Twenty attorneys general ask IRS to withdraw private school rule, warning of court fights over donors' gifts

Attorneys general from 19 states and the District of Columbia have asked the IRS to withdraw a proposed rule that could end the federal tax exemption of private schools with race-conscious programs, arguing it would upend gifts that donors restricted to particular students. Their comment letter is dated October 30, 2026. California Attorney General Rob Bonta announced it on November 2, a day before the comment deadline. California, Massachusetts, Minnesota and New York led the coalition.

What the rule would do

The proposed regulations, titled "Racial Nondiscrimination in Private Schools" and published on September 4, say a private school cannot count as "operated exclusively for exempt purposes" if it keeps a policy or practice of discriminating by race, color, or national or ethnic origin in admissions, scholarships, athletics or other programs, "for any purpose." The notice's regulatory analysis says the rule would further define race-based action meant to ameliorate societal discrimination as a form of discrimination.

The change would reach private primary and secondary schools, colleges, professional and trade schools, and universities. It would also delete language in a 1975 IRS procedure, Rev. Proc. 75-50, that says a policy favoring racial minority groups is not racial discrimination when it is meant to promote a school's nondiscriminatory policy.

Schools rebranding race-based preferences as equitable, inclusive, or diversity-enhancing does not change their discriminatory nature.

The dispute over restricted gifts

The attorneys general say the proposal misreads state charity law. Every signatory state, they write, has enacted the Uniform Prudent Management of Institutional Funds Act, under which private schools that administer scholarships or endowments for protected classes are generally charitable trustees. Such a trustee cannot change a gift's purpose unless the gift allows it, or the purpose has become unlawful, impossible, impracticable or, in some states, wasteful. Attorneys general must be notified and heard, and most large gifts need a court's approval, the letter says.

The states predict that their "cy pres litigation dockets", the cases over changing a gift's purpose, "will exponentially increase," diverting resources from work such as detecting charitable fraud. They also argue that the rule subverts civil rights laws, infringes the First Amendment rights of donors and charities and violates the Administrative Procedure Act.

Both sides cite Bob Jones

Each side invokes Bob Jones University v. United States, the 1983 Supreme Court decision that, as the letter describes it, upheld revoking the exemption of two private schools that barred Black students and interracial dating and marriage. Treasury's September release lists it, with Brown v. Board of Education and Students for Fair Admissions v. Harvard, as the basis for the change, and says schools could still use race-neutral criteria such as family income, geographic location or first-generation status. The states stress the Court's limit: withholding favorable tax treatment is appropriate "only where there can be no doubt that the activity involved is contrary to a fundamental public policy." They call the rule "yet another effort by this Administration to eradicate lawful diversity, equity, and inclusion programs and policies."

What happens next

Comments had to arrive by November 3. Treasury and the IRS say they expect to finalize the regulations, with any necessary changes, before May 31, 2027, and to apply them to taxable years beginning after that date. A hearing notice schedules a public hearing for December 2 at 10 a.m. Eastern, but says it will be canceled if no speakers' outlines arrived by November 3. A Federal Register search on November 5 showed no later notice on the docket, REG-119986-25.