The Internal Revenue Service (IRS) and Treasury continue to focus on the intersection of tax-exempt status, racial discrimination and race-conscious programs. In September 2025, the agencies identified as a priority guidance project the development of new rules addressing the application of the fundamental public policy doctrine to schools seeking or maintaining tax-exempt status under Internal Revenue Code (IRC) §501(c)(3). On June 25, 2026, that effort took a significant step forward when the Office of Information and Regulatory Affairs received the proposed regulation titled Guidance on the application of the fundamental public policy against racial discrimination in schools for review.
The anticipated guidance appears to build on longstanding principles established in Bob Jones University v. United States, wherein the Supreme Court upheld the revocation of a university’s tax-exempt status because its racially discriminatory policies violated a fundamental public policy of the United States. Historically, IRS guidance has required schools to maintain racially nondiscriminatory policies to qualify for exemption, while allowing some decisions to be race-conscious if those decisions worked to promote diversity within the school.
Recent developments suggest the IRS may reevaluate these standards in light of changing legal precedent. In Students for Fair Admissions v. Harvard, the Supreme Court ruled that race-conscious admissions programs at Harvard University and the University of North Carolina were unconstitutional. In addition, the Eleventh Circuit’s decision in Alliance for Equal Rights v. Fearless Fund raised questions regarding race-based grant programs and the legality of excluding applicants based on race. These cases have generated uncertainty regarding the permissibility of race-conscious scholarships, admissions practices and other diversity initiatives operated by educational institutions and charitable organizations.
Although the contents of the proposed regulation are not yet public, colleges, universities and other tax-exempt organizations should closely monitor developments. The forthcoming guidance could significantly affect race-conscious programs and may change how the IRS evaluates whether organizations satisfy the public policy requirements associated with §501(c)(3) status.
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