Proposed Nondiscrimination Rule for Private School Admissions, Financial Assistance, and Other Programs
Proposed IRS regulations would require private schools to satisfy a nondiscrimination requirement—prohibiting policies that discriminate on the basis of race, color, or national or ethnic origin in admissions, financial assistance, or other programs—to maintain section 501(c)(3) tax-exempt status.
Proposed IRS regulations, published September 4, 2026, would, if adopted, require a "private school" to satisfy a nondiscrimination requirement to maintain section 501(c)(3) status. A private school is defined as an organization described in section 501(c)(3) and classified as an educational organization described in section 170(b)(1)(A)(ii).
To satisfy the nondiscrimination requirement, a private school may not "adopt[], maintain[], or enforce[] any policy or practice that discriminates on the basis of race, color, or national or ethnic origin in the administration of any educational policy, admissions policy, scholarship or loan program, athletic program, or other school-administered or school-supported program … for any purpose."
The preamble's commentary suggests that the "for any purpose" language is intended to reference programs designed to remedy past discrimination. However, the preamble also notes that the proposed regulations would not affect the continued ability of organizations to take actions or adopt policies intended to eliminate prejudice and discrimination, consistent with existing section 501(c)(3) regulations, provided such purposes are achieved "by means other than actions or policies that discriminate on the basis of race, color, or national or ethnic origin."
The preamble suggests a possible path to compliance using alternative criteria for distribution of financial assistance, "such as income, geography, or first-generation student status," which, the IRS stated, "results in a weaker relationship with race and ethnicity and a stronger relationship with other indicators of disadvantage such as income." The IRS also acknowledged that such alternative criteria may correlate with race and ethnicity, meaning the extent of change in the demographics of recipients of financial assistance may be limited.
Finally, the preamble mentions an exception for religious schools. Religious-based selection criteria would be permitted even if members of a religion share ancestry or ethnic characteristics "so long as the selection criteria is based solely on religion and not on shared ancestry or ethnic characteristics." The text of the proposed regulation itself, however, does not include a religious exemption.
The proposed regulations would be effective for tax years beginning after May 31, 2027. Comments and requests for a hearing are due November 3, 2026.
