AccessLex Institute Urges IRS to Withdraw Proposed Rule Impacting Private School Tax Exemption

Internal Revenue Service 
CC:PA:01:PR (REG-119986-25) 
Room 5503 
P.O. Box 7604 
Ben Franklin Station 
Washington, D.C. 20044 

Re: Intent to Receive Public Feedback for the Development of Proposed Regulations Regarding Racial Nondiscrimination in Private Schools

Docket Number: REG-119986-25

Dear Sir or Madam:

I am writing on behalf of AccessLex Institute^® in response to the September 4, 2026 Federal Register notice soliciting comments on racial nondiscrimination in private schools. The following comments reflect AccessLex Institute’s view that the proposed rule expands existing law beyond what Supreme Court precedent requires, and fails to adequately account for reliance interests, implementation challenges, and the practical consequences for nonprofit higher education.

AccessLex Institute, in partnership with its nearly 200 nonprofit and state-affiliated ABA-approved member law schools, has been committed to improving access to legal education and to maximizing the affordability and value of a law degree since 1983. We advocate for policies that make legal education work better for students and society alike; conduct research on the most critical issues facing legal education today; seek to expand access to legal education for underrepresented students through research, grantmaking, data analysis, and the dissemination of information and resources; and aim to increase first-time bar exam passage nationwide.

The Proposed Rule is Expanding, Not Merely Codifying, Bob Jones

The preamble of the Notice of Proposed Rulemaking (NPRM) repeatedly characterizes the proposed regulation as a clarification or codification of existing law. We disagree.

The Supreme Court’s decision in Bob Jones University v. United States (Bob Jones) addressed whether institutions engaging in racial discrimination that excluded students and promoted racial segregation could qualify as charitable organizations under Section 501(c)(3) of the Internal Revenue Code (IRC). The Court concluded that educational institutions maintaining racially discriminatory policies were contrary to fundamental public policy and therefore ineligible for tax-exempt status. However, Bob Jones arose in the context of schools maintaining exclusionary policies rooted in segregation and racial discrimination. It did not establish a categorical prohibition on every consideration of race in every educational context.

The proposed rule goes substantially further than Bob Jones: it provides that any policy or practice that “discriminates on the basis of race, color, or national or ethnic origin,” including actions undertaken “for any purpose,” is incompatible with charitable status. Thus, the proposed rule seems to treat all race-conscious measures, including scholarships or programs intended to expand opportunity for historically disadvantaged students, as equivalent to the segregationist policies at issue in Bob Jones.

In doing so, the Department of the Treasury (Treasury) is not merely incorporating Bob Jones into the regulations. Rather, we believe that the proposed regulations would operate to transform a doctrine directed at exclusionary racial discrimination into a blanket prohibition on all race-conscious activity, even when it is designed and functions to increase educational opportunity. While the Supreme Court’s treatment of race-conscious policies has evolved over time, this approach overlooks that neither Bob Jones nor the cases that followed established a blanket rule that every race-conscious educational program or initiative, regardless of its purpose, operation, or legal basis, is incompatible with federal law or charitable status.

In Grutter v. Bollinger, for example, the Court held that institutions of higher education possess a substantial interest in obtaining the educational benefits that flow from a diverse student body. Although Students for Fair Admissions v. Harvard (SFFA) narrowed the circumstances under which race may be considered in admissions decisions, the Court did not reject the proposition that diversity yields important educational benefits, nor did it suggest that all race-conscious efforts undertaken outside the admissions context are inherently unlawful.

Proposed Rule Treats Students for Fair Admissions as Resolving Issues it Never Addressed

Expanding on the arguments above, the proposal relies heavily on SFFA as support for its conclusion that all race-conscious educational policies are contrary to fundamental public policy. Yet, SFFA did not hold that all race-conscious programs in every context are unlawful. In fact, beyond the admissions area, nothing in the Supreme Court’s decision, directly or by implication, prohibits colleges and universities from pursuing and supporting race-conscious activities on their campuses.

More specifically, the question before the Court in SFFA was whether specific admissions systems employed by Harvard University and the University of North Carolina complied with Title VI of the Civil Rights Act of 1964 and the Equal Protection Clause of the U.S. Constitution. Nevertheless, Treasury’s proposal treats SFFA as if it established a broad rule reaching beyond admissions to scholarships, athletics, loans, institutional programs, and all educational policies. The NPRM further concludes that race-conscious actions undertaken for remedial or diversity-related purposes are inconsistent with fundamental public policy. Similarly, that assertion cannot be found in SFFA itself.

Administrative agencies should exercise caution when extending judicial decisions beyond the specific questions those decisions resolved. Here, Treasury’s interpretation effectively transforms a case about admissions policies into a sweeping rule governing every aspect of private school administration and whether such schools serve a charitable purpose. The agency has not sufficiently explained why SFFA compels such a result, nor has it shown that existing authority allows revocation of tax-exempt status for institutions administering programs that were not at issue before the Court.

In short, we believe that Treasury should recognize the limits of SFFA and avoid treating the decision as having settled legal questions that neither the Court nor Congress has addressed.

The Proposed Rule Raises Serious Major Questions Doctrine Concerns

The proposed rule also raises significant concerns under the Supreme Court’s major questions doctrine. Under the proposal, Treasury would effectively establish a nationwide rule governing whether up to 18,000 educational institutions may engage in a broad range of race-conscious activities while retaining tax-exempt status under Section 501(c)(3). The practical effect of the rule extends far beyond tax administration. It would influence scholarship design, educational programming, donor-funded initiatives, and potentially the availability of educational opportunities across the private, nonprofit higher education sector.

Questions of this magnitude and political significance ordinarily require clear congressional authorization. Yet the NPRM identifies no statutory provision in which Congress expressly directed Treasury or the Internal Revenue Service (IRS) to prohibit all race-conscious educational policies as a condition of tax-exempt status. This, despite the many legislative opportunities Congress has taken over the last six decades to outline federal requirements in various civil rights laws and updates to the IRC. Instead, the proposal largely relies upon Treasury’s interpretation of judicial decisions, such as Bob Jones and SFFA, to support a regulatory expansion with substantial consequences for educational institutions and students nationwide.

Whatever authority Bob Jones may provide to deny tax-exempt status to institutions that exclude students and engage in racial segregation, that decision did not address many of the activities implicated by the proposed rule, including scholarships, educational support programs, outreach initiatives, and other policies intended to expand educational opportunity. Nor has Congress subsequently enacted legislation directing the IRS to impose the broad prohibitions contemplated by the NPRM.

Under the Supreme Court’s major questions doctrine, agencies must point to clear congressional authorization when asserting regulatory authority over matters of vast economic and political significance. Treasury identifies no such authorization here because none exists. The proposed rule therefore raises serious questions regarding whether the agency has exceeded the authority delegated to it by Congress.

Treasury Has Failed to Consider Significant Reliance Interests

The proposed rule does not adequately account for the substantial reliance interests developed by educational institutions over decades of operation under the existing regulatory framework and IRS guidance.

For more than 50 years, private nonprofit colleges, universities, law schools, and other educational institutions have structured their operations in reliance on the IRS’s interpretation of Section 501(c)(3), including Revenue Procedure 75-50, which established guidelines for schools to demonstrate compliance with the IRS’s racial nondiscrimination requirements. Importantly, Revenue Procedure 75-50 functioned as a compliance safe harbor that allowed schools to maintain tax-exempt status while operating programs designed to increase access for historically underrepresented populations. During that period, institutions developed programs designed to expand access to education with the understanding that they were consistent with federal law and charitable purposes.

The Supreme Court has repeatedly held that agencies changing course must consider the serious reliance interests created by prior regulatory regimes.¹ In contrast, this NPRM contains little discussion of the extent to which educational institutions have relied upon existing interpretations and guidance in designing educational programs and allocating resources, and it gives schools mere months to come into compliance. Nor does Treasury explain how institutions should address existing donor restrictions, scholarship commitments, endowment agreements, or other long-standing arrangements that may be affected by the proposed rule.

These reliance interests are particularly significant because the proposal carries consequences far beyond ordinary regulatory compliance. For example, colleges and universities maintain endowments containing donor-restricted funds dedicated to scholarships and educational access initiatives that may require costly modifications or renegotiation with donors if the proposed rule is finalized. In addition, the loss of tax-exempt status would jeopardize donors’ ability to claim charitable tax deductions for contributions to affected institutions, potentially reducing philanthropic support that funds student scholarships, academic programs, and educational services. Institutions could also face increased financing costs because many nonprofit colleges and universities rely on tax-exempt financing mechanisms that depend upon continued exempt status.

Before adopting such a consequential change in policy, Treasury should fully account for the substantial reliance interests it created through decades of guidance and enforcement practice. In this circumstance, we believe that the reliance interest Treasury established outweighs the benefits of the proposed rule and the agency should not move forward with implementing the rule.

The Rule is Arbitrary and Capricious Because Treasury Concedes it Lacks Key Data

The proposed rule is also troubling because Treasury and the IRS acknowledge substantial uncertainty regarding the rule’s practical effects while nevertheless proposing a sweeping change that could affect thousands of educational institutions. Under the Administrative Procedure Act (APA), an agency’s rule may not be arbitrary and capricious², which the Supreme Court has said requires an agency to “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.”³ We believe that the proposed rule fails this test.

The NPRM repeatedly acknowledges that the agencies do not know how many schools currently use race-conscious criteria, do not know the compliance costs, do not possess data necessary to model major effects, and do not know the degree to which scholarship recipients would change. The agencies effectively acknowledge that they lack critical information necessary to evaluate the rule’s real-world effects.

This lack of data is particularly problematic given the breadth of the proposal. The rule would potentially implicate financial aid programs, donor-restricted scholarships, educational outreach efforts, student support programs, and numerous other institutional activities. Yet the NPRM does not quantify the likely compliance costs associated with reviewing and restructuring these programs, estimate the number of institutions that may face heightened enforcement risk, or assess the potential effects on educational access for students served by affected programs.

While agencies are not required to predict every consequence of a proposed regulation with precision, they are required by the APA to engage in reasoned decision-making and meaningfully evaluate the likely effects of major policy changes. Here, Treasury proposes a significant expansion of the conditions governing educational tax exemption while simultaneously conceding that it lacks important information regarding the scope and consequences of the rule.

For these reasons, we respectfully urge Treasury and the IRS to withdraw the proposed rule.

Thank you for considering our comments on racial nondiscrimination in private schools. If you have any questions or would like additional information, you can reach me at [email protected]. You can also contact Nancy Conneely, Vice President of Policy, at [email protected].

Sincerely,

Christopher P. Chapman
President and Chief Executive Officer
AccessLex Institute^®

¹ See Department of Homeland Security v. Regents of the University of California, 591 U.S. 1, 30-35 (2020) (holding that when changing policy an agency must consider whether regulated parties have developed reliance interests under the existing regime and weigh those interests as part of reasoned decision-making); Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 222 (2016) (“[L]ongstanding policies may have engendered serious reliance interests that must be taken into account” when an agency changes course).

² 5 U.S.C. §706.

³ Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins., 463 U.S. 29 (1983).