Private School Tax-Exempt Status at Risk
In what could be one of the most consequential actions for K-12 independent schools, the federal government, on September 3, 2026, announced they have issued proposed regulations to end federal tax-exempt status for private schools that engage in racial discrimination:
In the proposed regulations, they emphasize:
“Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature. Today’s Treasury and IRS proposed regulations establish a clear standard, and the institutions that continue to use discriminatory practices will no longer receive the benefits of federal tax-exempt status.”
How does the rulemaking process work? (source Gemini AI)
The rulemaking process is how government agencies create regulations to enforce laws passed by Congress. Because Congress writes broad laws, it delegates authority to specialized agencies to fill in the specific, technical details.
Most regulations are created through a three-step method called notice-and-comment rulemaking (or informal rulemaking).
1. The Notice (The Proposal) - Racial Nondiscrimination in Private Schools
Before a rule becomes law, the agency must research the issue and draft a rule. They publish this draft as a Notice of Proposed Rulemaking (NPRM) in the Federal Register, which is the government’s daily diary of official business. This notice explains:
The problem the agency is trying to solve.
The data or legal authority they are using to justify it.
The proposed wording of the new regulation.
2. The Comment Period (Public Input) - now until November 3, 2026
The agency must give the public a chance to weigh in. Anyone—including everyday citizens, businesses, and interest groups—can submit feedback, usually via Regulations.gov.
This window typically lasts 30 to 90 days.
People use this time to provide support, point out flaws, share data, or suggest better alternatives.
3. The Final Rule (The Law)
By law, the agency cannot just ignore the feedback; they must read and evaluate all relevant comments. They will then issue a Final Rule that includes a section responding to the major points raised by the public.
The final rule is published in the Federal Register.
It generally takes effect at least 30 days after publication, giving the public time to prepare and comply.
What is at stake for independent schools if they lose 501(c)(3) status?
Losing tax-exempt status represents an existential threat to the business models of most independent schools.
Loss of Charitable Deductions: If a school loses its 501(c)(3) status, donors can no longer claim tax breaks for their contributions. This could cause a steep decline in annual giving and capital campaigns.
Tax Liabilities: Schools would be subject to federal corporate income taxes and could lose state and local tax exemptions (such as property taxes), leading to tuition hikes and budget shortfalls.
How did we get to this point where the government has to intervene?
Regulatory action has been triggered by a breakdown in self-governance and the influence of external accrediting bodies.
Independent schools have been operating without government oversight, accountable only to their boards. This model failed when boards did not defend their missions against ideological interference.
The boards of trustees have allowed their schools to be taken over by social justice activists trying to “right” past wrongs. Rather than maintaining their unique institutional missions, boards of trustees permitted a culture that prioritizes “special” spaces and practices for specific groups.
Promoting inclusion, they excluded dissenters and created environments in which certain groups were favored, altering culture and policies for those demanding a sense of belonging.
The federal government is using tax-exempt status to penalize schools that create separate, race-conscious environments under “belonging” and “inclusion” standards.
Parents and students suffer and lose trust when schools don’t live up to their claims.
How could schools preserve their tax-exempt status?
Declare their independence from NAIS.
While the IRS sets tax rules, accreditors like NAIS and ICAISA shape standards and daily practices for 501(c)(3) schools.
We recently highlighted the opportunity costs of accreditation and how accreditors continue to claim support for each school’s independence in establishing and fulfilling its unique mission, while at the same time compelling DEIJB and treating it as a benchmark of high-quality modern schooling. NAIS has not been accountable to anyone for the last 64 years. It has charged itself with shaping the independent school landscape, pushing schools to prioritize social engineering and to condemn parental values rather than instilling knowledge.
Completely dismantle DEIJB programs.
The Treasury Department warns that an incessant focus on identity, affinity groups, and DEIJB programming is incompatible with 501(c)(3) status. Rebranding these initiatives as “equitable” or “inclusive” will not avoid enforcement.
If DEIJB remains embedded in schools, some daily operations could face compliance scrutiny.
The following areas are likely to be under review, although this list is not exhaustive:
Student Life: School bias reporting systems (the “impact over intent” rule) harm students by compromising due process, restricting free speech, and creating an environment of over-reporting and fear. Constant peer-to-peer surveillance fosters an atmosphere of distrust and anxiety, undermining the community trust these schools aim to build.
Faculty and Staff: Hiring, retention, professional development, and grant processes.
Vendor Management and Business Operations: Diversity spending targets and procurement audits.
School Governance: Trustee selection and board composition, strategic planning, lack of truth in advertising, and a definition of diversity that does not include or support viewpoint diversity.
Who is leading the opposition to the proposed rule 119986-25, Racial Nondiscrimination in Private Schools?
NAIS hosted a legal webinar on the proposed IRS rule, covering its impact on tax-exempt status, legal background, risks for independent schools, and next steps, such as the comment period and potential legal challenges. NAIS made a point of warning that the rule could affect all school operations, calling out inclusion and belonging initiatives, which suggest that NAIS appears willing to risk members’ nonprofit status to protect DEIJB.
What is NAIS most worried about? Asked another way, what is NAIS without DEI?
How To Submit Comments
Because this is only a proposal, it is not yet law, the public, school administrators, and legal experts have an open window to submit feedback. Comments can be submitted anonymously, but it is helpful to mention the school.
Deadline: The public has until November 3, 2026,11:59 pm EST to submit written comments or request a public hearing.
Steps to Submit a Comment:
Go to this link: https://www.regulations.gov/document/IRS-2026-1189-0001
Select the blue “Comment” button at the top left of the page.
Begin your comment by stating your position and including the identifying code. For example: I (support/reject) the proposed regulations in REG-119986-25, “Racial Nondiscrimination in Private Schools.
If you support the proposed regulations, continue your comment by sharing feedback that sheds light on what is happening in schools—show examples of harm, discrimination, and DEIJB.
After November 3, 2026, the IRS will review the feedback and draft the Final Rule.
It’s time to reclaim the purpose of independent schools and allow them to clarify and live their missions honestly.
For hundreds of years, independent schools have been a resource for families seeking high-quality education. Many were founded on Judeo-Christian values and principles of excellence, rigor, civil discourse, intellectual challenge, and a relentless pursuit of truth. Schools have abandoned their traditions of excellence for new pedagogies that are discriminatory, ideological, conformist, and deeply illiberal.
Independent schools now face a pivotal moment. They must reconsider the policies and practices that led to federal intervention. Schools must uphold their missions, fairness, and transparency, and rebuild trust with families—or risk losing the autonomy and support that has defined them.
The loss of tax-exempt status would threaten their very existence.
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