Could the IRS really revoke a university’s tax-exempt status over race-based scholarships, and where would regulators draw the line?

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Yes—at least in principle. The IRS already has a Supreme Court-backed theory for doing this: in Bob Jones University v. United States, the court said a school can lose 501(c)(3) status if its practices violate a “fundamental public policy” against racial discrimination. The Treasury proposal appears designed to extend that doctrine more explicitly to modern school policies, including scholarships and admissions. The harder question is where the line would be drawn, and that is still unresolved because the proposed rule has not yet been finalized. A regulation can clarify how the IRS will interpret tax law, but it cannot erase the legal differences between outright exclusion and more limited, remedial or mission-driven aid. Bob Jones involved clear racial exclusion in education. A race-based scholarship aimed at expanding opportunity is legally and factually different, and courts may ask whether the IRS is stretching that precedent too far. That line could turn on how the rule defines “racially discriminatory,” whether any use of race is disqualifying, and how substantial the practice must be before tax exemption is threatened. Experts have noted that not every violation of public policy traditionally destroys exemption, and that applying this beyond private-school segregation cases would be a major expansion. In practical terms, schools with scholarships reserved for specific racial groups would face the greatest risk. Programs framed around race-neutral factors—such as inco…

Treasury, IRS Move to Revoke Tax Breaks for 18,000 Schools Over Race Policies

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Treasury, IRS Move to Revoke Tax Breaks for 18,000 Schools Over Race Policies

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