The U.S. Treasury Department is considering a dramatic policy shift that would threaten the tax-exempt status of private, nonprofit colleges and universities that take race into account in admissions, financial aid, or other campus programs. The proposals, currently under review within the department’s Office of Tax Policy, could upend long-standing diversity initiatives across higher education.
According to Bloomberg reporting, the draft changes would be issued as IRS revenue procedures—guidance that does not require congressional approval but could have sweeping consequences. If finalized, the rules would require colleges to adopt race-blind policies or risk losing their 501(c)(3) status, a designation that grants them significant tax advantages.
The move follows the U.S. Supreme Court’s 2023 ruling that struck down race-conscious college admissions, but these new IRS guidelines would go further, potentially targeting any university activity that acknowledges race, ethnicity, or national origin. This includes scholarships, housing policies, and even student publication practices.
The impact would be felt across more than 1,500 institutions, including every Ivy League university. Without tax-exempt status, these schools could face major financial hurdles, from increased tax burdens on property and endowments to the loss of donor incentives.
Critics say the proposal reflects a broader agenda by the Trump administration to reshape higher education.
“Whether it’s Harvard or any other university, tax-exempt status is a privilege and not a right,” the Treasury Department stated on May 23. “It is up to the established processes of the IRS to ensure that any nonprofit is abiding by its legal obligations to retain such a designation.”
Though the White House claims it is not directing IRS action, the timing has raised concerns. Other federal agencies have recently targeted colleges over perceived bias or diversity practices. Harvard, in particular, has faced scrutiny from multiple departments over both alleged antisemitism and the racial makeup of its student-run publications.
The proposal evokes comparisons to the IRS’s 1983 revocation of Bob Jones University’s tax-exempt status over racially discriminatory practices—an action upheld by the Supreme Court. But unlike that case, the new rules could apply to policies designed to increase inclusion, not restrict it.
As the Treasury continues its review, higher education leaders are bracing for a policy that could force an abrupt reversal of decades-long diversity efforts.
