IRS, Treasury Propose Tax-Exemption Rules Amid Harvard Discrimination Probes

The Department of the Treasury and the Internal Revenue Service issued proposed regulations Thursday that would strip tax-exempt status from educational institutions found to discriminate in admissions and school programs.

The rules could give the Trump administration a new avenue to target Harvard’s tax-exempt status as the Justice Department pursues several investigations into alleged racial discrimination at the University. They would also give the administration broader leverage over private schools it says are violating the Supreme Court’s 2023 decision banning race-conscious admissions.

This summer, the Justice Department determined that five medical schools and one law school were unlawfully discriminating in their admissions practices. It is in the middle of several other investigations, including one into admissions at Harvard College, Law School, and Medical School.

To crack down on universities, the IRS regulation seeks to broaden a Supreme Court decision that upheld the revocation of Bob Jones University’s tax-exempt status for violating “fundamental public policy” — in that case, its provisions prohibiting interracial relationships.

The new IRS regulations move to classify “all forms of racial discrimination in education, regardless of the intent behind or the legality of such discrimination” as contrary to the “fundamental public policy” of the U.S. The proposal covers educational policies across admissions, athletics, programming, and scholarships.

The rules would take effect next summer and apply to private educational institutions, including trade schools, primary and secondary schools, and professional schools. A press release accompanying the guidelines estimated the proposal could affect as many as 18,000 institutions.

Though the Justice Department has not yet concluded that Harvard engaged in unlawful racial discrimination, the department has several open investigations into potential violations of the Supreme Court ruling.

The Education Department and Justice Department are each investigating admissions at the University over allegations of discriminatory preferences based on race.

Those investigations became stuck in legal limbo after Harvard refused to comply with requests for comprehensive, individualized student records. The Justice Department sued the University in February for allegedly slowwalking the investigation by withholding information, and the Education Department’s investigation was folded in months later.

The Justice Department is also pursuing a separate probe into Harvard’s financial aid awards to determine whether donors based in China and Hong Kong had given gifts that illegally favored foreign students. A Crimson analysis found that of roughly $36 million in gifts from China and Hong Kong, only $4 million favored students from the named country.

The rules also add teeth to social media threats made by President Trump last year to pull Harvard’s tax-exempt status.

In April, less than a day after the University rejected the administration’s demanded reforms, Trump argued that “Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST.” CNN reported at the time that the IRS started making plans to revoke Harvard’s tax exemption, though nothing appeared to come of the effort.

The University will already be paying significantly more this year after the government hiked the tax on Harvard’s endowment from 1.4 percent to 8 percent — an expense that is forcing Harvard to rethink its finances.

A spokesperson for Harvard did not immediately respond to a request for comment.