IRS Rule Could Strip Private Schools' Tax Status
Treasury proposal would target private schools with race- or ethnicity-based admissions and scholarship preferences.
Updated on Nov. 14, 2026 in College Applications
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The Treasury has proposed an IRS rule that could strip federal tax-exempt status from private schools nationwide with race- or ethnicity-based admissions and scholarship preferences. Kamehameha Schools has asked in written comments to be explicitly excluded from the rule.
Why it matters
The Treasury says the proposal follows President Trump's push to end race-based preferences, which it argues are unfair even when meant to remedy past discrimination. Hawaii's independent schools, represented by the Hawaii Association of Independent Schools, oppose the proposal, which would affect private schools across the state.
The proposal would apply to policies deemed discriminatory based on race, color, or national or ethnic origin, and the Hawaii Association of Independent Schools represents 98 nonprofit independent schools statewide. Whether the rule will change in response to comments has not been determined.
The players
Kamehameha Schools
A private education institution in Hawaii funded by the estate of Princess Bernice Pauahi Bishop, known for its Native Hawaiian admission preference.
Hawaii Association of Independent Schools
A statewide association representing 98 nonprofit independent schools in Hawaii, which opposes the proposed IRS rule.
The details
The proposed rules state that schools must work with donors to remove conditions on donations, and Kamehameha Schools cited congressional protections, court decisions and earlier IRS findings supporting its Native Hawaiian admission preference. Affirmative action programs were permitted under the Bakke decision of 1978, and the proposal could make tuition revenue and rental income taxable for affected schools.
Timeline
December 2, 2026: Public hearing on the proposed rule is scheduled.
May 31, 2027: Proposed rules are set to take effect on or after this date.
Legal Context
The proposal marks a departure from the 1978 Bakke decision, which permitted affirmative action programs, by using federal tax-exempt status as the enforcement lever against race-based admissions and scholarship preferences at private schools. Kamehameha Schools' comments rely on earlier court decisions and IRS findings that the proposal would have to reconcile with its Native Hawaiian preference.
Families considering Hawaii's independent schools could see changes in admissions and scholarship eligibility if the rule is finalized, since schools that lose tax-exempt status may face taxable tuition and rental income. Parents comparing private school applications should watch whether schools they are considering change their preference policies.
The takeaway
Families planning private school applications should review each school's admissions and scholarship policies now, since the proposed IRS rule could change what those policies can be as early as 2027. Checking directly with schools about any upcoming policy changes will help applicants plan with accurate information.
What happens next
A public hearing on the proposed rule is scheduled for December 2, 2026, and the rules would take effect on or after May 31, 2027, if finalized.
Further reading
For more on how admissions policies shape student access, see College Applications coverage.
Source note: This article includes information reported by KHON2.
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