{"database": "openregs", "table": "crs_reports", "rows": [["LSB11491", "IRS Proposed Regulations on Racial Nondiscrimination in Private Schools", "2026-10-19T04:00:00Z", "2026-10-21T10:23:03Z", "Active", "Posts", "Justin C. Chung", "Education Tax Policy, Elementary & Secondary Education, Nonprofits & Tax-Exempt Organizations, Postsecondary Education, Religious Organizations & Tax-Exempt Status", "On September 4, 2026, the Internal Revenue Service (IRS) published proposed regulations that would add a rule to provide that \u201call forms of racial discrimination in education, regardless of the intent behind or the legality of such discrimination\u201d are against \u201cfundamental public policy\u201d and, thus, grounds for a private school to lose federal tax exemption. The Notice of Proposed Rulemaking (NPRM)\u2014published in the context of public debate and government action on \u201cdiversity, equity, and inclusion\u201d (DEI)\u2014discusses \u201caffirmative action\u201d and rejects \u201cremedial or diversity-related objectives\u201d as a defense to its bar on racial discrimination.\nThis Legal Sidebar discusses the legal authority and background of the proposed regulations\u2014explaining the proposed changes and their legal justifications as asserted by the IRS and identifying potential legal challenges to the rulemaking. Finally, it presents considerations for Congress.\nTax Exemption Under IRC \u00a7 501(c)(3) and the Public Policy Doctrine\nThe Internal Revenue Code (IRC) exempts certain organizations from federal income taxes. Section 501(c)(3) of the IRC specifically exempts those that are \u201corganized and operated exclusively\u201d for certain enumerated purposes, including \u201ccharitable\u201d and \u201ceducational purposes.\u201d Many private schools\u2014including private universities\u2014receive tax exemption under \u00a7 501(c)(3). Section 501(c)(3) organizations are subject to several requirements to obtain and maintain tax exemption. One of these requirements, sometimes referred to as the \u201cpublic policy doctrine,\u201d provides that \u00a7 501(c)(3) organizations must not violate \u201cfundamental public policy.\u201d The public policy doctrine is not explicitly stated in \u00a7 501(c)(3) but, as explained below, comes from IRS and judicial interpretation of the IRC.\nIn 1971, the IRS issued guidance (Revenue Ruling 71-447) that stated that a private school must have a \u201cracially nondiscriminatory policy as to students\u201d to qualify for exemption under \u00a7 501(c)(3). The guidance was based on case law developments from the preceding years. In 1975, the IRS issued additional guidance (Revenue Procedure 75-50) to clarify whether a tax-exempt private school under \u00a7 501(c)(3) would be considered to have racially discriminatory policies forbidden under Revenue Ruling 71-447. The Revenue Procedure\u2014which remains in effect, as modified in 2019 \u201cto reflect technological advances\u201d\u2014carves out from racial discrimination policies that \u201cfavor\u201d racial minority groups if they are designed to promote nondiscrimination. It states that\n[a] policy of a school that favors racial minority groups with respect to admissions, facilities and programs, and financial assistance will not constitute discrimination on the basis of race when the purpose and effect is to promote the establishment and maintenance of that school\u2019s racially nondiscriminatory policy as to students.\nand\nscholarships and loans that are made pursuant to financial assistance programs favoring members of one or more racial minority groups that are designed to promote a school\u2019s racially nondiscriminatory policy will not adversely affect the school\u2019s exempt status. Financial assistance programs favoring members of one or more racial groups that do not significantly derogate from the school\u2019s racially nondiscriminatory policy similarly will not adversely affect the school\u2019s exempt status.\nIn 1983, the Supreme Court established the public policy doctrine as a requirement for \u00a7 501(c)(3) organizations in a pair of cases: Bob Jones University v. United States and Goldsboro Christian Schools, Inc. v. United States (considered collectively under the case name Bob Jones University v. United States). Bob Jones University had a policy of denying admission to and expelling those engaged in interracial dating and marriage. Goldsboro Christian Schools maintained a racially discriminatory admissions policy, for the most part accepting only White applicants, though, on occasion, accepting children from racially mixed marriages with one White parent. Based in part on these facts and relying on Revenue Ruling 71-447, the IRS revoked Bob Jones\u2019s tax-exempt status and required Goldsboro to pay certain federal taxes after determining it ineligible for \u00a7 501(c)(3) tax exemption. Bob Jones and Goldsboro challenged the application of the guidance in the enforcement actions taken against them, each arguing that their racially discriminatory policies were based on their sincerely held religious beliefs and the IRS\u2019s interpretation of the IRC to preclude them from tax exemption based on such policies violated the Free Exercise and Establishment Clauses of the First Amendment.\nThe Supreme Court upheld the IRS actions\u2014holding that \u201can institution seeking tax-exempt status must serve a public purpose and not be contrary to established public policy.\u201d The Court further explained that the public policy requirement is informed by \u201ccommon-law standards of charity,\u201d which provide necessary context for its interpretation of \u00a7 501(c)(3). The Court limited application of the public policy doctrine, though, to \u201cwhere there can be no doubt that the activity involved is contrary to a fundamental public policy\u201d (emphasis added). The Court found that there was a fundamental public policy against racial discrimination in education based on a quarter of a century of actions across all three branches of the federal government. As examples of such actions, the Court cited \nits own cases (including the 1954 case Brown v. Board of Education of Topeka, Kansas ruling racially segregated public schools unconstitutional), \nacts of Congress (including Titles IV and VI of the Civil Rights Act of 1964), and \nexecutive orders (including one to employ the military to enforce school desegregation).\nThe Court rejected the schools\u2019 First Amendment challenges by explaining that \u201cthe Government has a fundamental, overriding interest in eradicating racial discrimination in education,\u201d which \u201csubstantially outweighs whatever burden denial of tax benefits places on petitioners\u2019 exercise of their religious beliefs.\u201d\nThe IRS has rarely relied on the public policy doctrine as grounds for denying or revoking exemption. When the IRS has relied on the doctrine, it has done so mostly in the context of racially discriminatory schools. Bob Jones University remains the Supreme Court\u2019s only decision finding a \u201cfundamental public policy\u201d; thus, the Court has not yet determined a public policy other than forbidding racial discrimination in education to be \u201cfundamental.\u201d Lower courts have referred to the public policy doctrine in other contexts, for example, when an organization prevents IRS enforcement.\nThe IRS\u2019s Proposed Regulations and Legal Justification\nOn September 4, 2026, the IRS published proposed regulations that would add a regulation to provide that \u201call forms of racial discrimination in education, regardless of the intent behind or the legality of such discrimination\u201d are against \u201cfundamental public policy.\u201d Specifically, the IRS proposes deleting the aforementioned sentences in Revenue Procedure 75-50, which carve out from racial discrimination policies that \u201cfavor\u201d racial minority groups. Additionally, the IRS would \u201cincorporat[e] the long-standing holding\u201d of Revenue Ruling 71-447 in regulatory text by adding a strict nondiscrimination requirement in its regulations governing \u00a7 501(c)(3) organizations to clarify that\n[a] private school is not operated exclusively for exempt purposes if it adopts, maintains, or enforces any policy or practice that discriminates on the basis of race, color, or national or ethnic origin . . . [D]iscrimination on the basis of race, color, or national or ethnic origin includes any discrimination on the basis of race, color, or national or ethnic origin for any purpose. [(emphasis added)]\nWhile significant portions of the NPRM are devoted to explaining caselaw on racial discrimination in admissions policies with regard to \u201caffirmative action,\u201d the nondiscrimination requirement would apply not just to a private school\u2019s admissions policy but also to \u201cany educational policy, . . . scholarship or loan program, athletic program, or other school-administered or school-supported program.\u201d The scope of affected policies mirrors language in Revenue Ruling 71-447. Under Tax Court precedent, the IRS may also look beyond a school\u2019s written policies to its actual practice to determine if a school discriminated based on race.\nUnlike other executive branch actions requiring the elimination of DEI policies in education programs, which have been largely tied to federal funding, these proposed regulations would apply to all private schools receiving tax-exemption under \u00a7 501(c)(3). The NPRM explains that selecting students based on only religious affiliation does not constitute racial discrimination \u201cmerely because members of the relevant religious community may also share ancestry or ethnic characteristics.\u201d\nThe NPRM justifies the proposed changes in the regulations by citing recent developments in the law, including\njudicial decisions evaluating affirmative action admissions policies (including Students for Fair Admissions, Inc. v. President and Fellows of Harvard College in which the Supreme Court ruled that race-based affirmative action admission policies violated Title VI of the Civil Rights Act of 1964 and the Equal Protection Clause of the Fourteenth Amendment), and \nexecutive orders issued during the second Trump Administration targeting DEI in education.\nThe NPRM situates these within the development of antidiscrimination law invoked by the Supreme Court in Bob Jones University. In doing so, the IRS asserts that affirmative action in admissions and \u201cremedial or diversity-related\u201d programs \u201care against a fundamental public policy of the United States and thus preclude a school\u2019s exemption from Federal income tax under section 501(c)(3).\u201d \nWritten or electronic public comments on the proposed regulations are due by November 3, 2026. The IRS scheduled a public hearing for December 2, 2026. The proposed regulations would affect private schools in taxable years beginning after May 31, 2027. For private schools with tax years corresponding with the calendar year, the proposed regulations would take effect for tax year 2028 beginning on January 1, 2028.\nPotential Legal Challenges\nThe IRS states that the proposed regulations are needed to be \u201cconsistent with recent developments in the law.\u201d The IRS is likely to provide further arguments in support of the rulemaking in response to comments in any final rule. Challenges to any finalized regulations could be brought under the Administrative Procedure Act (APA) arguing, for example, that the regulations are arbitrary and capricious, in excess of statutory authority, or contrary to law. Challenges could also be brought in response to a specific attempt by the IRS to revoke tax-exempt status based on such a final rule. \nSome legal challenges might focus on the scope of the Supreme Court\u2019s doctrine of \u201cfundamental public policy\u201d established through interpreting the IRC provisions involving charities. Challengers might argue that government actions against affirmative action and DEI are too recent and unsettled to be considered fundamental public policy and that neither the IRC nor Bob Jones University can be interpreted to grant the IRS an \u201copen-ended power to define fundamental public policy.\u201d The challengers might emphasize Bob Jones University\u2019s limitation of the public policy doctrine to situations \u201cwhere there can be no doubt that the activity involved is contrary to a fundamental public policy.\u201d Challengers might characterize the more recent actions against affirmative action and DEI as distinct from the antidiscrimination law invoked by the Supreme Court Bob Jones University rather than, as the NPRM does, a continuation of it. The challenges might then contend that, as a distinct public policy, actions against affirmative action and DEI must undergo a separate analysis by a court to determine whether they are a \u201cfundamental\u201d public policy. Under Bob Jones University, such analysis would involve determining the duration of such policy across all three branches of the federal government. Challengers might point to the NPRM\u2019s failure to identify congressional action specifically against affirmative action or DEI. They might also argue that the scope of the NPRM is not supported by its justifications, which are focused on affirmative action in admissions, so extending the nondiscrimination requirement beyond admissions policy to \u201cany educational policy, . . . scholarship or loan program, athletic program, or other school-administered or school-supported program\u201d is overbroad and not supported by caselaw.\nIn 2024, the Supreme Court issued a decision in Loper Bright Enterprises v. Raimondo overruling the Chevron doctrine. The Chevron doctrine\u2014named for the case that articulated it\u2014required federal courts to defer to a federal agency\u2019s reasonable interpretation of ambiguous statutory provisions the agency administers. As a result, in judicial review under the APA, a federal court would likely not afford deference to any IRS interpretation of \u00a7 501(c)(3) in the regulations. As discussed herein, the public policy doctrine is derived from the Supreme Court\u2019s application of common-law standards of charity to the tax exemption under \u00a7 501(c)(3); however, after Loper Bright, the IRS is unlikely to receive deference on any interpretation, regardless of whether it is derived from statute or caselaw.\nAside from potential challenges to the proposed regulations focused on the meaning of the public policy doctrine or the meaning of the statutory text, a commentator observed the broad scope of the proposed regulations and hypothesized that they might intrude on private schools\u2019 ability to fashion their curriculums in violation of \u201cFirst Amendment rights of academic freedom\u201d and potentially be selectively enforced. \nThe commentator added that requiring changes to loans and scholarships to comply with the proposed regulations might violate existing arrangements under which the loans and scholarships were gifted. In the NPRM\u2019s economic analysis, the IRS acknowledges the potential impacts of legal and administrative costs in amending scholarship eligibility. The NPRM states that \u201conly a minority of scholarship dollars are restricted by the donor\u2019s intention.\u201d The NPRM further states that \u201cprivate schools may use a different mechanism for allocating scholarships and loans to recipients, for example, using geographic or income-based criteria in lieu of a racial or ethnic criterion to determine scholarship eligibility.\u201d\nConsiderations for Congress\nThe Supreme Court in Bob Jones University looked in part to acts of Congress as indicators of \u201cfundamental public policy.\u201d This analysis shows how Congress\u2019s legislative actions\u2014for example, passing laws restricting or protecting affirmative action and DEI\u2014could indirectly develop the scope of public policy that the IRS or a court might consider a fundamental public policy that \u00a7 501(c)(3) organizations are required to follow. Congress could also consider codifying the public policy doctrine by explicitly listing out fundamental public policies or providing criteria for determining them. Alternatively, Congress can do nothing and allow the IRS and the courts to continue developing the law on the public policy doctrine. If Congress disagrees with any finalized regulations, Congress can also consider overturning such rules under the Congressional Review Act.\nCongress could also consider providing specific procedural requirements for IRS actions against private schools, including potential enforcement actions against violations of the proposed regulations, if finalized. For example, Representatives Alma S. Adams and Jamie Raskin introduced H.R. 10330\u2014the Higher Education Oversight for Nonprofits Ensuring Standards and Transparency Act. The bill would impose similar procedural requirements for IRS audits of universities as exist for churches. The press release accompanying the bill\u2019s introduction mentions the proposed regulations and potential enforcement under them. In assessing such procedural requirements, Congress could consider other sources of information from which the IRS might obtain information to justify enforcement actions against universities, for example, reporting and disclosure requirements related to the Higher Education Act and whether there should be restrictions on the IRS\u2019s use of such information or whether such use should be explicitly authorized.", "https://www.congress.gov/crs_external_products/LSB/PDF/LSB11491/LSB11491.2.pdf", "https://www.congress.gov/crs_external_products/LSB/HTML/LSB11491.html"]], "columns": ["id", "title", "publish_date", "update_date", "status", "content_type", "authors", "topics", "summary", "pdf_url", "html_url"], "primary_keys": ["id"], "primary_key_values": ["LSB11491"], "units": {}, "query_ms": 0.19869301468133926, "source": "Federal Register API & Regulations.gov API", "source_url": "https://www.federalregister.gov/developers/api/v1", "license": "Public Domain (U.S. Government data)", "license_url": "https://www.regulations.gov/faq"}