance carve-out, known as Revenue Procedure 75-50, that had shielded policies favoring racial minority groups from being treated as racial discrimination. Under Tax Court precedent, the IRS could look beyond a school's written policies to its actual practice when deciding whether a violation occurred.

The rule's legal foundation rests on the "public policy doctrine," a standard the Supreme Court established in *Bob Jones University v. United States* (1983). *Bob Jones University* remains the Court's only decision finding such a "fundamental public policy," and the IRS has rarely used the doctrine to revoke an exemption since then.

Both Sides, Now

The administration points to the Supreme Court's ruling against race-conscious admissions and its own executive orders as the basis for treating DEI programs as racial discrimination that disqualifies a school from tax-exempt status.

Opponents argue the IRS may be overstepping its authority, and that actions against affirmative action and DEI are too recent and unsettled to qualify as "fundamental public policy" under the doctrine. 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 the tax-exemption law.

Rep. Alma S. Adams (D-NC) and Rep. Jamie Raskin (D-MD) introduced a bill that would impose procedural requirements for IRS audits of universities similar to those that apply to churches; it was referred to the House Committee on Ways and Means six days after the rule was published and remains at the introduced stage.

What Happens Next?

The public has 60 days to submit written comments on the proposed rule, with the deadline falling on Nov. 3, a day before the midterm elections. A public hearing is scheduled for Dec. 2, and if finalized, the rule would take effect for calendar-year schools beginning Jan. 1, 2028.

Congress could respond by passing legislation on affirmative action or DEI, writing the public policy doctrine into law, imposing procedural requirements on IRS enforcement, or invoking the Congressional Review Act against the rule if it is finalized. The House Ways and Means Committee, which received the related bill, holds the power to advance any legislative response.

---

AllCiv makes it easy to stay politically informed and involved.

---

Spot something wrong? Report an issue with this article