Proposed Rule Could Strip Private Schools' Tax Status

Private schools with race-based admissions preferences could lose nonprofit status, which could change tuition and aid for Hawaii families.

Updated on Nov. 14, 2026 in College Applications

Proposed Rule Could Strip Private Schools' Tax Status

Live Poll

Should the IRS be able to revoke tax exemptions from private schools over race-based admissions?

The U.S. Treasury has proposed an IRS rule that could strip federal tax-exempt status from private schools 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

Private schools nationwide could lose nonprofit status over admissions and scholarship preferences, which would change what families pay and what aid is available. The Treasury said the proposal follows President Trump's push to end race-based preferences.

The proposal covers admissions and scholarship policies deemed discriminatory based on race, color, or national or ethnic origin, and the earliest effective date is May 31, 2027. A public hearing on the proposal is scheduled for December 2, 2026.

The players

Kamehameha Schools

A private nonprofit school system in Hawaii whose Native Hawaiian admission preference is at the center of the proposed rule.

Hawaii Association of Independent Schools

A statewide association representing 98 nonprofit independent schools in Hawaii that opposes the proposal.

Internal Revenue Service

The federal tax agency whose proposed rule could remove tax-exempt status from private schools with race-based admissions preferences.

U.S. Department of the Treasury

The federal department that proposed the IRS rule, which it says follows President Trump's push to end race-based preferences.

The details

The proposed regulations state that schools must work with donors to remove conditions on donations that favor particular racial or ethnic groups. Kamehameha Schools cited congressional protections, court decisions and earlier IRS findings supporting its Native Hawaiian admission preference in its written comments. If the rule applies, tuition revenue and rental income could become taxable for Kamehameha Schools, and the school may be in danger of losing its 501(c)(3) tax-exempt status.

December 2, 2026: Public hearing on the proposed rule is scheduled.
May 31, 2027: Earliest date on which the proposed rules would take effect.

Education Landscape

The proposal comes against a long history of court rulings on race in admissions, beginning with the 1978 Bakke decision that allowed affirmative action programs. It would apply that line of thinking to the tax status of private schools, a question that has had less federal attention than public college admissions.

Families considering private schools with race- or ethnicity-based admissions or scholarship preferences should ask those schools how the proposal could affect their aid and admissions. Applicants can check the public hearing and effective dates as the rule moves forward, and should direct questions about their own aid to the school's financial-aid office.

The takeaway

The proposal could reshape how private schools handle admissions and scholarships, and its final terms are still open. Families weighing private school options should keep the December 2, 2026 hearing and May 31, 2027 effective date in view and ask each school's financial-aid office how it would respond.