Higher Ed Groups Condemn Proposal That Could Ax Private College Tax Exemptions

Higher education advocacy groups and institutions excoriated a proposed rule that threatens private, nonprofit institutions’ tax-exempt status. If enacted, the Treasury Department and Internal Revenue Service proposal would allow officials to revoke that exemption if they determine a private college or university has discriminated based on race or ethnicity.

But colleges argued in public comments on the plan that it’s unclear and unlawful, and they criticized the agency’s sweeping language in explaining the rule’s intent. The IRS said its regulation would mean “all forms of racial discrimination in education, regardless of the intent behind or the legality of such discrimination (for example, where such discrimination is defended as serving remedial or diversity-related objectives), are against a fundamental public policy of the United States and thus preclude a school’s exemption from Federal income tax.”

Losing the federal income tax exemption could make donors hesitate to give to universities because they wouldn’t be able to write contributions off on their taxes. The change could also “severely undermine institutional financial stability,” according to the National Association of College and University Business Officers.

Most Popular

Dems Control Congress, Pledge to Hold Trump Accountable

Enrollment Management Conference Talks Retention, Data

Federal Judge Sides With Harvard in Francesca Gino Case

The IRS specified that the rule would consider “race-based action for the purpose of ameliorating societal discrimination” or “past racial discrimination” to be forms of further discrimination, costing universities their exemptions. The rule would prohibit any racial, ethnic or national origin–based discrimination “in the administration of any educational policy, admissions policy, scholarship and loan program, athletic program, or other school-administered or school-supported program.”

American Council on Education President Ted Mitchell submitted a roughly 15-page comment on behalf of his and 40 other higher groups—including the National Association of Independent Colleges and Universities and the American Association of University Professors—lambasting the proposal and saying the Trump administration could use it to further target ideas it disagrees with.

“It is unclear, for example, whether contentious or even offensive classroom instructions on race or history topics could fall into the IRS’s broad definition of ‘discrimination,’” Mitchell wrote. “Nor is it clear what types of campus or student activities could be deemed ‘school-administered or school-supported.’ The proposed rule seemingly leaves it entirely to the IRS’s discretion to decide what conduct is sanctionable.”

Mitchell added that “this lack of clarity would be constitutionally problematic under any scenario,” but it’s “especially concerning given the Administration’s statements and overall course of conduct over the past 21 months.”

The opposition to the proposed regulation underscores higher ed’s continued fear of Trump—and future presidents—using broad allegations of antisemitism and anti-white and anti-Asian racism to financially threaten them. Since Trump returned to the White House, federal agencies have cut off billions of federal research dollars to selective private and public universities based on such accusations, without giving institutions much time to rebut them. Ending tax exemptions would also be another way for the administration to financially pressure universities, after Harvard University fought in court and won back its funding. Trump threatened Harvard’s exemption on social media last year.

The proposal’s attempt to forbid all types of racial “discrimination” at nonprofit private institutions is also part of the administration’s continued effort to more broadly interpret a 2023 Supreme Court ruling that banned affirmative action in admissions to also prohibit a much broader set of policies that take race into account.

“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature,” Treasury Secretary Scott Bessent said in a news release in September when he unveiled the plan. “Today’s Treasury and IRS proposed regulations establish a clear standard.”

Asked for comment Tuesday, an IRS spokesperson referred Inside Higher Ed to the proposed regulation. As of publication time Tuesday, the last day to submit public comments, the agency had received nearly 2,400 comments, which it must review and respond to before possibly finalizing the change.

Bob Jones Precedent Disputed

To back up its proposal, the IRS cited the 1983 case Bob Jones University v. United States. In that 8-to-1 decision, the Supreme Court upheld the IRS’s revocation of the conservative Christian institution’s tax exemption because Bob Jones denied admission to applicants who, as the court put it, “engaged in an interracial marriage” or were “known to advocate” for it.

Editor's Picks

Proposed Census Changes Prompt Concerns About Counting Students

There’s Still Time to Prepare for the Morning After Election Day

Education Affordability a Priority for Voters

The court held an “institution’s purpose must not be so at odds with the common community conscience as to undermine any public benefit that might otherwise be conferred” in order to be tax exempt.

“Whatever may be the rationale for such private schools’ policies, racial discrimination in education is contrary to public policy,” the majority opinion concluded. “Racially discriminatory educational institutions cannot be viewed as conferring a public benefit within the above ‘charitable’ concept or within the congressional intent.”

But Mitchell, the ACE president, wrote that the Bob Jones case set a “high bar” for exemption revocation, one in which the “standard is plainly met where institutions have intentional policies of unlawful and invidious race-based discrimination in admissions.” He wrote that every case the IRS cited for its proposed rule dealt with admissions policies, but its proposed regulation could punish universities for allegedly discriminatory incidents outside of admissions that are “isolated, episodic, unintentional, or otherwise not a formal policy or practice of the institution as a whole.”

“Universities host dozens of departments, thousands of classes, and innumerable official and unofficial student groups,” Mitchell wrote. “Despite their best efforts to formulate generally applicable policy and ensure a healthy environment for all members of the community, the multifarious life of a diverse institution necessarily resists monolithic conformity.”

To freeze universities’ funding, the Trump administration has sometimes cited brief events such as alleged acts of antisemitism at graduation ceremonies, or a pro-Palestine encampment a university dismantled a week after it was established.

Kristen F. Soares, president of the Association of Independent California Colleges and Universities, which says it represents more than 85 institutions, wrote in a separate comment that the proposed regulation relies “on an expansive interpretation of the 2023 Supreme Court decision” on admissions. She added that the Bob Jones decision “set a demanding standard for imposing this consequence [losing tax exemption]: there must be ‘no doubt’ that the activity conflicts with fundamental public policy.”

Over all, Soares wrote, the proposed rule “could turn tax-exempt status into a politicized enforcement tool, subject to shifting interpretations across administrations.”

“It offers no clear safe harbors, notice-and-cure period, corrective action process, or intermediate sanctions before an institution’s tax-exempt status is put at risk,” she wrote. “It also leaves fundamental enforcement questions unanswered: Would the IRS independently determine whether discrimination occurred or rely on another agency or a court? What evidence and standards would govern? What notice would an institution receive, and what opportunity would it have to respond, correct an alleged deficiency, or seek administrative and judicial review?”

She said the rule could pressure universities “to curtail lawful educational programs or avoid activities that might prompt a complaint. Even a disputed allegation or investigation could unsettle students and families, discourage charitable giving, consume scarce institutional resources, and chill protected speech.”

The Emergency Campaign to Support Higher Education—which said it includes more than 30 groups, including left-leaning organizations and unions such as the AAUP–American Federation of Teachers union and the Campus Climate Network—unloaded in its public comment, calling the proposal “an overt effort to weaponize the U.S. tax code to roll back decades of progress toward increasing access to college for Black, Brown, first-generation, immigrant, and Indigenous students.”

The campaign added that it would threaten “essential scholarships and programs for hundreds of thousands of students” and “create a permission structure that puts every nonprofit at risk of losing its tax-exempt status if it doesn’t adhere to the president’s hyper-partisan ideological agenda on any issue of his choosing.”

“This continues a pattern of attacking democratic pillars, sowing distrust in scientific knowledge, and keeping working-class Americans and people of color from accessing opportunity and needed services,” the campaign wrote.

On behalf of his own institution, Occidental College President Tom Stritikus wrote that the proposal would grant IRS “sweeping authority to review and examine a set of institutional practices that fall well below the Bob Jones threshold. IRS claims to have this authority regardless of intention, thus claiming authority that exists far beyond its judicial and legal remit.”

Stritikus further wrote that “courts have not resolved the issues raised” in the 2023 Supreme Court admissions decision to the extent the ruling “could definitively be applied to other programs and activities of a college or university.” And, he said, the rule’s lack of standards allowing “institutions to work toward productive and lawful resolutions” risks “that enforcement could be used in arbitrary ways to punish institutions for political or other reasons.”