Higher education organizations and private colleges are opposing a proposed Treasury Department and IRS rule that could put nonprofit institutions’ federal tax exemptions at risk if officials determine they have discriminated based on race or ethnicity.
The IRS says the proposal would cover “all forms” of racial discrimination in education, including conduct defended as remedial or diversity-related. It would apply to admissions, scholarships, athletics and other programs administered or supported by a school. The agency also says race-based action intended to address past or societal discrimination could count as discrimination under the rule.
In public comments, colleges and advocacy groups argued that the proposal is unclear and could give the IRS broad discretion. American Council on Education President Ted Mitchell, writing on behalf of his organization and 40 other higher education groups, questioned whether classroom instruction about race or history, or campus and student activities, might fall within the rule’s definition of discrimination. He warned that the proposal does not clearly define which conduct could lead to sanctions.
Institutions also raised concerns about the financial consequences. If a college lost its tax exemption, donors could no longer deduct contributions to it from their taxes. The National Association of College and University Business Officers said the change could severely undermine institutions’ financial stability.
The IRS cites the Supreme Court’s 1983 decision in Bob Jones University v. United States, which upheld the revocation of a religious university’s tax exemption over its policies on interracial marriage. Mitchell argued that the decision set a high bar, involving intentional policies of unlawful discrimination in admissions, and said the proposed rule could reach incidents outside admissions that are isolated or unintentional.
Kristen F. Soares, president of the Association of Independent California Colleges and Universities, said the proposal could turn tax-exempt status into a politicized enforcement tool. She also criticized the absence of clear procedures for notice, corrective action or intermediate sanctions before an exemption is revoked.
Other organizations warned that uncertainty could discourage lawful educational programs, unsettle students and families, and deter charitable giving. The Emergency Campaign to Support Higher Education said the proposal could threaten scholarships and programs serving students from historically underrepresented communities.
The IRS had received nearly 2,400 public comments by the final day of the comment period. The agency must review and respond to those comments before deciding whether to finalize the rule.
Sources: Inside Higher Ed.