A new rule proposed by the U.S. Department of Treasury would tighten the standard schools must meet to retain 501(c)(3) tax-exempt status. Current guidance has protected race-conscious admissions and scholarship criteria since 1975, when designed to promote a school's nondiscriminatory policy or diversity goals. The proposed rule would eliminate that protection: using race, color, or national or ethnic origin in admissions, financial aid or other school-administered programs, for any purpose, including remedial or diversity-related ones, would disqualify a school from tax-exempt status. The National Association of Independent Schools (NAIS) has published a legal advisory on this topic, as have law firms that serve independent schools (see links below).
The proposed regulation is open for public comment through November 3, 2026 (60 days from publication). If finalized as proposed, the regulation would apply to a school's tax year beginning after May 31, 2027, which, for most independent schools, means the 2027-28 school year. NBOA is partnering with NAIS to advocate on behalf of independent schools and stands behind our members as this discussion develops. NBOA staff are in close contact with NAIS's legal team and with NBOA legal counsel at Venable LLP, and we will continue to monitor developments and provide guidance to members as the rule progresses.
Further Reading
- NAIS Legal Advisory: New Treasury Rule May Impact Schools’ Tax-Exempt Status
- Venable: Treasury and IRS Proposed Rules May Impact Tax-Exemption of Independent Schools
- McLane Middleton: IRS Proposes New Rule Tying Tax-Exempt Status to Race-Neutral Policies — What Independent Schools Need to Know
- LCW: IRS Proposes Significant Tax-Exemption Changes Affecting Private School DEI Practices
