Brown v. Board of Education outlawed state-mandated segregation in public schools. A new IRS proposal invokes that decision to challenge race-conscious policies at private schools, including scholarships designed to widen access.
Treasury and the IRS published the proposal on September 4, 2026. It would deny tax-exempt status under section 501(c)(3) to private educational institutions that use race, color, or national or ethnic origin in school programs “for any purpose.” Scholarships and loans are explicitly included. Comments are due November 3, 2026; if finalized, the rule would apply to taxable years beginning after May 31, 2027.
The proposal’s reach is easier to see when set beside the rule already in place. Since 1971, IRS guidance has treated a school’s scholarship and loan programs as part of its racial nondiscrimination policy. The proposed regulation would make that standard more explicit and remove language allowing some preferences for racial minority groups to further a school’s nondiscriminatory purpose. The shift is in how the government treats remedial race-conscious policies—not in whether scholarships are covered at all.
Separate educational facilities are inherently unequal. — Chief Justice Earl Warren
Brown v. Board of Education Addressed Segregation, Not Scholarship Design
In 1954, the Supreme Court ruled that separating children in public schools solely by race denied Black students equal protection, even when tangible facilities appeared comparable. The case challenged state-enforced segregation and the public school systems that assigned children by race. It did not consider whether a private university could reserve scholarship aid for students from groups historically excluded from education.
That distinction is central to the debate over the IRS proposal. Brown struck down a state system that withheld equal access. The proposal addresses private institutions’ tax status and their use of race in school programs. It treats race-based differentiation as discrimination “for any purpose,” including when a school says it intends to remedy past exclusion.
The IRS also cites Bob Jones University v. United States and Students for Fair Admissions v. Harvard. The cases do not all say the same thing. Bob Jones, decided in 1983, upheld the IRS’s denial of tax-exempt status to schools with policies against interracial relationships.
In 2023, Students for Fair Admissions limited race-conscious admissions practices at Harvard and the University of North Carolina. Neither case directly decided the question now before private scholarship programs: whether a targeted award intended to expand access must be treated like a policy that excludes students by race.
The Proposal’s Real Change Is Its Treatment of Remedial Aid
Revenue Ruling 71-447, issued in 1971, said a private school needed a racially nondiscriminatory policy to qualify for tax exemption. It already included scholarship and loan programs among the school policies covered. Revenue Procedure 75-50 later allowed some preferences for racial minority groups when used to further a school’s nondiscriminatory purpose. The proposed regulation would remove that allowance and state that race-based distinctions count as discrimination regardless of purpose.
The proposal would cover private primary and secondary schools, colleges, universities, and professional or trade schools that qualify as tax-exempt educational organizations. It excludes government units and schools owned or operated by government entities. Public schools, therefore, are outside this particular tax-status rule.
The financial stakes reach beyond a school’s own tax bill. Section 501(c)(3) status helps make charitable contributions to eligible institutions tax-deductible. If a school loses that status, donors may reconsider gifts, while existing awards tied to race may need new eligibility terms. A regulation framed as an education policy can quickly become a fundraising and governance issue.
Treasury and the IRS estimate that 18,000 private schools and 750,000 students who may qualify for scholarships based on racial, ethnic, or national identity could be affected. Those figures measure potential exposure; they do not mean that 750,000 students will lose aid. The agencies say they lack data to estimate how much donors give to race-restricted scholarship funds administered by schools.
Racial discrimination in education is contrary to public policy. — Chief Justice Warren Burger
The Scholarship Money Question
The IRS expects schools and donors to use other criteria, including income, geography, or first-generation status. It predicts the total number and value of scholarships may remain largely unchanged, even if the mix of recipients shifts. But Treasury and the IRS acknowledge they cannot precisely measure how those alternatives would overlap with race or alter award distribution.
There is a practical difference between keeping scholarship dollars available and keeping an award’s original purpose intact. Income-based criteria can direct aid to students with financial need. Geography can focus support on underserved places. Neither automatically reaches the same students as a fund designed for a particular racial or ethnic group.
Donor restrictions add another layer. The IRS estimates that all restricted scholarship endowments—restricted by race, ethnicity, or any other condition—account for no more than 16 percent of total scholarship dollars. That figure is not an estimate of race-restricted awards alone. Where a gift instrument explicitly limits eligibility by race, a school may need to negotiate revised terms with the donor or the donor’s heirs. Legal review and administrative work could follow.
For school leaders, the immediate task is specific: identify awards whose eligibility terms mention race, check whether donor agreements allow amendments, and model how alternatives would change the recipient pool. The same review can help development teams explain the proposal to donors before uncertainty becomes a reason to pause giving.
What Happens to the Brown Legacy Now?
The administration presents the proposal as a consistent application of the principle that schools should not discriminate by race. Its opponents argue that the policy collapses two different practices—racial exclusion and targeted aid—into the same legal category.
That disagreement is not merely about language. The rule would use a school’s tax exemption as the enforcement mechanism. Schools that want to preserve that status would have to remove race-based eligibility from scholarships and other covered programs if the proposal becomes final. The consequences would fall on institutions and donors as well as students seeking aid.
For now, schools, students, and donors have until November 3 to comment. The final text may change. The central question will remain: can the federal government invoke the legacy of Brown to prohibit remedial, race-conscious aid at private schools, even when that aid aims to widen educational access?
FAQs
What does the proposed IRS rule say about school scholarships?
It would make a private school ineligible for section 501(c)(3) status if the school uses race, color, or national or ethnic origin in scholarships, admissions, athletics, or other covered programs. The proposal says this applies “for any purpose,” including efforts to address past discrimination.
Did Brown v. Board of Education rule on private school scholarships?
No. Brown struck down state-mandated segregation in public schools under the Fourteenth Amendment. It did not address whether private schools could offer race-conscious scholarships. The IRS proposal applies nondiscrimination principles to private schools’ tax-exempt status, extending the argument beyond Brown’s specific holding.
What changes from the IRS’s existing policy?
IRS guidance has included scholarship and loan programs in private schools’ nondiscrimination policies since 1971. Later guidance allowed some minority-group preferences to further a nondiscriminatory purpose. The proposal would remove that allowance and treat race-based policies as discriminatory regardless of intent.
Which schools could lose tax-exempt status under the proposal?
Private primary and secondary schools, colleges, universities, and professional or trade schools qualifying under section 501(c)(3) could be affected. Government units and schools owned or operated by government entities are excluded. The IRS estimates 18,000 private schools may be exposed.
When would the proposed IRS rule take effect?
If finalized, the regulation would apply to taxable years beginning after May 31, 2027. Treasury and the IRS set November 3, 2026, as the deadline for written comments and requests for a public hearing. The agencies may revise the proposal before issuing a final regulation.
Can schools replace race-based scholarship criteria?
The proposal points to alternatives such as income, geography, and first-generation status. Schools could consider these criteria, but they may not reach the same students or fulfill donor intent in the same way. Existing gift agreements may require review or renegotiation before changes are made.
