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Why the Trump administration’s bid to end diversity efforts at nonprofit schools is likely to get tied up in court
Why the Trump administration’s bid to end diversity efforts at nonprofit schools is likely to get tied up in court. Originally published by The Conversation.
By Elizabeth Schmidt, Professor of Practice in Public Policy, Nonprofit Organizations, and Social & Environmental Enterprises, UMass Amherst · 2026-09-11T13:05:24.550Z
Some 18,000 private schools could be affected by a proposed new rule if it goes into effect. Jumping Rocks/Universal Images Group via Getty Images The Trump administration wants to strip all nonprofit colleges, universities and private K 12 schools of their tax exempt status https://apnews.com/article/harvard nonprofit tax exempt status how can it be revoked 096614ea5ec65ec7a6ac08efd0f1e94f if any of their programs designed to help students uses race as a criterion for eligibility. This change is included in a rule the Treasury Department and Internal Revenue Service proposed on Sept. 3, 2026 https://apnews.com/article/tax exempt status colleges schools trump f8556ba3d94099df3c8aaa06fc13105f . The rule could take effect after May 31, 2027, following a two month long comment period – as long as it’s not blocked or delayed by the legal challenges likely to arise. As a nonprofit law scholar https://www.umass.edu/public policy/about/directory/elizabeth schmidt who helps nonprofit leaders understand the legal issues they face https://press.georgetown.edu/Book/Rules of the Road for Nonprofit Leaders , I believe this latest salvo in the Trump administration’s attempt to end racial preferences https://www.whitehouse.gov/presidential actions/2025/01/ending illegal discrimination and restoring merit based opportunity/ stretches U.S. law so far that it will likely be tied up in court for years. What is the Trump administration aiming to do? The proposed rule states https://www.federalregister.gov/documents/2026/09/04/2026 18127/racial nondiscrimination in private schools that private schools aren’t eligible for tax exempt status if they have any school administered or supported program that “discriminates on the basis of race, color, or national or ethnic origin … for any purpose.” The regulations do not define the word “discriminate” in this context, but Treasury Secretary Scott Bessent has made clear https://www.irs.gov/newsroom/treasury irs move to end tax exempt status for discriminatory practices in private schools that the Trump administration considers programs that have diversity goals https://apnews.com/article/tax exempt status colleges schools trump f8556ba3d94099df3c8aaa06fc13105f to be a form of discrimination. Private K 12 schools, colleges, universities and professional and trade schools would be subject to this rule, including all academic and athletic programs as well as all scholarships and admissions policies having anything to do with efforts to increase diversity. The proposed rule would not apply to religious schools that make admitting people who adhere to the school’s religion a priority. Nor would it apply to public universities, but I believe the language is broad enough to apply to the foundations that provide scholarships https://www.ibexinsights.co/data/rankings/public endowment per ugds/ to students at public universities. At this point, many key details about the rule remain unclear.
A group of graduates takes part in the Black Commencement at Harvard University on May 23, 2017. Keith Bedford/The Boston Globe via Getty Images The IRS estimates that this rule would affect 18,000 private schools attended by 750,000 students https://www.federalregister.gov/documents/2026/09/04/2026 18127/racial nondiscrimination in private schools at all levels of instruction. All private schools that are nonprofits depend on this tax exemption, both to save money on income and property tax bills https://minnesotanonprofits.org/resources tools/starting a nonprofit/benefits and disadvantages of obtaining 501c3 tax exemption and to attract donations https://taxpolicycenter.org/briefing book/who benefits deduction charitable contributions . Without these benefits in place, tuition bills at nonprofit schools could skyrocket and the financial pressures many colleges and universities already face https://hechingerreport.org/pace of college closings picks up with more projected/ would increase. Americans gave about US$92 billion in charitable donations https://theconversation.com/us giving grew 3 in 2025 crossing the 600b mark for the first time 282953 to private schools in 2025, which mostly supported higher education. That funding covers an average of about 10% of college and university budgets https://www.highereddive.com/news/college donors gifts endowments higher ed disruption case report/817378/ . A change in the rules could also complicate schools’ relationships with their donors, alter the distribution of scholarships and lead to significant legal bills, as the government itself has acknowledged https://www.federalregister.gov/documents/2026/09/04/2026 18127/racial nondiscrimination in private schools . What rationale has the administration provided? The proposed rule hinges on the Trump administration’s definition of racial discrimination: that any kind of racial preference is wrong https://www.usatoday.com/story/money/2026/01/12/dei civil rights trump white people/88147329007/ and grounds for terminating government support – even when it’s meant to address past injustices, like the decades of systemic discrimination https://jimcrowmuseum.ferris.edu/timeline/jimcrow.htm that followed the end of slavery in the United States. The IRS’ explanation of this rule https://www.federalregister.gov/documents/2026/09/04/2026 18127/racial nondiscrimination in private schools alludes to many legal precedents, including two significant U.S. Supreme Court decisions. With its Bob Jones University v. United States https://supreme.justia.com/cases/federal/us/461/574/ ruling, the court found in 1983 that a university banning interracial dating and marriage provided the IRS with the legal grounds to revoke its tax exempt status https://theconversation.com/can trump strip harvard of its charitable status scholars of nonprofit law and accounting describe the obstacles in his way 255072 . And the court found in 2023, in its Students for Fair Admissions v. Harvard https://www.supremecourt.gov/opinions/22pdf/20 1199 hgdj.pdf ruling, that colleges and universities that accept government funding cannot consider race in their admissions policies without violating the equal protection clause https://theconversation.com/a 2003 supreme court decision upholding affirmative action planted the seeds of its overturning as justices then and now thought racism an easily solved problem 208807 of the Constitution. Does the federal government have this authority? There is evidence that the government lacks the authority to implement this proposed rule. Educational groups, such as EdTrust https://www.edweek.org/leadership/trump extends anti dei push to private schools eyeing their tax exempt status/2026/09 and the American Association of University Professors https://www.npr.org/2026/09/04/nx s1 5955666/irs targets private schools that help racial minority students , have expressed their opposition to the proposed changes. Legal scholars, such as Philip Hackney, Ellen Aprill, Daryll Jones https://www.nytimes.com/2026/09/03/business/economy/trump irs college nonprofits.html and Brian Galle https://www.latimes.com/world nation/story/2026 09 03/trump tax exempt status schools race , have explained why the rule is likely illegal. Two courts found https://www.studentloanplanner.com/pslf rules struck down/ on June 30, 2026, that the Department of Education did not have the authority to alter student loan forgiveness rules for the employees of nonprofits https://theconversation.com/judges block trump administrations attempts to deny access to public service loan forgiveness to its perceived foes 286741 . I expect to see opponents of the proposed rule to use those cases to support this argument. Even if the courts determine the IRS does have authority to issue this rule, they will have the final say https://www.supremecourt.gov/opinions/23pdf/22 451 7m58.pdf as to whether the agency has interpreted congressional intent correctly. Legal scholars are also saying that the Trump administration’s interpretation of prior Supreme Court cases https://papers.ssrn.com/sol3/papers.cfm?abstract id=7193878 regarding discrimination at schools with tax exempt status is incorrect. They point out https://www.americanbar.org/groups/taxation/resources/tax lawyer/2026 winter/revocation tax exemption public policy illegality terrorism charitable purpose/ that the Harvard admissions case was limited to colleges and universities that accepted public funding, and it provided some narrow exceptions. The proposed regulation would apply to all private schools, without exception, even if they don’t receive federal funding. Further, the Bob Jones ruling stressed that a nonprofit’s tax exempt status could only be revoked on “fundamental public policy” grounds when the activity in question so shocked the community conscience that it undermined any other benefit the institution conferred. It based its opinion on 30 years of evidence from all three branches of government to show that this kind of prejudice violated fundamental public policy. The Trump administration may be unable to show https://papers.ssrn.com/sol3/papers.cfm?abstract id=7193878 that the public’s perspective regarding diversity, equity and inclusion has changed that much. It faces numerous lawsuits https://www.justsecurity.org/107087/tracker litigation legal challenges trump administration/ challenging its definition of racial discrimination, and the American public remains overwhelmingly in favor https://doi.org/10.1038/s41598 024 76761 8 of diversity, equity and inclusion policies. Law professor Roger Colinvaux has also pointed out https://www.philanthropy.com/opinion/what the fearless fund settlement means for philanthropic freedom/ that interpreting the term “discrimination” to mean that organizations can no longer remedy past discrimination runs counter to the legal definition of the term “charitable,” which means to help those in need. Treasury Department regulations https://www.ecfr.gov/current/title 26/chapter I/subchapter A/part 1/subject group ECFR062882ac6495890/section 1.501 c 3 1 define charitable activities as helping “the poor and disadvantaged” and eliminating “prejudice and discrimination.” Finally, as Alexander Reid, a prominent attorney who specializes in tax exemptions, noted in a letter to the IRS https://nonprofitlawblog.com/alex reids public comments fundamental public policy regulations on racial discrimination in schools/ , the proposed rule raises significant First Amendment issues of freedom of speech https://constitution.congress.gov/constitution/amendment 1/ , religion, association and institutional autonomy. That’s because it would affect choices that all private schools make that are essential to their identities and expression of ideas.
Treasury Secretary Scott Bessent is pushing for the new rule. Melissa Sue Gerrits/Getty Images What’s at stake? Two years ago, the federal government supported a definition https://www.eeoc.gov/newsroom/eeoc delivers administration priorities and president trumps executive orders of racial discrimination that is vastly different from the definition https://civilrights.org/trump rollbacks/ the Trump administration now holds, and a new administration could come up with still another meaning. The lawsuits that will surely challenge this proposed rule will help to determine the legal meaning of racial discrimination – and Congress could weigh in as well. In the meantime, many nonprofit schools may end their programs that are designed to address the results of past discrimination out of a fear of potentially losing their tax exempt status. I would not be surprised to see other kinds of nonprofits taking similar precautions as well, on the assumption that the Trump administration will apply this logic more broadly in the future. The IRS will need to respond to the major themes addressed in the comments it receives https://www.regulations.gov/document/IRS 2026 1189 0001 by Nov. 3, 2026. It may change the rule before it issues a final version. And even if the rule were to be finalized on schedule, I would expect extensive litigation could delay or prevent its implementation.
Elizabeth Schmidt is a Senior Research Fellow at UMass Amherst. She is also President of Rules of the Road for Nonprofits, LLC.